CFD Trading is the buying and selling of “Contracts For Difference” – referred to as “CFDs”. They allow traders to speculate on price movements of an asset – both going up, or down (long or short). Often offered with leverage (or ‘on margin’), they give UK traders the ability to speculate on stocks, forex, commodities or indices. As the underlying asset is not owned by the trader, no stamp duty is applicable to CFDs.
Read our full guide here and find the best CFD trading platform and the best CFD broker for UK traders 2021.
In this article, we will:
Show advantages and disadvantages of this form of trading.
Explain how to find the best CFD broker account, platform or software for you.
Offer some “Beginners Tips” to help analysis and trading strategy
A trader with a Plus500 account can trade CFDs on underlying financial instruments such as Forex, Stocks, Commodities, Cryptocurrency (Availability subject to regulation), Options and Indices. With tight spreads and no commission, they are a leading global brand. Voted #1 in UK.
A trader with a Plus500 account can trade CFDs on underlying financial instruments such as Forex, Stocks, Commodities, Cryptocurrency (Availability subject to regulation), Options and Indices. With tight spreads and no commission, they are a leading global brand. Voted #1 in UK.
Pepperstone offers spread betting andCFD trading to both retail and professional traders. Clients can trade FX, indices, commodities and shares on MT4, MT5 and cTrader platforms.
Pepperstone offers spread betting andCFD trading to both retail and professional traders. Clients can trade FX, indices, commodities and shares on MT4, MT5 and cTrader platforms.
FTSE Spread
1 pt
GBPUSD Spread
0.59 pips (Via Razor)
Oil Spread
0.7 pips
Stocks Spread
DAX (1 pt in main trading session), DOW (1.6 pts in main trading session)
Forex.com boast a global reputation. Regulated in the UK, US and Canada they offer a huge range of markets, not just forex, and offer very tight spreads and a cutting edge platform.
Forex.com boast a global reputation. Regulated in the UK, US and Canada they offer a huge range of markets, not just forex, and offer very tight spreads and a cutting edge platform.
XM.com Offer a range of Account types and a low minimum deposit to appeal to all levels of trader. With 1000+ markets and low spreads they offer a great service.
XM.com Offer a range of Account types and a low minimum deposit to appeal to all levels of trader. With 1000+ markets and low spreads they offer a great service.
Multi-Award winning broker. Specialising in Forex but also offering stocks and tight spreads on CFDs and Spread betting across a huge range of markets.
Multi-Award winning broker. Specialising in Forex but also offering stocks and tight spreads on CFDs and Spread betting across a huge range of markets.
Deriv.com are a new brokerage, offering options and CFDs on a simple, reliable, flexible platform. Get access to volatility indexes exclusively at Deriv.
Deriv.com are a new brokerage, offering options and CFDs on a simple, reliable, flexible platform. Get access to volatility indexes exclusively at Deriv.
XTB is one of the largest stock exchange-listed FX & CFD brokers in the world, offering access to over 2000 instruments from two platforms: its own award-winning xStation 5 and the traditional MT4.
XTB is one of the largest stock exchange-listed FX & CFD brokers in the world, offering access to over 2000 instruments from two platforms: its own award-winning xStation 5 and the traditional MT4.
BDSwiss offer 250+ Shares, Indices, Forex, Commodities and Cryptocurrencies markets via CFDs. With spreads from 1 pip and an award winning app, they offer a great package.
BDSwiss offer 250+ Shares, Indices, Forex, Commodities and Cryptocurrencies markets via CFDs. With spreads from 1 pip and an award winning app, they offer a great package.
Trading 212 Offer a truly mobile trading experience. With tight spreads and a huge range of markets, they offer a dynamic and detailed trading environment. Recent customer care issues have severely damaged the reputation of the brand.
Trading 212 Offer a truly mobile trading experience. With tight spreads and a huge range of markets, they offer a dynamic and detailed trading environment. Recent customer care issues have severely damaged the reputation of the brand.
CMC Markets is headquartered in London and listed on the LSE (FCA Regulated). They offer competitive spreads on a global range of assets via a next generation platform.
CMC Markets is headquartered in London and listed on the LSE (FCA Regulated). They offer competitive spreads on a global range of assets via a next generation platform.
