What is the best CFD trading platform? As the pool of CFD traders soars, more people are looking for the answer. Indeed, there are multiple brokerages to choose from. This article lists the top five trader-centric brokers based on their pros, cons, and features. You also get the essential 101 on margin trading and learn why market makers are eager to earn with CFD trading. Let’s begin with the basic definitions.
1 What is CFD trading?
CFD (Contract for Difference) is a method for market makers to potentially profit from price movements of stocks, commodities, indices, and other trading instruments (assets). In CFD trading, market makers don’t actually buy or sell assets from the market. This means if they purchase gold, they won’t be able to receive bullion. The buy-and-sell operations are just a technicality to make a contract with a broker.
When using a kind of trading platform like CFD, traders agree (contract) with a broker to pay the difference between the opening and closing price (position) of the assets. The opening and closing prices are the market prices of assets when a market maker enters and quits a trading session, respectively. Trading can be long or short depending on whether a market maker buys or sells assets.
To explain long and short trading, let’s have an example with gold (XAU) as a trading asset.
Long trading
If you, as a market maker, open a long CFD trade, you expect the asset to rise in value. If the gold price rises by $100 between the time you open and close the position, you profit $100. But if the price of gold decreases by $100, you lose $100.
Short trading
Conversely, if you go short, you expect gold to fall in value. You profit if the gold price goes down; vice versa, price growth translates into loss trading. These are simplified examples without mentioning fees and commissions that are typically associated with such operations. Find profit and loss calculations in greater detail at the end of this article.
Leverage and margin
CFD trading’s great popularity centers on its leverage feature. Leverage elevates the market makers’ buying power. This means they can trade larger positions (the amount of assets) with smaller deposits.
Using leverage means a broker lends funds to a trader; the trader ensures collateral (the margin) for such a loan. The ratio between borrowed money and the margin defines the leverage ratio. For example, a leverage ratio of 1:20 means that a trader borrowed funds from the broker 20x greater than the balance of the trader’s margin account.
With leverage, having $1,000 in your account, you can manage positions up to $20,000. As a risk management tool for such operations, brokers use the stop-loss option. This means that if the asset price movements drive your losses, your position automatically closes once losses reach the $1,000 mark. When this happens, it is known as a margin call.
However, there are no limits for trading when price movements drive you profit. In this scenario, you still return only $1,000 to the broker regardless of the profit volume.
For example, the effect of the leverage for a long USD/XAU pair looks like this:
2 Top 5 CFD trading platforms
When it comes to trading software development, fintech startups consider how to create a competitive trading platform. That’s no surprise since the competition in the fintech industry is fierce. Whether it’s desktop or mobile apps, each device platform has brokerages. We prepared a list of the top 5 CFD platforms (by our version) that embrace the most competitive features.
1. eToro
eToro is an Israeli fintech company founded in 2007, with registered offices in Cyprus, United Kingdom, United States, and Australia. This platform operates globally and is popular among CFD traders due to its low trading fees and advanced copy trading options.
eToro provides a lot of free educational materials for both amateurs and advanced market makers. It includes blogs, webinars, and its proprietary online trading academy.
Key Features
PROS
CONS
HOW TO START TRADING
To open an investment account on eToro, users must take the following steps:
Step 1: Sign up for eToro (the single sign-on option [SSO] is available) — it only takes a few minutes to open an account
Step 2: Identity verification (this requires entering personal data)
Step 3: Deposit money into your account
2. Skilling
Skilling is a Scandinavian-owned fintech company offering more than 900 forex and CFD trading instruments. The instruments portfolio includes currency pairs, shares of global companies, popular commodities, and indices from around the world.
PROS
CONS
HOW TO START TRADING
To register with Skilling, users must:
Step 1: Submit email address and create a password
Step 2: Verify account (by uploading proof of address and proof of identity [photocopies])
Step 3: Deposit money into your account
3. IG
IG is the UK’s biggest CFD trading platform. Established in 1974, IG is listed on the London Stock Exchange. The platform is considered safe since it’s subject to the Financial Conduct Authority (FCA) and other prime prudential regulators in the UK.
PROS
CONS
HOW TO START TRADING
Before starting trading on IG, users must complete a simple three-step, sign-up procedure:
Step 1: Fill in a simple form on its website
Step 2: Account verification (typically takes several days)
Step 3: Deposit money into your account
4. Capital.com
Capital.com is a CFD broker operating globally since 2016. The platform charges low forex CFD fees. At the same time, only clients subject to FCA and Cyprus Securities and Exchange Commission can trade real stock on a commission-free basis. As a remarkable market advantage, Capital.com provides traders with comprehensive email and live chat assistance.
PROS
CONS
HOW TO START TRADING
The platform offers a quick start for new users. They must complete only a few registration steps to start trading:
Step 1: Sign up (SSO is available)
Step 2: Verify an account (personal data is required)
Step 3: Fund the account
5. ActivTrades
ActivTrades is a UK-based CFD and forex broker company. It also offers spread betting trading. Retail and institutional traders access services via electronic trading platforms ActivTrader, MetaTrader 4, and MetaTrader 5.
PROS
CONS
HOW TO START TRADING
To open an account at ActivTrades, users must do the following:
Step 1: Fill in the form with basic information (SSO is not available)
Step 2: Provide account holder information
Step 3: Provide trading experience (includes a mandatory test on trading knowledge)
Step 4: Provide financial and account information
Step 5: Set up trading account
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Contact Us3 Is it profitable to trade with CFD platforms?
Yes. However, market makers understand that it’s a double-edged sword: with high profitability comes high risk. According to the Financial Conduct Authority, 82% of CFD customers lose money. It matters little how experienced market makers are, no one can predict price movements with any certainty. So, the chances of losing money are high.
But if you win, the leverage drives multiple revenues.
There’s a formula to calculate potential profit or loss:
Despite a high percentage of losing trade, CFD continues to lure more market makers. Why? Because the profit potential is staggering. All in all, nothing ventured, nothing gained.
! The bottom line
CFD trading attracts many investors as it allows them to gain significant profits by multiplying their deposits using a leverage ratio. There are many CFD trading platforms providing different benefits to traders. Some platforms have global operating coverage and work perfectly as a crypto trading platform.
The others offer a wide range of CFD stocks, remarkable customer support service, and user-friendly interfaces. Yet there’s no best-for-all trading platform. Who knows, a new, game-changing fintech product might soon be developed in the nearest future?
FAQs
CFD trading is a method of financial speculation in which a market maker can potentially profit or lose depending on the asset price movement. Using CFD, traders can contract with brokers to reconcile the price difference between opening and closing positions of assets without the actual purchase of such an asset.
Long trading means buying positions of assets expecting their price will increase in the future.
Short trading means selling positions of assets expecting their price will decrease in the future.
Leverage ratio is the ratio between the money a broker lends to a market maker and the margin the latter provides to the broker.
Margin is financial collateral (deposit) that market makers provide to brokers when borrowing money for leverage trading.
The potential profit and loss of CFD trading are calculated with the following formula:
Profit or loss = ((no. of contracts x value of each contract) x (closing price — opening price)) — fees and commissions charged by trading platforms