The key advantages of CFD trading are the opportunities to achieve relatively high profits or returns with a low stake and low costs. This financial product is a so-called leverage product. By using leverage, you multiply your investments without having to spend more money. A CFD broker in comparison emphasizes
- on the digital CFD advantages,
- a high level of user-friendliness,
- an easy entry and
- many practical features.
The broker test is about the risks associated with CFDs. The danger is well known, small investor accounts lose money when trading CFDs. This has now been proven by many recognized studies. Nevertheless, it is possible to take high returns in trading with leverage, commodities, currencies and indices without taking too much risk. In the following, we compile the essential characteristics of a good CFD broker in order to present you with the best conditions in a detailed and compact CFD broker comparison.
89% of small investor accounts lose money!
What is CFD trading?
In CFD trading, you will encounter highly speculative financial products as well as leverage products. These can lead to massive price losses. However, the loss is limited to the balance that is in the CFD account. First of all, you should deal in detail with the mode of operation and the individual terms, the leverage and the basic components of CFD trading, before you decide in the CFD broker comparison for an account and a provider.
In CFD trading, you can get an account from a low account management fee and speculate on stocks, indices, commodities, to be able to collect higher returns with a lower stake.
Small investors lose money in CFD trading. This finding has already been proven by a variety of studies. The trade with CFDs is associated with a high risk, but already possible from 0.00 euros. The best CFD brokers always point out the risks to you and give you the opportunity to also get a taste of different financial products through providers such as Admiral Markets.
What is the difference between CFD trading and stock trading?
Among the most well-known securities are shares. They are a securitized share of a shareholder in the equity of a company. In Germany, the German Stock Corporation Act (AktG) is responsible for the rights and obligations of the shareholder.
The trader is not a shareholder in the company when he buys the CFDs. He merely becomes the holder of a claim. The starting point is a derivative, which is derived from the underlying value based on the price of the CFDs. The underlying is called the underline. It can be shares, but also other securities, such as commodities and indices. Compared to the purchase of stocks and shares, the CFD investor participates in the price performance of the financial instruments of the providers. For this reason, CFD trading can be classified as financial contracts for difference.
In most cases, CFD trading takes place over the counter. You trade the CFDs as Over the Counter – short OTC. This means that they are not settled directly on the stock exchange through the CFD broker, but directly through the trading partners such as Société Générale. Société Générale does the hedging and secures the entirety of the position overhang, which is called exposure.
Development and history of CFDs
The major bank UBS developed the first Contracts for Difference in the 1980s. They wanted to use them to avoid the British stamp duty. At that time, every transaction with shares on the London Stock Exchange had to be taxed additionally with 0.5%. Today we know that contracts for difference are an invention from investment banking. Thus, there is a legal way to avoid stock exchange fees or taxes in over-the-counter trading between a trader and a CFD broker.
CFDs are financial derivatives that are traded over-the-counter as OTC trades. Behind the three letters stands “over the counter”. The trading volume grew with the beginning of the 1980s and the CFD market became larger and larger.
In Germany, we owe it to a decree of the Federal Financial Supervisory Authority – BaFin for short – that private investors are allowed to do CFD trading without margin requirements since 2017. This is an important safety criterion, so that traders do not lose more than the capital that they have invested and that is in the account with the provider. Another restriction was decreed by the European Securities and Markets Authority in August 2018 for the entire EU territory. The restrictions amounted to the elimination of the margin requirement for CFD trading as well as the minimum margin requirements for the operation of maximum trading.
How does CFD trading work?
With a CFD broker, investors have the opportunity to move more capital in the markets with lower or identical capital investment. Here, with a direct investment, you are always tied to your underlying asset and the initial assets. Participate in rising and falling prices. The profit or loss in the trading event, which in turn is calculated from the difference between the exit price and the cost price of the CFDs.
