CFD Trading & Best CFD Brokers
List of the best local CFD Brokers offering a range of brokerage fees, trading markets and CFD trading platforms. Click on the provider names to read our editor review.
Contracts For Difference ( CFD) is a great financial instrument which was started in the UK many years ago and has now expanded globally.
Why Trade CFDs?
The primarily reason is that CFDs allows the trader to short sell a counter with ease. Without CFDs, the trader would have to use stocks to short and without leverage.
How to choose the top CFD Broker
- Broker reliability.
- Brand, popularity, ratings.
- Instruments - markets.
- Platform support and education.
United States CFDs Brokers Review
|CFD Broker||Rating||Markets Available||Fees||Open an Account|
|1||Shares, Indices, Forex and Oil||Spread From 0.1 and 0.2% Commission||Open an Account!|
|2||Precious metals, forex, energies, stock and indices||1 pip spread||Open an Account!|
|3||CFD- Forex-indices- stocks- commodities - no commission no fees at all – low spread 0.3- Accepting USA clients.||Open an Account!|
Market Maker vs Direct Market Access?
You will say it is all about commission. But these are two types of brokers or models: Market Maker (MM) and Direct Market Access (DMA). So what is the fundamental differences before choosing the one that’s right for you.
Direct Market Access (DMA) CFDs provide the prices and liquidity present within the underlying exchange (e.g. the ASX). DMA CFD orders are passed directly through to the physical market with no dealer or market maker intervention, resulting in real time execution and true market prices. This provides complete order transparency, allowing clients to see their orders processed in the underlying market.
So what is the difference? Market Maker (MM) CFD provider is just a Market Maker. They create their own market and prices which are based on the actual exchange. There are some noteworthy advantages of trading MM CFDs.
- They can provide quotes on stocks that may otherwise be illiquid or potentially compensate for a lack of market depth at a particular price.
- Also have the ability to allow the trader to gain exposure to a wide range of exotic markets, indices and currencies plus the added protection of guaranteed stop losses.
- Market Makers provide lower brokerage costs.
There is also a third type is ASX Listed CFD. It offers added protection because only CFDs listed, traded and cleared on ASX are used, providing a fully regulated and transparent market. This third type of CFD has been created in response to the extra risk of the counterpart investing your money with CFD providers.
Fixed vs Variable Spreads
Why most often the brokers offer a choice of fixed and variable spreads and which is best? The answer to this question depends on your experience and trading strategies.
As you might be knowing that the spread is the difference between the price at which you can buy and sell currency. If your broker quotes EUR/USD at 1.5602/05, this means that you can buy 1 EUR from him for 1.5605 USD or sell him 1 EUR for 1.5602 USD. If you have problems remembering which of the buying and selling price comes first, the rule of thumb is that you'll always pay the higher price and sell at the lower. The difference between the buying and selling prices is known as the spread. In this example, the spread is 3 pips wide.
Unless your broker charges a commission on trades, your broker will make money from the spread. This is where understanding the difference between fixed and variable spreads comes into play.
If your broker quotes fixed spreads, the difference between the price at which you buy and sell currency will be constant at all times, regardless of market conditions. You'll find that spreads vary across currency pairs. They can be as low as 2 to 3 pips for the Majors or widen above 50 pips for more exotic currency pairs.
If your broker quotes variable spreads, the difference between the price at which you can buy and sell currency will change with market conditions. Under normal market conditions, the typical EUR/USD spread should vary between 1 and 4 pips. However, it can widen up to 8 pips and beyond under volatile market conditions.
If you're new to trading, open an account with a fixed spread broker. This will provide you with a more predictable trading environment, helping you learn to trade better.
Are CFDs Providers Regulated in Australia?
Do you know nearly half of active traders use the Direct Market Access (DMA) model when trading CFDs. About 52% of traders use the Market Maker model, citing ease of use as the reason for usage. 1% of the CFD trading population in Australia uses the exchange-traded model, preferring to trade CFDs on the Australian Stock Exchange (ASX).
