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.
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.
Don’t get 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 client’s best interests at heart. But most 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 with 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.
This means that it’s your money and you know best what to do with it. Don’t get drawn into the promise of quick profits.
CFD trading is execution-only
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 see our CFD broker comparison tables.
One thing to remember is that advisory CFD brokers also offer execution-only services and will then try to upgrade you to an advisory account at higher commission rates. They are best avoided altogether. Most advisory CFD brokers use the execution services only ones then mark the commission up for their supposed added value.
What if you do want advice on CFD trading?
It is possible to get advice from a CFD broker, but only if you upgrade your account to professional status or are an institutional trader.
However, it’s important to understand that if you do this you forgo certain FCA protections.
You can compare professional trading accounts here, and see the benefits and risks of upgrading.
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
Richard’s contributions and expertise have been recognized by respected publications such as The Sunday Times, BusinessInsider, Yahoo Finance, BusinessNews.org.uk, Master Investor, Wealth Briefing, iNews, and The FT, among many others.
Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
You can contact Richard at richard@goodmoneyguide.com