What is Metatrader 4 – automatic CFD trading in broker test
Metatrader 4 or MT4 is one of the most popular online trading platforms that traders use for automated trading. On the user interface it is possible to perform technical analysis, which can be used flexibly in other trading systems. Accordingly, Metatrader 4 is a program that many experienced investors use – with Forex trading or with CFD trading. The popularity of Metatrader 4 in the CFD broker comparison is due to the customization of trading requirements and strategies to the program. With their help, you have the opportunity to pre-set the parameters at a broker, to which you then automatically trade, open and close positions.
CFD stock apps – mobile trading
In the CFD broker comparison, the providers that make the difference are those that offer an account in the desktop version with a clear dashboard and all the movements, and a free stocks CFD app. Meanwhile, the applications for mobile trading are part of the standard that more and more traders expect from a broker. For the most part, you can access a demo account via the CFD app and keep track of costs, spreads, leverage and the account from day one.
Pay attention to the compatible operating systems, often you can download the stock apps on iOS and on Android. Thus, you are compatible with most smartphones and tablets. All data that you enter in the app starting from the CFD broker comparison should be encrypted in the system and never fall into the hands of third parties. In the broker comparison, you can then assume that you have landed with a reputable provider where there are multi-layered options for CFD trading.
What makes a good CFD broker?
A good CFD broker offers investors a wide range of opportunities, without order fees. Excluded from this are the shares and futures CFDs. With CFD trading, you benefit from transparent financial products without maturities or time value losses. You speculate on the fall or rise of prices and have the opportunity to speculate on a high volume with a very small capital investment.
In the search for a suitable broker, the choice has increased enormously. Leading platforms such as Admiral Markets score with versatile offers and investment opportunities. You can trade CFDs, buy commodities, currencies and indices, and take on stocks CFDs if you have high hopes for their price performance. Versatile ways to buy and sell CFDs are what many traders look for in a good broker. At the same time, the top CFD brokers score with very low fees, a clear trading platform and a stock app for mobile trading. The trading features of CFD trading make themselves positively felt in the broker comparison. Who wants to perform this, must already be a few years on the market.
More and more classic trading platforms appreciate the advantages of online traders. They offer especially new customers the chance to try a free entry into CFD trading with a demo account. You should consider whether you already know enough about CFDs to invest your cash in CFDs. If the broker offers the chance to trade for free, you should definitely make use of it and get a closer impression of the operation, the broker CFD, the associated risks and trading opportunities.
When choosing a provider for CFD trading, be sure to check the valid certificates and the supervision of the Federal Financial Supervisory Authority BaFin. In this way, you can assume that there is a legal deposit insurance. If the CFD broker should ever go bankrupt, your assets will remain untouched and will not be in danger at any time. Some of the leading CFD brokers offer further security-related services and limits for more security, which apply to the leverage as well as with regard to the account, stocks, commodities and currencies.
How do CFDs work?
Whether with or without a demo account: Most should have gotten at the closer impression of what is actually meant by CFD trading. Now we want to take a look at how CFDs work. Thereby we dedicate ourselves to the most important concepts in the CFD trade:
- the trading sizes,
- the spreads,
- the holding period,
- profits and losses.
- Spread and Commission
You can find CFD prices in two quotations. In the technical language we talk about the bidirectional prices. Depending on the broker, the functions differ. But the price distinction always remains the same: there is a selling price and a buying price. By the selling price or the bid price, we mean the price at which you open a short CFD. The ask price or the purchase price opens a long CFD. In most cases, the broker will have the selling price of the stock CFDs slightly lower than the market price. The buy prices are often slightly higher. These two quotations result in the difference, which is called the spread.
In most cases, the spread covers the costs incurred by opening a CFD position. For this reason, the selling and buying prices must be aligned with the fees incurred to complete the CFD trade. It doesn’t matter if you use leverage or a demo account. These rules for trading are the same everywhere and apply to your account as well.
