A CFD is a Contract For Difference. It is an agreement between you and a CFD broker to pay the difference in the price of an asset (like gold, or oil, or Tesla stock) after it increases or decreases.
Trading CFDs is speculating on the price movement of an asset without ever owning it.
CFDs are usually traded with leverage (money borrowed from the CFD broker) and neither the trader nor the broker ever owns the underlying asset.
What is a CFD Broker?
CFD brokers are the companies that provide access to a CFD market and provide a trading platform to open and close trades. To trade CFDs, you will need to open an account with a CFD broker. Once you open an account you will need to fund it with the minimum deposit required by the CFD broker.
CFD brokers usually require a minimum deposit to open an account
All CFD brokers offer the same basic services – like a trading platform and access to a market – but they can be quite different in other ways.
Types of CFD Brokers
CFD brokers come in two main forms: Market Makers or Direct Market Access (DMA)
Market Makers
Market makers are CFD brokers who create an artificial market for traders. When you trade with a market maker, you are not trading with real market prices. Instead, you are trading with prices that a market maker thinks are fair.
Market makers are always counterparty to your trade
Because a market maker is the market, it will always take the other side of your trade. This is called being the counterparty. So, when you lose money the market maker will profit – and when you profit the market maker will lose money.
Market makers will often require low minimum deposits to open an account and offer instant execution of trades.
These are the best ASIC-regulated market maker CFD brokers in 2021:
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Direct Market Access (DMA)
Unlike market makers, DMA brokers provide access to the CFD market. The most common form of DMA broker is called an ECN (Electronic Communication Network) broker. When you trade with an ECN broker, it will pass your trade to a member of its network to take the other side of your trade.
DMA brokers pass your trade to other members of the CFD market
ECN brokers and other DMA brokers usually require high minimum deposits to open an account and trade execution is never instant.
These are the best ASIC-regulated ECN CFD brokers in 2021:
Scroll for more details What is a CFD Trading Account?
CFD trading accounts are accounts opened with a CFD broker. Many CFD brokers will offer different accounts with different costs and benefits.
Unless it is a CFD demo account, traders have to transfer money into the trading account to start trading.
Types of CFD Trading Accounts
Accounts with CFD brokers can be split into two main groups: Demo Accounts and Live (or Real) Accounts.
Demo Accounts
Demo accounts are the best way to practice CFD trading with zero risk. All CFD brokers will offer a demo account for beginners to practice trading and get used to the broker’s trading platform. They are free to open, and the broker will load them with virtual money.
Demo accounts have fake money, but real market conditions
Even though there is no real money involved, demo accounts have real market conditions; traders with a demo account are seeing exactly the same thing as traders with a real account. Demo accounts are indispensable for new traders who want to understand how it feels to trade CFDs.
Some CFD brokers will put a time limit on their demo accounts, usually 2 or 3 weeks, forcing new traders to switch to a real account. The best CFD brokers have demo accounts that never expire, so traders can continue to practice as long as they want.
These are the ASIC-regulated CFD brokers with the best demo accounts in 2021:
Scroll for more details Live Accounts
Live accounts come in many different forms depending on the CFD broker. Most CFD brokers have several live accounts, with different required minimum deposits. Generally, live accounts with lower minimum deposits have worse trading conditions (i.e. making trades is more expensive).
Lower minimum deposits = worse trading conditions
As well as lower trading costs, CFD brokers will also offer more perks on accounts with higher minimum deposits. Perks can include one-on-one training and advanced trading tools.
Some CFD brokers will offer both market maker accounts (so you will be trading against the broker) and direct market access accounts (so you will be trading on the market).
What Types of CFDs Can You Trade?
Tradeable CFDs include: Forex (currency pairs), commodities (oil, gold, coffee, grain, etc.), stocks (Tesla, Apple, etc.), indices (like the NASDAQ or FTSE 100) and cryptocurrency pairs (such as BTC/USD). There are other CFDs, but these are the most common.
