Best CFD Trading Platforms Compared & Reviewed

CFD broker FAQs

Can you lose more than you deposit from CFD trading?

Yes. If you have a professional trading account, you can lose more than your account balance. However, for CFD traders classified as retail clients, there is negative balance protection, which means that your CFD trading account is guaranteed to not go into negative equity.

How long can you hold a CFD trade open?

In theory, you can keep a CFD trade open indefinitely. However, as overnight financing charges can add up quickly, CFD trading is more of a short-term speculation tool or hedge rather than a product for long-term investing.

Is CFD trading taxable?

Yes. You have to pay capital gains tax on CFD trading profits. You can offset CFD trading losses against other investment profits.

What are STP CFD trading brokers?

STP means Straight Through Processing, which means that when you put an order in, it goes into the market and the broker buys or sells on your behalf. The alternative is where a broker matches up with other traders or does not hedge your positions at all. In the grand scheme of trading, it does not matter whether your broker is STP or uses a B-Book. You make money if you call the market right. You can’t blame the broker if your trades are not profitable.

Here’s more about ECN brokers and STP brokers which may be of interest to more experienced traders

Which CFD brokers offer the tightest spreads?

You can see which CFD trading platforms offer the tightest CFD spreads in our comparison of CFD trading platforms. When choosing a CFD trading platform, the spreads and commissions you are likely to pay are going to be high up on your list of priorities. However, it shouldn’t be the only consideration you make. You should also consider market range, customer service and trading platforms.

Can you trade CFDs on MT4?

MT4 brokers are a dime a dozen and there are so many terrible ones, to be honest. MT4 is the most popular trading platform out there because of its plug and play nature.

Here are three of the best CFD trading platforms that offer MT4:

1. Pepperstone
2. Saxo Markets
3. IG

Pepperstone, one of the largest brokers globally, but HQ’d in Australia, offers MT4 and is worth a look as they won “Best MT4 broker” in our 2020 awards.

While not overly promoted, IG and Saxo also offer MT4 as a trading platform option, should you find their proprietary trading platforms not sufficient for your needs.

Which is the cheapest CFD broker?

The cheapest CFD trading platform is the broker that has the tightest spreads and overnight financing charges. There is no single answer to which is the cheapest CFD broker as there are too many contributing factors to accurately calculate which CFD broker is the cheapest.

What does leverage mean on CFD accounts?

Leverage in CFD trading means investors can leverage their money (or capital) to increase their exposure by trading on margin. CFD trading platforms allow those trading to take larger positions than they would be able to do through traditional investing platforms. The benefit is that your profits are multiplied. However, inversely, if you lose money, your losses are equally multiplied.

Do CFD brokers charge commission?

CFD trading platforms like Saxo Markets and Interactive Brokers charge a commission. Other CFD brokers like IG, CMC Markets and City Index charge a spread.  Widening the spread is equivalent to charging a commission. It is not normal for CFD brokers to charge private clients and retail traders a commission for CFD trading.

Normally, it’s only DMA (direct market access) CFD brokers that charge commission.

One of the advantages of trading CFDs is that the commission is built into the price you buy and sell at, so there is no need for additional calculations to determine your profit and loss after the commission is charged.

The disadvantage of this is that when trading CFDs, the bid-offer spread will be wider, so the market needs to move further before a trade turns profitable.

Why is the CFD spread important?

When you are trading CFDs the tighter the spread, the better, as this reflects what your trading costs are. The CFD spread is usually a fixed amount per share and for things like Forex and Index trading and is comparable to a percentage.

For example, if on your CFD trading platform the spread on Vodafone shares could be 0.25% from the actual price, and this represents a commission of 0.25% on the value of the trade. Or if you are trading the FTSE 100 and the market price (or bid/offer) is 5801 (to sell), 5801.5 (to buy), a CFD broker may offer a spread of 5801 (to sell) and 5802 (to buy), which means they have widened the spread by 0.5.

The size of the bid-offer spread quoted by a CFD broker is important because it has a big impact on the cost of your trading. If a CFD platform quotes spreads that are 0.5 points wide and you are trading 1,000 CFDs, the cost of each trade will be £5. So, if you trade 100 times over a year, you will have paid £500 in dealing costs. But, if that spread is 1 point instead of 0.5 points, you will have paid £1,000 in spreads. The difference of £500 can have a significant impact on your profit and loss.

How important is CFD spread width when trading CFDs?

Very important. When you trade CFDs you have to sell at the lower bid price and buy at the higher offer price, the closer the two prices are, the less the market has to move in your favour before you can lock in a profit.