The trading size
Stock CFDs are traded in so-called lots. This means standardized contracts. The underlying should correspond to the size in which this CFD is traded on the market. We will illustrate this with a short example:
On the commodity exchanges, for example, the commodity silver is traded at 5,000 troy ounces per lot. In turn, you can assume that a silver CFD is traded for 5,000 troy ounces. A contact is usually equivalent to a share on the exchanges. If we now again assume 500 CFDs contacts, you would buy 500 shares, for example. At this point it should become clear that CFD trading is much more similar to traditional trading than we think it is. This is what differentiates stock CFDs from other options, spreads and pips when trading.
The holding period
There is hardly any fixed expiration date for CFD trading. You close a position or CFD by placing it in the opposite direction as you did to open the position. For example, if you have bought 500 silver contracts, you must sell them again to close the position.
Note: If a CFD position remains open at the end of the day, the trader usually has to pay fees for holding it overnight. A trading day ends in most cases 23:00. Detailed information can be found in the CFD broker comparison. These are fees to the broker for holding the capital. These fees the broker has only lent to the trader for opening the leveraged position.
Even the forward contracts usually cannot avoid these fees. With these CFDs, the expiration date at a certain point in the future is already factored in. All these financing fees can be found listed in the spreads, which is why they play an unconditional role in the CFD broker comparison.
Make it a point to find a broker where you can turn all the screws yourself and find a wide range of options and CFDs. This can be achieved by high brokers, which rise in the rankings and have scored very high marks in the broker test. Programs such as Metatrader 4 help you take a lower risk of losing your money. You should be familiar with CFDs and know exactly what you are speculating on in the markets and when it is time to pull the financial handbrake.
The profit and the loss
Experienced and inexperienced traders are well advised to calculate the profits and losses on CFD trades with an account from day one. Do not run the risk of losing too much money and speculate with all the assets. To find a broker that suits you, you should look at the projected losses and profits. In principle, you do not need to do anything more than multiply the number of contacts by the value of each contract, that is, the so-called per-point movement. The sum that results from this you multiply by the point difference that comes from the closing price and the opening price.
In the broker test, there are providers that already provide digital calculators ready-made. It is your money, you should consider what to do with it and first calculate the expected profit and loss. If you have a question about the account or the market maker, email the broker and open a demo account first. It can be helpful to look at the experience
with the account from the 1st day,
the broker,
the demo account and
the support on the phone Holtine or via e-mail
to take a closer look and then decide on the most suitable provider.
Do you want to accurately calculate the profits and losses, you still need to subtract all the fees from CFD trading, which they have paid so far on the trading platform. This includes, for example, additional costs for guaranteed stops or the order commission. Make a note of all the fees and costs you pay, regardless of how much they are.
How can traders trade CFDs?
With a good CFD broker and benefit from multiple trading opportunities on the available underlying assets. These can be assigned to different asset classes, such as
- Indices
- Bonds
- Shares
- Currencies
- Futures
- Commodities
In CFD trading, you move at the same time on different markets and rely on a personal trading strategy or that of experienced traders. Basically, CFD trading offers the possibility to trade on liquid and well-known underlying assets. In many cases, these are even commission-free. Take a look from the depot opening necessarily on the conditions that are offered in CFD trading for the traders.
For the most part, additional financing costs are only incurred with regard to overnight positions. Meant are the positions that accrue when you hold the bonds overnight.
Commodities and precious metals
When it comes to commodities, there are unlimited possibilities. Especially in the energy sector, sustainable energy and all kinds of natural gas and oil are still very popular. With one click you can bet on positions such as orange juice, sugar, cocoa or coffee but also on precious metals such as silver, platinum, palladium or gold.
Stock indices
Stock indices are available globally. The traders trade with a CFD broker either only on the leading indices from Austria, Germany or Switzerland or obtain your leading indices from the USA, England or Japan. On the program of many good CFD brokers are indices of the second series. In this area, traders can select the reference market. It is possible to participate in the futures market, such as Eurex, or in the cash market, such as Xetra.