NinjaTrader offer Traders Futures and Forex trading. Use Auto-trade algorithmic strategies and configure your own trading platform, and trade at the lowest costs.
NinjaTrader offer Traders Futures and Forex trading. Use Auto-trade algorithmic strategies and configure your own trading platform, and trade at the lowest costs.
Trade forex CFDs from 0.0 spreads with Vantage FX. Clients can access popular forex pairs like GBP/USD, EUR/USD and AUD/USD from 0.0 spreads with a flat $2 per lot commission on our RAW account.
Trade forex CFDs from 0.0 spreads with Vantage FX. Clients can access popular forex pairs like GBP/USD, EUR/USD and AUD/USD from 0.0 spreads with a flat $2 per lot commission on our RAW account.
Binary.com are the established pioneers of binary options. The choice of the advanced trader, Binary.com offer the greatest flexibility of any binary broker. They also offer Forex and CFD via the MT5 platform.
Binary.com are the established pioneers of binary options. The choice of the advanced trader, Binary.com offer the greatest flexibility of any binary broker. They also offer Forex and CFD via the MT5 platform.
IG offer spread betting, CFD and Forex trading across a range of markets. They are FCA regulated, boast a great trading app and have a 40 year track record of excellence.
IG offer spread betting, CFD and Forex trading across a range of markets. They are FCA regulated, boast a great trading app and have a 40 year track record of excellence.
Instaforex provide Forex, CFDs, Stock and Cryptocurrency trading. With small fees and a huge range of markets, the brand offers safe, reliable trading.
Instaforex provide Forex, CFDs, Stock and Cryptocurrency trading. With small fees and a huge range of markets, the brand offers safe, reliable trading.
Alpari offer forex and CFD trading across a big range of markets with low spreads and a range of account types that deliver for every level of trader from beginner to professional.
Alpari offer forex and CFD trading across a big range of markets with low spreads and a range of account types that deliver for every level of trader from beginner to professional.
Skilling are an exciting new brand, regulated in Europe and beyond, with a bespoke browser based platform, allowing seamless low cost trading across devices.
Skilling are an exciting new brand, regulated in Europe and beyond, with a bespoke browser based platform, allowing seamless low cost trading across devices.
ETX Capital are a London based, FCA regulated broker offering tight spreads across a wide range of markets. They offer professional client services to Pro clients. ETX are offering a FREE trading course to new clients, and free guaranteed stops on the TraderPro platform.
ETX Capital are a London based, FCA regulated broker offering tight spreads across a wide range of markets. They offer professional client services to Pro clients. ETX are offering a FREE trading course to new clients, and free guaranteed stops on the TraderPro platform.
London Capital Group provide trading on 7000+ markets over 9 asset classes. Spreads are competitive but active traders may have better broker options elsewhere.
London Capital Group provide trading on 7000+ markets over 9 asset classes. Spreads are competitive but active traders may have better broker options elsewhere.
Buy and sell on a breadth of financial markets with leveraged CFDs.
Buy and sell on a breadth of financial markets with leveraged CFDs.
FTSE Spread
3
GBPUSD Spread
1.6
Oil Spread
$0.04
Stocks Spread
Variable
FCA Regulated
Yes
MT4 Integration
Yes
What is a CFD?
A CFD is a contract between broker and trader to pay the difference in price, between the strike price and the price at the close of the trade, of an underlying asset.
Contracts For Difference Defined
CFD Defined: A Contract For Difference (or CFD) is a contract between a broker and an individual trader. It is a form of derivative. The difference refers to the value of the underlying asset at the time the contract is agreed (the strike price) and the value after the trade ends. It is essentially an agreement to exchange the difference in these two values.
The underlying asset is not brought and sold, but the contract allows traders to speculate on price movements of that asset. When trading stocks, no dividend is directly payable, but many brokers will still pass on the dividend. This balances any drop in value once a stock goes ex-dividend.
The trader does not own the underlying asset at any stage. Brokers create CFDs in a wide range of individual equities, indices, commodities and forex. The price is determined by the markets. The length of the contract will vary. Trades may last just a few seconds, up to months or years.
Puts or Calls
CFDs are generally used for shorter time periods (days or weeks) as more traditional investments are seen to offer better value over longer periods.