The most popular form of CFD trading is Forex trading
The most popular form of CFD trading is Forex trading, or the trading of currency pairs such as EUR/USD (Euro/US Dollar) or GBP/JPY (British Pound/Japanese Yen).
How do CFD Brokers Make Money?
CFD brokers make money from traders with:
- Spreads and commission
- Overnight interest
- Hedging
- Deposit and withdrawal fees
- Optional services.
Once you understand how these fees work, you will be able to compare CFD brokers by cost.
Spreads and Commission
Most CFD brokers will make money from the spread. The spread is the broker’s fee for their services. It is the difference between the buy and sell price a CFD broker gives traders and the real market price. The lower (or tighter) the spread, the cheaper a broker is to trade with.
The spread is the CFD broker’s fee for their services
Market makers brokers have wider spreads than direct market access brokers. But direct market access brokers usually charge a commission. This commission is paid when you open a trade and when you close a trade and is usually a fixed amount, charged in USD.
Direct market access brokers have tight spreads but usually charge a commission
Overnight Interest
CFD brokers also make money from interest. CFD trading is leveraged, which means that you borrow money from the broker to increase the size of your position. Brokers will charge you interest for borrowing money from them, this is charged on all trading positions that are held overnight.
Hedging
Market maker CFD brokers will also hedge their counterparty trades. If a CFD broker is the counterparty to a trader buying gold, it will also sell gold to protect itself from the trader winning.
Deposit and Withdrawal Fees
Some CFD brokers also charge deposit and withdrawal fees. These can be either a fixed fee or a percentage of the deposit or withdrawal. Always check with the CFD broker first before you make a deposit or withdrawal to avoid being surprised.
Other Fees
CFD brokers also charge other fees. The most common is an inactivity fee for trading accounts that have not been used for many months. But brokers may also charge for optional services such as advanced trading tools, in-depth education, and VPS services.
CFD Broker Ratings and Reviews
It is important to read reviews and check the ratings for CFD brokers when comparing them. CFD brokers tend to be strong in some areas and weaker in others, only a very few are excellent overall.
The best CFD broker for you will depend on your trading experience, educational background, and financial situation.
For instance, the best CFD broker for beginners will have excellent education and trading accounts with low minimum deposits. But the best CFD broker for experienced traders will have advanced trading tools and trading accounts with high minimum deposits and exceptional trading conditions.
Regulated CFD Brokers
Regulators are national authorities that protect citizens from financial scams and unethical businesses. Traders should always use CFD brokers that regulated by at least one national authority. In Australia, the national regulator is the Australian Securities and Investments Commission (ASIC).
Traders should always use a regulated CFD broker
To protect traders, ASIC-regulated CFD brokers are required to comply with the following rules:
- Segregated Accounts: CFD brokers are required to keep trader’s money in a separate bank account from their own. This means that traders can get their money back if a CFD broker goes bankrupt.
- Negative Balance Protection: Traders with ASIC-regulated CFD brokers can never lose more money than they have in their trading account. This means that any negative balance cannot be claimed by the brokers.
- Leverage Limits: From 29th March 2021, all CFD brokers regulated by the ASIC can only offer leverage of 30:1. This means that traders can only borrow from the broker 30 times more than they have in their trading account.
- Regular Audits and Inspections: ASIC-regulated CFD brokers are subject to audits of their finances and surprise inspections of their trading setup. This prevents brokers from cheating their traders.
There are many other regulators around the world. Apart from ASIC, the best regulators are CySEC (Cyprus Securities and Exchange Commission) and the UK’s FCA (Financial Conduct Authority). Some CFD brokers are regulated by more than one national authority.
CFD Trading Platforms
All CFD brokers will offer a trading platform to access the markets. Some brokers have their own platforms, while others use popular independent trading platforms that you can download to your computer.
