One of the first steps one must make when venturing out into the new world of CFDs is what broker to go with. Some people may sign with a few different brokers but ultimately it is up to you to decide which broker is going to work best for your situation. Here are some tips on how to go about selecting the best CFD broker for you.
- Importance of a broker
- Researching
- Ability to contact
- Online platform
- Product range
- Pricing
- Commission
- Flat fee or percentage
- Other charges
- Frequency discounts
- Spread
When taking the plunge to trade CFDs it’s important to select a broker you know, trust and ultimately is going to make you the most profit, because let’s face it, that’s really why we are all here isn’t it. Thus serious consideration must be taken when going through the ropes of choosing your first broker.
Research
The first step to choosing a CFD broker is to do your research. Research online at places like here, research offline, ask your friends and family, anyone who has used a platform before. Ask your financial advisor and accountant if any of their other clients trade CFDs and what providers they use. It is important to conduct your own research and come to a conclusion based on the factors you consider important. Don’t take any single source as the be all and end all in your decision making process.
Contactable
The CFD provider you select should be reliable and readily available. They should be a large and reputable business, that ideally operates in lots of markets and has a strong financial position. After all, you don’t want the provider to just randomly shut down and lose your money. They should assign you a personal account manager who is available during trading hours and whom you can call to ask for assistance with their broking platform and general market information.
Product Range
You should analyse their product range and find out what they have to offer in terms of different types of CFDs. This is important because you want access to the particular products that you know best. Ranges of products include FOREX, Commodities, Indices and shares in various markets. Know what you want to trade and ensure your broker will give you access to these.
Pricing
The pricing structure with product range is one of the most important factors. The pricing structure will have a definitive impact on the profit you make as the charges associated with trading will cut into your profit. You should firstly have an idea about what kind of trader you plan to be. How big you expect your positions to be and the frequency of when you will trade. This will largely be determined by the amount of starting capital you have and the time you are willing to give to spend researching and trading the markets. Once you have figured this out, You should compare the pricing structure of the different CFD providers out there. A few things to look out for include:
The Commission
How much do they charge per trade? Is it a flat fee, a percentage or a mixture of both? Many brokers offer a flat fee commission structure until the trades get over a certain level, then they start charging a percentage on each trade.
Other Costs and Discounts
Check to see if there are any other costs or discounts associated with the account. Costs like phone broking and account opening costs may exist. Also, check to see what discounts are offered. Some brokers actually offer a sign up bonus and many offer discounts for trades who do large volumes over the course of a month.
Financing Charges
Brokers will charge interest on each trade that is held overnight. This is usually a few percentage points above or below the official cash rate. It is important to know this cost as it can become the most expensive part of trading CFDs and can really cut into your profit margin. It is also important to know what they pay you for short positions. Again, knowing how you will trade will make this factor either more or less significant. If you plan to day trade and never hold a position overnight, it will not affect you at all. But if you take long positions from 1 week to 6 months, this will be a big factor in determining the correct broker for you.
Spread
Lastly, you must consider the spread the broker provides. The spread is the difference between the buy and sell cost of the contract. This is one of the key ways CFD brokers make their money and must be considered very carefully. The smaller the spread, the better.
To see a complete comparison of CFD brokers and which one you should select, check out BEST CFD Brokers for a full comparison guide.