Contracts for Difference (CFD) is different from stocks as it allows you to own an actual physical asset or security. CFD trading also involves a contract that requires the losing party to pay the difference of the opening and closing price of the underlying asset instead of delivering physical goods.
It is mainly designed to replicate the advantages of owning the underlying asset without really owning one. More importantly, CFDs only require a small deposit amount which is your key to opening a trading position. Leverage is used in CFDs and therefore, it mirrors gains and also magnifies losses if not properly used.
CFD brokers play a significant role in obtaining success in CFD. Here are some of the advantages that attribute to the use of CFD brokers;
Since you are not classified as a full-time trader, the money that you are going to make when trading CFD is all exempted from tax.
With the short-term financial rewards, you can have much bigger returns on your long-term investments.
You can make a profit despite the rise or fall of the asset’s price.
Important Points To Consider When Picking The Right CFD Broker
There are few things that need to be considered when picking a broker. Check them out below;
A Regulated Broker
First and foremost, before dealing with any online broker, you have to see to it that the broker is regulated. Different countries follow different regulations when it comes to online trading. In the United Kingdom, brokers must be regulated by the Financial Conduct Authority (FCA). For other EU-based authorities, they will also be governed by the same organizations but since there is Brexit, it is much likely to find a broker regulated under FCA.
The Trading Fees
Trading fees are more like a commission fee that is charged by the broker to the trader before they open a trading position in the market. There are a lot of brokers that you can choose from and these brokers have their own financial and competitive incentives like no transfer fees or no minimum deposits.
Before you enter a trade, you must first calculate the trading fees that are involved. If your broker offers a demo account where you can trade even without spending real money, then it would be good.
What are the assets that the broker holds? How many is it? Are they strictly on CFD and Forex trading? Do you want a broker that excels in long-term investments too?
When choosing a broker, you must also have a trading platform in mind. The broker that you choose must have the trading platform that you like to use. The ideal trading platform must have educational materials, ease of access, research tools and promote flexibility.
The Customer Service
A good customer service will be very helpful while you are at the stage of familiarization with CFD Trading. There are brokers that can offer you 24/7 help and there are others who are not available over the weekend. Are there any particular days where you mostly need help from the support? Give it a thought.