The contract features a ‘buy’ and a ‘sell’ price (known as the ‘spread’). This offers the chance for traders to go long (buy) if they believe market prices will rise, or go short (sell) if they believe market prices will fall. Buys or sells are also known as “puts” and “calls”.
If the market moves in line with the trade, profits from the contract will rise in line with that movement. Conversely if the market moves against the trade, losses increase. These contracts are often offered with a degree of leverage. This increases potential profits – but also potential losses – and therefore carries much greater risk.
Trading CFDs – Key Points:
A CFD is a linearly leveraged financial product. Profits and losses increase in direct relationship to market performance whether you buy or sell. The leveraged nature of CFDs mean, therefore, that your losses can exceed your initial investment. The best CFD brokers will offer negative balance protection, but this is not always the case.
A CFD does not have a fixed maturity date. The trader will dictate when the contract expires. When you judge that it’s the right time for you to close a position, this is done by placing a trade of the same value in the opposite direction. Most brokers will however, make a very small charge for positions held overnight. Each charge is miniscule relative to the trade size – but is repeated each night.
How And Why CFD Trading Can Be Useful
Here we weigh up some of the pros and cons of trading financial markets via cfds. Many readers ask if cfds are “good or bad” – as with any financial product, they will be right for some traders, and not appropriate for others. Hopefully this summary will help decide if they are right for you.
Take a position in a falling or rising market
With the choice to go short or long, you have the potential to generate profits regardless of which way the market is trending. With traditional investment vehicles, it is more complex to profit from falling markets. This is especially true with forex trading.
Hedge your wider investment portfolio
Where you are invested in physical shares, your hope and expectation is obviously that they will increase in value. You may also expect to collect a dividend. But where there is a very real risk of those shares leaking value, CFDs can play a useful hedging role.
So if you hold stocks in a certain company, short selling CFDs based on the same shares can be a useful way of making a profit from any short-term downtrend. In turn, this can partially or wholly offset any loss from the portfolio. This security measure can be an especially useful strategy to adopt in volatile markets.
Tax efficiency
While share dealing attracts stamp duty liability, the same does not apply to a CFD trade. Unless you class yourself as a full time trader, and trading cfds is your ‘occupation’, then income tax is not applicable to any profits or earnings derived from trading.
This does work in reverse as well however, in that any losses can not be claimed back either – but the tax implications are generally positive.
Risks Associated With CFDs
Below are some of the hidden dangers of trading with contracts for difference. Many risks can be reduced by using a practise account before trading;
Leverage and margins
To open a CFD position, it is necessary to deposit an amount in your brokerage account, known as a margin. This ‘position margin’ tends to depend on the size of your position, the broker (CFD providers) and the type of underlying asset.
The good thing about this is the ability to deposit a percentage of the full value of the position, which means your money linked to the position is not tied up in one transaction and can be used for other investments.
The downside is that it is possible not just to lose your initial deposit but also be required to make further payments.
CFD Trading – leverage risk
Leverage quickly accelerates both the amount that can be won, and lost. Hence the warning – Losses can exceed deposits
Keeping track of transactions
Failure to ensure you have enough funds in your account to cover total margin requirements could mean that some or all of your positions are closed out. Managing multiple CFD trades requires you to constantly monitor your account, depositing additional funds where necessary.
A “margin call” is where the broker gets in touch with the trader in order to add funds to the account. This happens where a number of trades have moved against the trader. Failure to add funds will mean certain positions are closed.
Use reputable, regulated brokers
In the UK, there are a great choice of reputable CFD brokers, many fully regulated by the FCA. Traders can use these trading platforms with confidence. Regulation is robust and is there to protect the trader.
This does mean however, that brokers will ensure they have strict policies on ID and banking facilities. FCA regulation is probably the best standard, though some brokers will ‘passport’ their own domestic regulator – which allows them to trade in the UK.
Beware of unregulated firms – a London address does not guarantee they are regulated by the FCA.
Halal or Haram?
With online trading companies and CFD providers keen to expand their user base, many now offer websites boasting ‘halal’ accounts. There is reason for Muslim traders to tread carefully however. While these accounts are legal, and ensure that no interest or “Riba” is used on the account – they may still be haram.
Much depends on the traders themselves. In Islam, gambling is haram. If a trader is using a trading account to purely speculate, then that would be forbidden.
