CFD Providers: Choosing An Appropriate Online Broker

Choosing a CFD provider that is suitable for your trading is important for both trading as well as backtesting systems (if you do this).

And it is not only about reducing trading costs.

A suitable CFD broker allows you to:

1. Trade the way you want to trade.

For example, if need to place your orders to enter CFDs in the evenings when the market is closed, or, if you want to enter a CFD with stop orders (stop entry orders), then you’ll need to check to see if the provider will allow these types of orders, and during after market hours.

2. Trade a sufficient number of CFDs long and short.

If your system requires a sufficient number of CFDs to produce a certain return, then check to see that their list of tradable CFDs are adequate. Otherwise, your backtest results will be not very accurate. Trading with leverage and trading with many opportunities to go short are among the attractive advantages of CFD trading online.

3. Minimise the costs of trading.

The costs of trading include 1. spread widening (if the CFD prices are no the same as the underlying share prices), 2. commission, 3. interest costs, 4. slippage. Slippage may be influenced by the way the stop losses are handled. Minimising expense means maximising profits. So look at all these factors in the cost, not just one in isolation.

A few extra notes:

Note that with all CFD providers:

1. Tradable CFDs, spreads, and margins may change from time to time without notice with the market maker.

2. The commissions offered by market makers may be negotiable, or may vary if you’re with an educational trading group. Alsom at times, there may be special offers on, for example, where the commissions are reduced if you trade greater than a certian number of times per month.

3. If you trade with guaranteed stops, note that they may not be available on every CFD that’s tradable. So if this is important to you, check with the broker.