The most popular CFD trading platform is MetaTrader 4
The most popular trading platform in the world is MetaTrader 4 (MT4). Other popular CFD trading platforms are MetaTrader 5 (MT5) and cTrader. All three platforms provide access to the CFD markets and allow users to make trades.
These are the best ASIC-regulated CFD brokers with MT4 in 2021 according to our expert’s research:
Scroll for more details All three platforms also allow CFD traders to install small software programs called robots and indicators. Robots trade automatically, based on pre-determined signals, and indicators help traders find opportunities in the markets.
Trading robots will trade automatically for you based on pre-set signals
All trading platforms are also available on Android and iOS mobile devices. CFD brokers with their own platforms will often have their own mobile apps too. MT4, MT5 and cTrader are also available as mobile apps.
Deposits and Withdrawals with a CFD Broker
The best CFD brokers offer a range of methods to make deposits and withdrawals. Almost all CFD brokers will accept credit/debit cards, bank wires and ewallets such as Skrill or Neteller.
Deposits can usually be made instantly with credit/debit cards and ewallets, but bank transfers usually take a few days – or longer if you are making an international bank transfer.
Withdrawals tend to take a little longer, but the best CFD brokers will allow you to withdraw to your credit/debit card or ewallet within 24 hours. Again, bank transfers will take a few days and international bank transfers even longer.
The best CFD brokers will not charge for deposits or withdrawals
The best CFD brokers will not charge for deposits or withdrawals, but unfortunately, this is quite rare. Many CFD brokers will allow free deposits but will charge a fee for withdrawals. Some CFD brokers will even charge for both.
International bank transfers will always incur a fee from the banks involved in the transfer and CFD brokers will usually not cover this cost.
Learn How to Trade CFDs
Trading CFDs with a CFD broker (even the best) is risky, and most traders lose money.
The first step to being a profitable CFD trader is to be an educated CFD trader
Most CFD brokers will offer some form of education, but the best CFD brokers excel when it comes to teaching new traders. CFD education should be comprehensive and well-structured. It should be a mix of video and written content, featuring input from market experts and trading professionals.
The best CFD brokers will also have an in-house team of market analysts to provide technical insight and detailed coverage of events that affect the CFD markets.
Final Word
The best CFD brokers will be well-regulated, have low trading costs and will provide excellent education and powerful but easy-to-manage trading platforms. Because there are quite a few brokers who will fit those criteria, it is important to think about what you want from a CFD broker when making your comparison.
Forex Risk Disclaimer
Trading Forex and CFDs is not suitable for all investors as it carries a high degree of risk to your capital: 75-90% of retail investors lose money trading these products.
Forex and CFD transactions involve high risk due to the following factors: Over-leveraging, unpredictable market volatility, slippage arising from a lack of liquidity, inadequate trading knowledge or experience, and a lack of regulatory protection for clients.
Traders should not deposit any money that is not disposable. Regardless of how much research you have done, or how confident you are in your trade, there is always a substantial risk of loss. (Learn more from the FCA or from ASIC)
Our Methodology
Our State of the Market Report and Broker Directory are the result of extensive research on over 100 Forex brokers. The explicit goal of these resources is to help traders find the best Forex brokers – and steer them away from the worst ones – with the benefit of accurate and up-to-date information.
With over 150 data points on each broker and over 3000 hours of research and review writing, we believe we have succeeded in our goal.
In a world where trading conditions and customer support can vary based on where you live, our broker reviews focus on the local trader and give you information about these brokers from your perspective.
All research has been conducted by our in-house team of researchers and writers, gathering information from various company representatives, websites and by sifting through the fine print. Learn more about how we rank brokers.
4.17
Accepts Australian Clients. Average spread EUR/USD 0.10 pips with 6 USD commission round turn on the trading account with lowest minimum deposit. Max leverage 30:1. Islamic account available. MT4, MT5 & IRESS platforms supported. FP Markets is regulated by CySEC and ASIC.