Only the trader can know if they are investing responsibly. This site is not qualified to answer this question categorically, but there are useful forums regarding Halal investing. Those discussions may help individuals decide if trading is right for them.
Is CFD trading for you?
CFDs offer a dynamic and sophisticated way of trading – although the possibility of losing more than your initial stake mean that it isn’t for everyone. The terminology can also sometimes confuse investors more use to other financial tools.
When looking for a trading platform, it’s important to opt for a format that you are comfortable with; one that allows you to keep control of your trades and one with a competitive spread – i.e. a narrow difference between buy and sell prices. Weighing up the various benefits will come down to personal choice.
How to Compare CFD Brokers
How should you attempt to compare CFD brokers? And how might you identify the best broker or best CFD trading platform? There are a whole host of regulated and secure brokers offering CFD (Contracts For Difference) trading – but how can you tell if one is “better” than another? A good start is our UK CFD Brokers list, but below we will explain some important details that traders should look at.
The answer will often need you to ask questions of yourself. The best CFD broker for one trader, will not necessarily be the best choice for another.
Here we cover some key comparison elements from the leading brokers reviewed on this site. Below that, we highlight some of the key areas where CFD brokers differ from one another. We also explain how you might compare them. The needs and trading style of each trader will be different. There is not one broker that will represent the best choice for all traders. Read on to find out which broker suits you best.
What are CFD brokers?
CFD brokers offer ‘Contracts for Difference’. These are a contract between broker and client that allows an asset to be traded without the client actually owning the underlying asset. Despite this, they can still realise the same profits and losses from any price movement in that asset.
How To Compare CFD Brokers
Here the “Top 10” key comparison features or “rules”, by which you can judge a particular broker;
Spread / Commission
Leverage
Trading Platform
Deposit and Withdrawal options
Additional features
Support
Education
Regulation
Mobile App
Range of Assets
MetaTrader integration
We cover each section in detail below.
Spread or Commission
The spread or commission impacts every trade, and every trader. It is the ‘cost’ of making the trade. It is therefore a very significant value to compare when judging one broker or another.
There are complications however. The spread will differ broker to broker – but also asset to asset. So a broker may have the smallest spread for Forex pairs, but the largest for indices.
Depending on what assets you to invest in, the broker might be the cheapest choice – or the most expensive. So when comparing based on the spread, ensure you are checking the spread on the assets you will be trading most.
Our CFD broker comparison table lists the most popular asset in each category, and the spread for that asset. Remember also, that a demo account is a great way to check spreads – particularly where they are variable.
Margin (or Leverage)
The margin is the percentage of the overall trade value that a trader must deposit (and commit) in order to open a trade.
So a £1,000 trade on the GBP/USD currency pair may only require a deposit of £50. The position however, has exposed the trader to £1,000 worth of risk (the risk of losing the entire investment is extremely small, but that is the value of the position) – hence the warning attached to CFD trading “losses can exceed your initial deposit“. Margin is also referred to as ‘leverage’. Where this is the case, the leverage is often illustrated in terms of multiples – so 200:1 would indicate leverage of 200 times the deposit. The equivalent margin would be 0.5%.
So when comparing brokers, a low margin requires smaller deposits. This will be important to some traders, but less so to others. Note high leverage means higher risk.
Trading platform
The actual CFD trading platform is often not considered before a trader makes a broker choice and opens a live account. That however, could be a mistake. Most platforms will have similar functions – but as with anything, the usability and look and feel will be a matter of personal preference.
It is vital to be trading on a platform that is familiar and easy to use. It is not uncommon for traders to miss prices, or worse, make mistakes trading, because the trading platform did not suit them for whatever reason.
The amount of flexibility may also play a role. If the platform can be resized, or reorganised exactly to your needs, trading becomes the only focus.
Deposit and Withdrawal options
Not your first consideration? If moving money in and out of trading accounts has been an issue in the past, it is worth checking. See if the methods you want to use to fund and withdraw from your account are available with each broker.
Features (Charts, Technical Analysis, Research)
If you plan to research your trades on the same trading platform where you ultimately trade, you want to ensure you have the best research tools available there. Charting standards do differ significantly.
Some CFD brokers offer outstanding charting facilities. Some deliver a range of technical analysis tools that will satisfy even the most ardent technical analysis experts.