Futures
With a good CFD broker, you can trade commodities. You can profit from the desired development of well-known indices of the whole world or from Europe. These fall into the area of food, chemicals, banks or beverages, but also industrial goods, telecommunications, technology and health. With a trading account with a CFD broker, it is crucial to speculate on the price of the Fultures without purchasing them from the provider itself.
What is the difference between CFDs and futures? Fultures are futures contracts that involve a financial instrument in the future. For the CFDs, in comparison, you set a fixed date and a specific price. This may mean, for example, that the underlying asset of the CFD will be owned by you at the time you have set in advance. As the name suggests, the investor must first acquire the futures through the exchanges. The value of the Fultures is based on the current market sentiment and movements. The good brokers in the comparison give you the opportunity to trade Fultures as well as the CFDs.
The currencies in CFD trading
Many investors are interested in currency trading at a provider comparison. Here, almost every CFD broker has identical very popular currency pairs on which is often traded. These are for example
EUR/ USD
EUR/ JPY
EUR/ GBP
EUR/ CHF
This offers a wide range of very exciting opportunities, for example, the ratio of the Swedish krona and the Australian dollar to the euro. Call the CFD provider for the full list of underlying assets available for CFD trading.
Stocks & CFD Trading
CFD trading is so popular because it is so diverse and offers so many different options that include several hundreds of individual stocks from every European country imaginable. From the CFD broker comparison, the underlying stocks are offered in Finland, France, Netherlands, Norway, Germany Belgium and Poland. Of course, depending on the provider, many more countries are available. You can access stocks around the world, depending on how many stocks, indices, commodities are available in CFD trading on the platform.
How to trade on rising and falling prices at the CFD broker?
CFD trading offers every trader the opportunity to speculate on rising and falling prices and profit from them. In technical language, the rising prices are called long trading positions and the falling prices are called short trading positions. With a CFD broker, you can go long or short at any point in time. This brings into play a great advantage in trading directly with the particular underlying asset. Let’s look at the two options a little closer at the CFD broker:
Go long – you buy a CFD when you expect the price to rise and go long. Later, you want to sell the CFD at a higher price.
Going short – When a trader expects a falling price at a CFD broker, he goes short and sells a CFD first. Later, he wants to buy back the CFD at a lower price.
In CFD trading, there are no limited terms. This brings the advantage that you are not subject to any time value loss. Exceptions are the so-called futures CFDs, in them is a defined contract end with a specific maturity date. With one of the best CFD brokers you have the possibility to hold your CFD positions for days, weeks or months. For a longer period, pay attention to the conditions that a CFD broker brings for holding overnight positions. Basically, when trading CFD stocks, day trading, i.e. short-term trading, can be distinguished from medium-term trading.
What does it mean to position short and long in CFD trading?
With CFD trading you speculate on falling and rising prices in comparison. With a CFD position, you can replicate your conventional investments and also make a profit if the market price falls. In the technical language, it is called to position long and to position short. For example, if you think the Apple price will fall on the stock market, you have the opportunity to sell it with the appropriate stock CFDs. The profit aims at the difference in value between the closing price and the opening price in comparison. In this case, you will make a profit if Apple’s stock price falls. A loss would occur if, again, the price rises.
It makes no difference whether you position yourself long or short: Only when the position is closed do you find out whether you made a loss or a profit. Small investors lose in trading because you speculate wrongly. This has nothing to do with the services at CFD brokers.
With a demo account and various learning opportunities, everyone has the opportunity to find out how to trade CFDs. Give preference to the broker that offers you additional services such as tutorials, videos, guides and blocks in the broker test to learn more about mobile trading and CFD trading on the desktop. With these CFD brokers, you trade without taking the high risk. From there, it is recommended to always bet small amounts and never speculate your entire assets. In the worst case scenario, you should always keep in mind that you can lose all your assets with one provider.
How does hedging work with a CFD broker?
