As a trader, you always want to know that your chosen CFD brokerage is the best one for your trading preferences. Admittedly, it is a little unnerving coming into the CFD trading scene. For starters, I wasn’t entirely sure what a Contract for Difference was all about. I had read that CFDs were derivative trading instruments, and that conjured up images of high school algebra. CFDs are speculative trades, but unlike binary options, the size of the price movement is important. Armed with my newfound knowledge, I wanted to understand the differences between a negative expectation of an underlying asset and a positive expectation of an underlying asset. I’m about to share my experiences with you about how I went about choosing a CFD broker.
The most important features of a CFD brokerage
The beauty of spread betting platforms is their accessibility. As a newbie, I found myself pouring over the data – reading review after review trying to ascertain which sites offered the most assets, the most accessibility, and the lowest costs. This is a massive undertaking. Fortunately, you can read up on the best CFD brokerages and make educated decisions by simply following the advice of industry experts and other traders. The costs associated with spread betting vary wildly from one CFD broker to another. Remember that a spread betting platform (a CFD broker) makes its money from the spread – that’s the difference between the buy price and the sell price. Obviously, you want to trade at a broker that offers the lowest spread because those spreads can eat into your profits when the price only rises minimally.
Other factors to consider include trading execution. This is to say: How easy is it to execute trades on your preferred spread betting platform? If the trading platform is difficult to use, it’s really pointless. Another factor to consider is accessibility to markets. As a new trader, I would find myself logging on at all hours of the day and night. If the underlying financial assets that I’m interested in trading are unavailable, I tend to get somewhat annoyed. That’s why it makes sense to shop around before you drop anchor and make a deposit at any old CFD broker. Sure, many of them look great with the window dressing that the web designers conjure up. But beneath the façade, how functional, user-friendly, and all-encompassing are the CFD brokers that you’re looking at? What I’m getting at is that you should always look at the big picture of a CFD broker. Don’t be fooled by promises of fantastic returns or guides about how easy it is to make money with a CFD broker.
CFD brokers are the gateway to profitable opportunities
One UK spread betting expert that I listened to told me that German clients tend to review 10+ CFD brokers and take as much as 6 months before deciding which broker they are going to use long-term. Now, I do not subscribe to such practices, but it is an example of how important the right broker really is to a trader. Once the German trader has picked a CFD broker, he/she tends to stay with that broker for years. Therefore, your choice of a CFD broker is important. From a UK trading perspective, the numbers indicate that less homework is done, and on average 3 brokers are reviewed. I took a different route. I reviewed multiple brokers based on the customer service they offered before I deposited any money. I believe that your best bet as a new CFD trader is to contact customer support at any of the brokers you are interested in. The ones that get back to you with professional and timely advice are worth considering. The ones that require you to register, deposit and trade before responding to you should probably be avoided.
Another reason it is so important to be especially cautious when choosing a CFD broker is regulation. Novice traders may not know it, but not all CFD brokers are licensed and regulated to offer their services to clients. A CFD broker may look the part, but if it does not have FCA or CySEC licensing, it’s not worth its salt. For one thing, traders will not have any recourse if nonpayment ensues, and there is no way to guard against manipulative trading platforms. Here is a tip for new traders considering an unregulated platform: There is ample evidence proving that unregulated brokerages manipulate CFD prices in their favour so that the trader loses money. Therefore, only choose fully licensed and regulated CFD brokers when you’re ready to start trading.
My interests determined which broker I was looking for
Many of my mates who are first-time traders tend to look at CFD brokers based on the equities that are available. Everyone knows Google, Facebook, Twitter, Alibaba, Microsoft and the like. If the CFD broker offers these types of shares, they consider it to be a quality broker. However, I’ve had some experience in the markets and I’m more interested in volatility during trading sessions. Equities tend to provide limited volatility when compared to things like currency pairs. So, when I started to dabble in CFDs, I would always look for the major pairs, minor pairs and exotic currency pairs on offer at CFD brokers. These types of currency pairs include the GBP/USD, GBP/EUR, USD/CAD, USD/ZAR and others. There is certainly a lot more to be gained in a volatile market when trading CFDs and that’s why I look at the number of currency pairs, the leverage (and margin), the pips and market hours. Throughout it all, it’s important to be cognizant of the fact that spread betting is inherently risky and you should never take out a position that is too great for you to bear if the trade doesn’t go your way.