The latest news may also available within the trading area, so research can be done from one place. Other platforms seem to assume traders will have already researched their trades elsewhere, and offer pretty basic charts and little in the way of analysis tools. If this is important to you, ensure your potential broker satisfies this need.
Support and Education
Many of the best CFD providers will offer educational material to their clients. These might include ebooks, webinars or even one to one training where the client requests it. Again, this might be important to some traders but not to others. Likewise, the range of languages supported by the firm may also be a factor.
It is worth noting that brokers make money when traders trade. This means most educational materials will encourage lots of trading. Over trading is a frequent issue for many traders, particularly beginners. Those just starting out are also those most likely to look for learning tools.
The available support from a broker may be reassuring for some – others may not envisage ever using it. Potential new clients who do like to know they can contact a broker might like to establish the availability and contact methods for the support desk. Most firms offer a high standard of support.
Other factors
Some other things that enable people to compare CFD brokers might include the quality and availability of a mobile trading application. As ever, trading on the move will be important to many traders – others will be happy to not use a mobile app.
It is very rare for brokers to not deliver a free mobile trading app. These run parallel to the main online site. Again, they have mostly been developed to a very high standard. While some firms may have delivered a poor mobile service in the past, they simply cannot survive without one now.
If you have a niche handset or mobile device, it may not be catered for. But mainstream users on iOS, android or Windows apps can be very confident any broker will deliver a very good mobile app to trade on.
Regulation
This should be a key criteria for any broker. The strongest level of regulation for UK traders will be the Financial Conduct Authority (FCA). They regulate the majority of CFD brokers on our pages. There are exceptions, but where this is the case, the alternative regulator must be listed with the FCA via the European passporting system of regulators.
Bonuses
A bonus or promotional code might also be a factor in a broker decision. The short term nature of these offers however, should mean they rank well down in the order of importance. Taking a worse spread in order to get a larger bonus makes no sense – but any trader who is likely to be successful will already know that.
Asset lists
A broader range of tradable assets does not always mean a better broker. However, if trading a specific asset is important – and that asset is not available elsewhere – then it might be a deal breaker. Again, the largest, more established brokers tend to have a bigger range of assets. If you want particular financial instruments or markets, check the broker offers them.
Our reviews cover all of the factors covered above. Generally the CFD brokers listed on our pages provide demo accounts. So traders can take their time, read the detailed review, and try out the platforms themselves before making a choice. Once you have all the information, you can then decide the best CFD broker for you.
Summary Of Broker Comparison Tips
Consider your own trading methods. The trades, assets and frequency.
Shortlist the cfd brokers that suit that trading pattern
Consider demo accounts. Compare the trading platforms shortlisted.
Identify the best choices for you.
Open an Account, Deposit and trade
Remember: Traders can use multiple CFD brokers, and use those with the best terms for specific trades or assets.
CFD Trading vs Spread Betting
On the surface, cfd trading and spread betting appear the same. There are however, subtle differences that are worth knowing, so that you can use the best investment type.
Both forms of trading allow traders to go long or short, and use leverage. Both are forms of derivative, so the underlying asset is not owned – therefore no stamp duty is applicable. Here are the main difference though:
Deal Size. CFDs are normally based on the asset price, so a £10 per point contract on Vodafone for example, will cost less to open than a £1o per point position on the FTSE. The deal size for a CFD will depend on the asset price. With a spread bet, the trader chooses the size of the bet, and the asset price is not relevant.
Capital Gains Tax. CFDs are liable for Capital Gains Tax (once over a certain size). Spread betting is not subject to CGT. However, this also means that CFDs losses can be claimed back in any tax return. That is not the case with spread bets. This can make CFDs more attractive when using them to hedge for example.
Commission. CFDs on share can attract a commission, with spread bets, this cost is absorbed in the spread. This makes spread betting more attractive when buying smaller amounts of stock.
Direct Market Access. CFDs often offer traders direct access to markets and order books for shares and forex. This is not the case with spread bets.
Expiry. CFDs do not generally have an expiry. Spread bets on the other hand, will have a fixed expiry or ‘settled’ date at some point. This might be end of day, end of the week or months or years away – but there is a fixed point at which the bet ends.
Given these differences, it is worth considering which investment is the best tool, each and every time you open a position. What is “best”, will often depend on the aim of each trade and it’s size.
