Finding the right CFD broker that suits your
style of trading and your technical requirements is imperative for
your trading success but what should you look out for when choosing
a specific broker?
Since their introduction to the UK market in 1998 (and now
across Europe) CFDs have grown rapidly in popularity with retail
and professional investors, hedgers and speculators.
This rise in CFD traders has lead to an increase in the number
of CFD brokers available and the market has become more
competitive, with many brokers now offering:
Not all CFD brokers are offering the same service. Some will
offer a 'market-maker' service and others will offer what is known
as Direct Market Access (DMA).
The services available cover a wide range of value-added extras
that brokers and providers now offer. Competition for your business
is fierce and it's now no longer just about the commercial terms a
broker can offer, there have to be other incentives to encourage
new traders to open accounts.
Minimum account opening balance
Most retail brokers have minimum account opening balances: how
much you'll need to deposit with them before you may start trading.
Most brokers accept payments via a bank transfer or a debit or
credit card payment but forget cheques, as they just aren't
practical when markets are volatile and you need to move money
TIP: Always ensure you have access to liquid
funds in case you need to top up your account at short notice and
whilst many of the brokers will offer you attractive leverage rates
don't make the mistake of overtrading as you'll end up risking too
much of your account balance on one trade.
TIP: Familiarising yourself with their
depositing procedures is important if you intend trading on markets
that could be volatile. This will ensure you are able to meet any
further funding requirements should your open trades move against
Some CFD providers have moved away from the DMA trading model
and have instead become market-makers: where the broker makes the
price and takes all orders onto their own book.
Market making companies will act as a counter-party to your
trades (Spread betting and CFDs) so if you're comfortable with this
relationship these are cost effective accounts to look at as they
rarely come with the data charges associated with DMA trading
In these circumstances you (the trader) may find that the price
being offered by the market-maker (the broker) differs slightly
from the actual market price. However, it is unlikely the price
will differ too much as this would create opportunities for
'arbitrageurs' to trade with both the exchange and the market-maker
at prices guaranteeing a profit!
Brokers offering Direct Market Access (DMA)
Other CFD brokers will offer what is known as Direct Market
Access (DMA), which allows traders to place their orders directly
into the exchange and to be able to see the order working in the
market alongside the hundreds of other orders that are being worked
by traders around the world.
There are some traders who prefer to trade in this way as they
feel that being able to view other orders in the market offers
a better 'feel' for the short term direction of the market and in
some circumstances can assist with the placing of both stop losses
and limit orders.
TIP: DMA trading accounts are best suited for
'active traders' and so you if you trade infrequently may find
that the account costs that are passed on by your broker make this
type of account unsuitable for your needs.
Whilst this way of trading CFDs does remove any possible
conflict of interest with the CFD broker (your trades are going
straight onto the exchange, not onto the CFD brokers book), it
should be noted that it is likely to be more expensive as the CFD
broker will often require you to pay towards exchange fees and to
view the order book.
Read more on Direct Market Access
Opening a CFD trading account is relatively straightforward with
many companies offering an online application process. Below is a
table of CFD brokers with a few key account-opening criteria that
we believe should be considered when you are deciding which broker
to open an account with. It's not always about price; finding a
broker that suits your style of trading and your technical
requirements is as, if not more, important than shaving a few pence
off of your dealing costs.