These models all have implications on the regulatory framework at play in the Australian CFD market. All companies offering CFD products are required to be registered under the appropriate category with the Australian Securities and Investment Commission (ASIC).
ASIC has what it terms “client money handling” rules, which guide the way the CFD brokers handle money belonging to its clients. These rules were released in July 2010. Under the tems of the client money handling rules, ASIC requires all CFD brokers in Australia to do the following:
All money in client money accounts operated under margin rules must be put in a segregated or trust account, which protects the wealth in case of closure or bankruptcy of the brokerage firm.
All CFD brokerages (also known as AFS licensees) must ensure that only client money, interests on client money or interest on permitted investments using client money/the proceeds of the realization of permitted investments, must be paid into the client money accounts. Brokers are therefore not allowed to deposit their own money into these accounts.
AFS licensees are to clearly and prominently disclose in its Product Disclosure Statement (PDS), information on how they deal with client money and when, and on what basis, it makes withdrawals from client money; and the nature of the counterparty risk for client money used for derivatives.
AFS licensees are also to inform their clients about the counterparty risks they face when they trade CFDs, especially for brokers who operate a market maker model.
What is CFD Leverage and how much do you need?
When we talk about Leverage it is you are to control the amount of leverage that you have in your account. What this means is that the total exposure you have relative to your account size is up to you.
People who trade at more than 10 times leverage are really gambling their trading account. So if you had $10,000 cash you could access up to say $100,000 or even $200,000 worth of positions. If the market moved 5% against your $200,000 in positions then you have just wiped out your account.
CFD leverage = Total exposure / Account size
Therefore if you had $100,000 in total positions with a $10,000 account size you would be trading at $100,000 / $10,000 or 10 times leverage.
Here are some guidelines when using CFD leverage.
CASH | LEVERAGE | TOTAL EXPOSURE | LEVEL OF EXPERIENCE
$10,000 | 1 | $10,000 | Inexperienced
$10,000 | 2-3 | $20,000 – $30,000 | Traded shares
$10,000 | 5 | $50,000 | Experienced Trader
$10,000 | 7-10 | $70,000 – $100,000 | Professional Trader
$10,000 | 10+ | $100,000 + | Leverage too high. Highly skilled intraday trader with very tight stops
What is margin Call?
Trading statements often seem confusing. It is important to know when it is that you will go into a margin call situation. Often traders only look into how and when it is they will receive a margin call, only when they actually get the call.
To assess whether you are due to pay margin, you must add up all the margin requirements for all your open positions on your account. If the cash on your account and the overall profit or loss value of your open positions, otherwise known as the surplus is less than the margin requirement on your account, you will be required to fund the shortfall- a margin call.
What is slippage? Can it happen to you?
Slippage can occur if markets ‘gap’, this is when prices either jump or fall from one price to another without trading at every increment in between.
This can happen when the market adjusts to news; for example if a company announces worse than expected profits then its share price may fall from 100p to 90p, without trading at 99p, 98p etc. If this were to occur then you would be unable to execute orders at prices where the underlying market did not trade, orders would be filled at the next available price.
To avoid this slippage it is better to use DMA and place a limit order.
Can a CFD broker close your position?
The holder of a CFD can close his/her position at any time, giving rise to the 'difference' element of the CFD. The contract is revalued at the close of business each day and any resulting margin calls are made. Most companies charge a commission for both opening and closing a trade.
We recommend testing your knowledge with our Trading Tests.
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|Broker||Rating||Markets Available||Fees||Open an Account||Shares, Indices, Forex and Oil||Spread From 0.1 and 0.2% Commission||Visit Website||Indices, Forex, Metals, Shares||From 0.1 Raw Interbank Spread||Visit Website||CFDs - Foex, Indices, Stocks, Commodities, Bonds, Interest Rates||Variable spreads from 1.2 and small 0.1 commission on Shares||Visit Website|
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