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.
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.
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.