You have the option to use CFDs for headging in your portfolio. In this case, traders can hedge against losses and minimize the risk – CFD small investor accounts lose money. If a trader suspects that some of the assets in the portfolio are losing value, he can offset those losses with a CFD short sale in comparison. They go into a CFD short position and choose the same equivalent value for it. From the current profits of the short trades it is possible to balance the losses in value.
Small investor accounts lose money if you do not know these countermeasures. Thus, it is recommended to check the security-related set screws during a broker test to protect against a total loss.
The best conditions for overnight positions at the CFD broker
Deposit a security deposit to purchase a CFD. As a rule, the security deposits range between 3% and 20% of the CFD positions. The remaining portion is provided by the CFD broker as a trading partner. Compensation payments are calculated if you perceive open positions in CFDs with a CFD broker beyond the actual close of trading. This is called overnight trading. The basis for the calculation of the costs, the yield and the losses is the closing price. Thus, in the case of open buy positions, the CFD broker invoices the traders for the settlement payments. While in the case of open sell positions, the traders receive the credit.
Attention, small investor accounts lose money in CFD trading if you speculate. You should always take this risk into account. In turn, this means that you can speculate on stocks, indices, commodities with a comparatively small stake, but in return you accept an increased risk of losing all your money.
When trading CFDs, you should have sufficient know-how and expertise to benefit from the decisive advantages in terms of indices, commodities and currencies in comparison. This makes trading CFDs diverse and exciting at the same time for many investors. You can earn something extra on every trade. The CFD brokers in comparison score with diverse services, transparent fees and training opportunities.
Costs and services in the CFD broker comparison
Small investor accounts lose money in CFD trading, if you choose the wrong CFD broker on the one hand, and on the other hand without preparation put all their assets on promising courses. The good CFD brokers in the test offer a demo account. This is a free digital account that the CFD broker loads with money. Thus, it avoids the risk of losing money prematurely and convinces them of its practical features when trading CFDs.
Whether commodities, currencies or stocks: the services are diverse. It depends on your know-how and background knowledge, which you test extensively with digital assets and a free demo account. After that, you have the chance to find the CFD broker that best fits your budget, requirements, risk tolerance and portfolio.
What are the advantages and disadvantages of CFD trading?
You need to use a fraction of your assets with a CFD broker in order to achieve a significant amount for the investments. This is one of the most distinctive features of trading CFDs. For this, you deposit a security deposit called margin. The particular rate for the margin is based on the underlying assets in CFD trading. You need to deposit less capital with the CFD broker and you can achieve higher trading positions. The secret of success is the leverage, because the CFDs belong to the leveraged products.
The leveraged capital differs significantly if you invest 1000 Eur each in shares CFDs and the shares with a margin of 20%. Significant differences arise in the leveraged capital. For example, you can achieve up to 20 times your stake when buying index CFD. For the 1,000 Eur capital, this means in the end 20,000 Eur Index CFD as leveraged capital in Eur. Significant impairments can apply to the account movements on the trading platform of the CFD broker for the profits, but also for the losses. Thus, at this point it becomes clear that there can be serious disadvantages in trading CFDs and the spreads.
When trading CFDs, there is only the possibility to speculate on prices and major developments of the underlying assets. These are mapped at a ratio of one to one. If the price of gold, for example, as the underlying for a CFD rises by, for example, 1%, then a CFD trader with a leverage of 200 to 1 would achieve a profit of 200%. What makes for many traders the real attraction of stock CFDs given the current price movements.
Summary
Open a digital account from day one with the best broker in comparison. Trading CFD stocks is risky. However, if you do it right and end up with the right provider, you can take high returns on a regular basis. You bid in US dollars or Eur – should use a free demo account to learn about the most important terms, such as the spreads, the pips, the levers and the long and short positions. You can reach a good broker by email, ask open questions or get a free consultation. In comparison, the best providers score with stock apps, most CFD bonds such as indices, commodities, currencies and low fees. The right provider for you is based on your individual requirements, without charging you too much for trading.