How to choose a CFD broker?

There are many CFD brokers out there.

The truth is that it is not easy to choose if we start investigating the entire available offer, although, depending on our necessities our range of choice can be significantly reduced.

For example, it is possible that we want to trade only if the broker resides in our own country. However, with globalization today it is almost as secure to open an account with an international broker than with a national one.

Nevertheless, it is not advisable to open accounts with broker in shady regulations, like some off shore ones.

Our choice will also depend on what asset we want to trade since there are better brokers than others.

The commissions in CFDs

The most know CFDs are those of stocks.

In many brokers we are able to trade stocks CFDs as if we were trading the real stocks, with just a small commission.

Many of those brokers charge from 5 to USD 20 per trade, which makes it a bit expensive if the trading account is small.

Conditions in those stock CFDs are very similar to the real assets; however we will be able to deal with a 10 to 1 leverage.

If it is true that there are a lot of people who use that kind of leverage to do day trading, it is something I do not recommend.

If we have not a big account and we want to do more adequate trading, we should choose a broker that offers flexible trading conditions.

For example, we can buy one or ten stocks without minimum commission cost and pay only the spread. Of course, the spread will be bigger than the market one.

CFD trading commission

One example:

We buy Apple in the broker A with which I buy one stock CFD and I pay the spread: say 129/129.30.

In that case I pay a spread (commission) of $0.30.

When I get out I will pay 0.30 again.

In total, the cost would be $0.60.

Also, if we hold the stock many days we will have to pay swap costs, which is not very important for a few days of trading. Another thing is if we hold the stock for the long term.

If we trade in broker B, which has a minimum commission of $8, then we will pay 8 plus 8 when we sell, in total 16 USD. Besides we pay the spread, much smaller than the last one; for instance 129.10/129.20.

In the second case we pay 16.20 USD.

0.60 against 16.20 USD

The difference, as we see, is brutal.

Another thing is that we bought stocks for 12.900 USD in total. In that case:

  • Broker A: cost 60 USD (0.60 * 100)
  • Broker B: cost 36 USD (0.20 * 100 + 16)

Therefore, we can see that depending on the volume of trading there will be a better broker.

Index CFD commission

We can also trade the popular index CFDs, which offer us a good chance to trade the markets more or less efficiently in a trending way.

In these cases the spread is not as big as in stock cfds.

For instance, if we can trade the DAX with a spread of typically 3 points, we will not trade the same index in another broker for 10 points of spread.

However, with a good trend trading strategy that difference in spread is not that important.

CFD commissions

There is a difference in CFD and futures or Stocks commissions and spreads. However, if we avoid day trading, there is a good chance we can do decent trading with CFDs.

It is not a good idea try scalping with a DAX CFD index and 4 points of spread, just to try to make 20 points trades. The spread there kills us little by little.

That can be tried by the futures day traders, nonetheless it is not easy at all even there.

Therefore, with that sort of spreads, people had better do swing or trend trading with those assets.

If our spread is 9 points, we should try strategies with 100, 200 or 300 points of spread.

Nonetheless, we should not think that just by the fact of doing trend trading we will be successful in trading. We will need to acquire a lot of experience as well.

Commodity CFD commission rates

In the case of commodities CFD, it is difficult to find good conditions to trade them.

In the majority of cases we will have very wide spreads, much bigger than the futures ones.

In some broker we might find decent conditions in some asset, however this is not usual.

In this case, the best conditions can be found in gold and oil cfd trading, which usually have decent spreads.

Last but not the least; remember that trading CFDs successfully is very difficult.

Normally, it requires many years of practice to achieve a good level.

Prudence and small leverage at the beginning is most advisable.

Regards and good trading.