12:34 PM, 29 Nov 2023 (AUS EST)   The market is currently open       

How to Choose the Best CFD Provider for You

Of vital importance is your CFD provider. No doubt you want the best rates, the most reliable providers, trustworthiness, and a wide range of options on CFD’s. To help you make that choice we will list some of the more popular providers here.

First, we will create a checklist of items to investigate when choosing a provider:

1. Which markets are offered?

Do you want to trade ASX CFD’s or ‘over the counter’ CFD’s? If you decide to invest with exchange traded CFD’s only, this will eliminate many providers.

2. Which investment types do they primarily deal with?

Some CFD providers will offer this investment type (CFD’s) as their primary or core business, while others might have it as a secondary or tertiary investment type next to options, the Forex, or share purchasing. If your investment needs are comprehensive, you might consider choosing a provider that can service all of your needs at once. If you are interested in CFD’s only, likely a more specialised provider will suit your needs.

3. What are their requirements for margin, fees, etc.?

Each provider will have different requirements and fees. Check carefully on the following items:

  • Overnight financing fees
  • Transaction fees (may vary depending on amount of trades)
  • Margin requirements
  • Capital necessary to fund an account
  • Platform and access fees
  • Do they pay interest on money sitting in my account?

4. What do they offer in the way of extra services?

You will want to investigate such items as the trading platform they use. Some are simple and easy to use, while others might be more cumbersome. As well, some providers will give access to high-end charting and technical analysis tools while others will require monthly memberships or not provide them at all.

Also worth checking into is if they offer automated stop-losses with trades. You should inquire if you are able to change the stop-loss values at any time with little or no charge.

5. What is the range of CFD’s provided?

As discussed in previous articles, there is a wide range of CFD’s available. Some will cover currency pairs, precious metals and other commodities, and international indices. Other providers may deal with only a limited amount of highly liquid companies traded on the ASX. Be sure that your provider will have the options you require.

6. What are the spreads offered?

The spread is the difference between the bid and the ask. If you choose to trade ‘over the counter’ CFD’s through a Market Maker instead of Direct Market Access, you could be paying more than necessary on an inflated spread. Find out if they ‘mirror’ market prices which allows them room to buffer some added costs, or if they ‘match’ the market price. There is a difference.

7. What are the margin requirements?

Margin could be very low around 1 percent or up to 10 percent. While margin requirements are largely dependent on the volatility of a stock, the provider has the ability to stipulate additional margin requirements on top of this.

Because the attraction of CFD’s are closely linked to the leveragability, make sure you are getting a competitive rate with margin requirements.

8. How long has the provider been in business?

Finding the best rate is not the only consideration. You also want to feel secure with your provider. Checking into how long a provider has been in business is a good first step.

Also, you can research the company on the Internet to investigate how actual traders feel about their service. Doing so, you may need to weed out a review or two in case some company owners are posting overly glowing reports about their own services. Still, if a company provides a low quality of service, this should become an apparent trend over many reviews.

CFD Brokers and a Final Word

This is a final encouragement for you to investigate all available options before committing to a broker. Not all providers are created equal and will cater to different trading styles. Be sure to ask the right questions as listed above, and then you can focus on what is really important - strategic trading - instead of worrying if your provider is offering you competitive rates and a reliable service.