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CFDs Trading and Brokers

When trading in global markets, specialization leads to better information and improved performance.

🔄 What is a CFD?

A CFD (Contract for Difference) is a derivative product that allows investors to trade the direction of global markets (Forex, Equities, Cryptocurrencies, Commodities) without owning any physical assets. CFDs are straightforward to trade and offer the opportunity to speculate on future market movements across a broad range of underlying assets.

• By trading CFDs, you can speculate on any financial instrument without owning it.
• Trade 24/5 in rising or falling markets, with a wide selection of trading orders.
• Access markets through a user-friendly WebTrader or the more advanced MT4/MT5 platforms.
• Choose from thousands of financial instruments (Forex, Indices, Stocks, Crypto, Commodities, etc.).
• CFD brokers typically do not charge commissions but apply a trading spread (minimum 1 pip).

⚖️ Compare Popular CFD Brokers

These are regulated CFD brokers offering segregated client bank accounts. All the companies listed have been active in the market for at least five years.

💻How do CFDs work?

A CFD contract is designed to mirror the price movements of a financial instrument. This means a CFD can replicate the price fluctuations of nearly any traded financial asset. When a position is opened, the profit or loss is determined by the movement of the underlying asset’s price.

A CFD trade can be closed in three ways:

(i) If the price of the underlying instrument reaches the take-profit level (a predetermined profit)

(ii) If the price of the underlying instrument hits the stop-loss level (a predetermined loss)

(iii) If the trader manually closes the trade at any time

Example of a CFD Trade on EUR/USD (Calculating Profit/Loss)

Assume a Forex trader buys 1 lot of EUR/USD at 1.1002 and later sells it at 1.1022.

Initially, EUR/USD is quoted at 1.1000 / 1.1002 (bid/ask).

To buy 1 standard lot (worth $100,000), the trader needs about $500 in the account (indicating 200:1 leverage).

Upon opening the position, the trader sees a $20 charge, reflecting the 2-pip spread between bid and ask prices.

As EUR/USD moves 20 pips higher, the trader decides to close the position.

The new quote is 1.1022 / 1.1024.

The position is closed at 1.1022.

The profit is calculated as 1.1022 – 1.1002 = 20 pips.

A 20-pip profit equals approximately $200.

💼 CFDs and Cost of Trading

These are the main fees and commissions charged by CFD brokers that you should be aware of before opening a trading account.

(1) Trading Spreads

You can find information about trading spreads on each CFD broker’s website or through third-party services that compare spreads.

The spread is the difference between the ask and bid prices. Most CFD brokers apply spreads without additional trading commissions. The minimum spread when trading CFDs is typically around 1.0 pip on EUR/USD. A smart way to

reduce trading costs is to join a rebate program.

Be aware of re-quotes if you plan to trade intraday.

A re-quote occurs when the execution price of a trade is worse than the price you initially selected—resulting in additional cost. Re-quotes usually happen in fast-moving markets, such as during major news events. To avoid this, use pending orders (limit orders) instead of market execution orders. A limit order ensures your trade will be executed only at your specified price or better.

(2) Trading Commissions

Information on trading commissions is available on each broker’s website.

CFD brokers generally do not charge commissions, but when they do, fees are calculated on a round-lot basis.

(3) SWAPs / Overnight Financing

You can check SWAP rates on your broker’s website.

SWAP rates reflect the cost of holding a position overnight and are based on the interest rate differential between two currencies. These charges apply daily at midnight (according to the broker’s server time) and are tripled on

Wednesdays to cover the weekend. SWAPs apply 365 days a year and can be either credited or debited depending on the asset and trade direction.

For example, if you trade AUD/USD or NZD/USD, the rate difference may be positive and credited to your account. If you trade USD/ZAR, the rate difference is likely negative and will be deducted from your account.

Explanation of SWAP Rates in Forex:

Forex transactions involve buying one currency and selling another. Some currencies (like NZD, AUD) have higher interest rates, while others (like USD, EUR) have lower rates. The interest rate differential determines the SWAP:

(i) A positive difference results in a credited SWAP amount

(ii) A negative difference results in a debited SWAP amount

Note: When trading commodities or equities, SWAP charges are always negative.

TIP: Avoid paying SWAP fees by trading CFDs on Futures.

Buying CFDs on Futures eliminates daily SWAP charges, though spreads may be slightly wider. For example, trading the USD30 Index via a Futures CFD avoids overnight fees until the contract expires (usually within 2–3 months).

Futures CFDs still track the underlying asset’s price movement accurately. For swing or long-term traders, they offer a cost-effective alternative.

(4) Funding (Deposit/Withdrawal) Fees

You can inquire about these fees via each broker’s live chat support.

Some brokers may apply fees for deposits and/or withdrawals.

(5) Maintenance/Inactive Fees

Details about these fees are also available through broker live chat.

Some brokers charge a maintenance or inactivity fee on dormant accounts.

🎯 Basic Tips When Trading CFDs

Here are some key tips to keep in mind when trading CFDs:

(1) Limit your deposits

Only deposit the amount needed to cover your initial positions. Avoid depositing more than necessary.

(2) Limit your portfolio risk

Avoid using capital leverage greater than 5:1. Excessive leverage increases your exposure beyond what most traders anticipate.

Also, never risk more than 2% of your total capital on a single trade. For example, if your account balance is $10,000, limit your risk per trade to $200.

(3) Place small pilot orders

Pilot orders are especially helpful for beginners.

If you plan to risk $200 on a trade, start by opening a small test position (e.g., 0.01 lot) to measure the actual dollar loss at your chosen stop-loss level. If the 0.01 lot results in a $20 risk, you know you can scale the position up to 0.10 lots to stay within your $200 risk limit.

Alternatively, test your pilot orders on a demo account before using real funds.

(4) Trade what you know

Focus on assets you understand well. Avoid trading unfamiliar instruments, and when you do, use small pilot positions.

Professional traders often specialize in specific markets—such as Gold, Crude Oil, US30, or EUR/USD. Specialization provides deeper insight, and better insight leads to improved performance.

■ CFDs Trading and Brokers

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