If you are scalping the market and trying to make lots of small, profitable trades, the tightness of a spread can make all the difference between success and failure. Essentially, narrower spreads mean quicker potential profits and wider spreads mean greater price changes needed to make a profit.

Do I need a DMA (direct market access CFD) broker?

If you’re a professional CFD trader dealing in significant sizes and frequently, you will get much better execution prices if you deal through a DMA CFD broker. As the commission is charged after a DMA CFD trade, it is easier to make small, profitable trades as the bid/offer spread is tighter.

However, you will have to calculate your commission in your P&L as it may turn a profitable trade into a loss.

DMA CFD brokers are usually only suitable for clients that qualify for institutional traders or private clients with professional account status, who have a thorough understanding of CFD trading.

How to check if a CFD broker is regulated by the FCA (Financial Conduct Authority)

All onlin CFD trading platforms and brokers listed in our comparison are regulated by the FCA. You can check whether a CFD broker is regulated by the FCA in the UK by checking the FCA register.

Only fully FCA-authorised and regulated CFD brokers offer client funds protection under the FSCS. From the 1st September 2019, this protection extends to:

• Limiting leverage to between 30:1 and 2:1 by collecting minimum margin as a percentage of the overall exposure that the CFD provides.
• Closeout a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on a CFD account.
• Provide protections that guarantee that a client cannot lose more than the total funds in their CFD account.
• Stop offering monetary and non-monetary inducements to encourage trading.
  Provide a standardised risk warning, which requires firms to tell potential customers the percentage of their retail client accounts that make losses.
  source; FCA website, 01/07/2019.

Can US residents trade CFDs?

Unfortunately, you can’t trade CFDs in the US. Derivatives trading in the US needs to be done on regulated exchanges. As CFDs are an OTC (over the counter) product, they are not allowed and are illegal to offer to US residents. Therefore, if you want to trade on margin, you must do it with either futures, options or through a broker that offers margin trading.

If you are a US citizen or resident, you can’t trade CFDs with a UK CFD broker. UK and US regulations prohibit US clients trading with overseas online trading platforms or brokers.

But if you are a UK or European trader, you can trade US stocks on CFDs with a UK CFD broker. You can however compare US CFD stock brokers where you can usually trade on margin. The US equivalent of CFD trading is margin trading. Margin trading in the US is where a broker lends you money to buy shares.

So, unlike CFDs, where you are not buying shares but taking out a “contract for difference” with US margin trading, you are paying full price for the shares you want to buy. You will need to put down some initial margin of (for example) 25%.

Then the broker will lend you the rest of the money for the purchase. For instance, if you want to buy $1,000 of Apple shares, you will need to put down $250 and the broker will lend you the other $750. You cannot withdraw money a US broker lends you and you pay daily interest on what you borrow.

What’s the difference between CFD trading and spread betting?

Spread betting and CFDs are fairly similar in some respects but very different in others.

The key similarities for both financial spread betting and CFD trading are:

• You can go long and short
• You can trade on margin
• Both are OTC derivative products
• Both are regulated by the FCA
• Both are a high-risk investment product

The key differences between CFD trading and financial spread betting are:

• Spread betting is free from capital gains tax, CFDs profit and losses are taxable
• With spread betting, you bet a certain amount per point move
• With CFDs, you buy an equivalent amount of CFD as you would shares
  CFDs are available to international clients
• Financial spread betting is unique to the UK

Here’s a video and some more information on the difference between spread betting and CFD trading.

Should I use an advisory CFD broker?

No, you should not. Advisory CFD brokers used to be quite common when it was harder to open a CFD account. Before CFDs became available to all private clients, investors wishing to trade CFDs would have to prove that they understood the risks involved.

As CFDs were mainly offered to sophisticated investors, the regulators were less concerned with the fact that advisory CFD brokers offered little added value to traders. However, CFDs are a very high-risk product and clients must understand the risks involved before opening an account.

Over the years, the FCA has clamped down on advisory CFD brokers providing advice and hardcore sales tactics used by CFD brokers to get clients to trade more. This website is all about execution-only CFD brokers – that means CFD brokers that do not provide advice or recommend trades. Here is how to find a CFD stock broker.

Don’t get ripped off by advisory CFD brokers

CFDs are a very high-risk product and should only be traded by individuals who have significant trading experience.

If you are new to trading and investing then they are not for you. Advisory CFD brokers are not as rampant as they used to be, but they are still around in one capacity or another. So here are our three golden rules to avoid being ripped off by advisory CFD brokers.

One of the most common ways traders get taken in by advisory CFD brokers is by greed.

They are contacted and offered trading ideas from a slick sounding city broker from an advisory CFD firm.
There are of course brokers out there that provide an excellent service and really do have their clients best interests at heart.

But the majority of advisory CFD brokers may as well be working in a call centre selling conservatories. Generally, they are commission based and their pay is related to how many trades you as their client enter into.

So, they will be on the phone to you all day suggesting buys and sells, in small amounts with high minimum charges taking small profits.  On paper, they may well have made you a profit but when you factor in commission and financing charges you’ll probably lose.

There is a great phrase that goes around the City:

“Why would anyone who drives a Rolls Royce take financial advice from someone that takes the tube to work.”

What this means is that it’s your money and you know best what to do with it.  Don’t get drawn into the promise of quick profits.

If you are going to trade CFDs you need to accept that there are risks involved and stick to a set of CFD trading strategies that mitigate risk.

If you want to see the top CFD brokers in the UK that provide an execution only service they see our CFD broker comparison tables.

One thing to bear in mind is that advisory CFD brokers also offer execution only services and will then try to upgrade you to a advisory account on higher commission rates.

They are best avoided altogether. Most advisory CFD brokers use the services of the execution-only ones then mark the commission up for their supposed added value.

Can you make money trading CFDs?

Yes, it is possible to make money with an online trading platform. However, it is also possible to lose money.

If you want to be a profitable CFD trader then you need to follow some golden rules of CFD trading. It’s not difficult to make profitable trades, but what is difficult is ensuring that you make more profits on your winning trades than you make losses on your losing trades.

It’s a well-known fact that even the best traders in the world only get it right half the time. It’s how they manage their CFD positions that sets them apart and makes them better traders.

Here’s where you can find out more about how to trade CFDs.

What are the basic rules for trading CFDs?

• Don’t trade with more than you can afford to lose
• Run your profitable trades
• Cut your losing trades quickly
• Use stop losses to minimise risk
• Combine technical and fundamental analysis before trading
• Don’t trade with more than you can afford to lose

You should not risk money by trading CFDs that you need for something else. CFD trading is high risk and there is a high probability that inexperienced traders will lose money quickly. CFD trading can successfully form part of your overall investment portfolio. Around 10% is a suitable percentage to assign to high-risk investments.

It’s important to budget and balance your portfolio to include a range of diversified low, medium and high-risk investments, with a larger portion being allocated to medium and low-risk, long-term investment products such as tax-efficient SIPPs and stocks and shares ISAs.

If you only have a small amount of money to invest and choose to trade it all through CFDs, there is a large chance that your entire risk capital will be eroded as you learn to trade CFDs.

Here are four key ways to improve your CFD trading

1. Run your profitable trades: Managing a position is one of the most challenging aspects of trading CFDs. CFD traders are often too keen to take small profits, rather than keep a winning position alive. Using trailing stop losses on your online CFD trading platform can be effective in running profitable positions as the market moves in your favour. If you buy as the market is going up (or go short as the market is going down), it is more profitable to keep the position open and ride the trend as far as you can.
2. Cut your losing trades quickly: Another key mistake that CFD traders make is to let losses increase without closing a position in the hope that the market will turn around. When trading, it is good practice to have a loss limit in place so that your profitable trades are not wiped out by a large loss. If you have a losing position, consider closing it and re-evaluating the market and trying again when the market is looking more predictable.
3. Use stop losses to minimise risk: Using a stop loss means having a level in the market where your position is automatically closed to minimise loss. Stop losses are triggered automatically, even when you are not in front of your trading platform. The benefit of using stop losses is that you limit your downside risk (loss) on a position automatically and protect your account balance. Some CFD brokers offer guaranteed stop losses, which trigger even if the market crashes, and guarantee to give you your stop price, regardless of slippage.
4. Combine technical and fundamental analysis before trading: The two most common forms of generating trading ideas are fundamental and technical analysis. Fundamental analysis means looking at the financial health of a business or economy. Technical analysis means looking at charting patterns of markets to see what has happened in the past and what is likely to happen in the future. The benefits of technical analysis are that it is somewhat self-fulfilling in that in the most liquid CFD markets, traders are looking for similar patterns and will trade when they occur, potentially moving the market. It is more popular in short-term trading. Fundamental analysis can be used to trade around economic indicators if you disagree with the consensus before the data is announced. Fundamental analysis is more popular for longer-term investing. For more information, read our guide on the difference between technical and fundamental analysis.