CFD trading - Best CFD trading platform 2021

Last updated: 17.05.2021
Richard Morrish
Author:
Richard Morrish
Adviser
CFD & Trading
Experience
> 30 years

The ease of trading stocks and futures with comprehensive & low-fee trading platforms has inspired many people to explore their trading options. However, trading CFDs can be a tad bit complicated compared to trading shares.

Thanks to leverage, it can be exciting to jump into CFDs because they don’t demand a huge amount of investments. Though with ease comes high risk as well. In the following article, we’ll discuss CFDs in detail, along with a comprehensive take on the best CFD trading platform for beginners and experts alike.

Trade now commission-free

nextmarkets investors

  • How does CFD trading work?
  • What is leverage?
  • Movement in CFDs
  • CFD trading guidelines
  • Basic CFD terms
  • How to trade CFDs
  • Find the best CFD broker
  • Identify the best CFD trading platform
  • Our final thoughts

How does CFD trading work?

CFD (Short for ‘Contracts for Difference’) is a contract between a buyer and a seller. They bet on a financial market such as forex, indices, commodities, and CFD cryptocurrency without owning the underlying asset. The buyer then pays the seller the difference in the asset’s value from its purchase time to the current time. 

The primary difference between a CFD trade and a share trade is that you don’t have to take ownership of the underlying stock when you trade CFDs. Meanwhile, trading shares means you get complete ownership of the underlying assets.

In other words, Investors use CFDs to place bets on predictions of a rise or fall in the price of an underlying security/asset. The act of buying or selling CFDs depends on whether the trader expects the price of a security to rise or fall. For instance, if a trader expects an upward movement in an asset’s worth, he’ll bet on it. Likewise, if a trader expects a downward trend in an asset’s price, he will likely sell an opening position. 

CFDs are popular in day trading because the trader doesn’t have to own the underlying asset. This allows traders to make faster trades by opening and closing positions rapidly according to the market’s direction. 

The magical formula behind CFD is ‘the closing selling/buying price – the initial buying/selling price – (Interest x n days) – transaction costs = profit or loss.’

Now imagine yourself as a CFD trader. You see a stock that holds an opening price of 10 USD; now, you can enter the trade with as little as 50 USD. Similarly, you could also open a CFD for 100 shares’ worth of money, which would cost 1000 USD. Although CFD traders generally require lower margins, typically around 5%, so you don’t need a large sum of money to jump into a CFD trade.

The main advantages that come with trading CFDs are:

  • Traders don’t need to purchase the underlying asset or its total face value.
  • Trading options are available in both rising and falling markets.
  • There is no expiry period to the contract between the two parties.
  • CFD traders gain access to global financial markets.
  • Traders can go for leveraged trading.
  • Markets are available for 24 hours.
  • Lower commissions.

The main disadvantages of trading CFDs are:

  • CFDs are high-risk instruments.
  • There is no ownership or voting rights for traders.
  • They aren’t economically suitable for long-term positions.
  • The profits gained through CFD are subject to capital gains tax.
  • There are market requirements and P&L swings to consider.
CFD trading - Nextmarkets

What is leverage?

Financial leverage, also referred to as margin trading, is an investment strategy applied in CFD trades and spread betting that allows traders to enter financial markets with a relatively small upfront capital. CFDs’ leverage feature has attracted numerous traders worldwide to hop onto the bandwagon and explore CFD on forex, shares, commodities, or indices. However, the return on the position is proportional to the size of the position.

How is this different from conventional trading? Well, if you’re trading regular stocks, you’d have to pay the broker the exact value of shares you’d like to purchase. For instance, if you’re purchasing 1000 shares of ABC company, and each share is for 500$, you’d have to pay (1000 x 500) 500000$.

That’s not the case while trading CFD shares. Instead, you’re trading with leverage, which means you can deposit a small amount of the total trade’s value and still get the same market exposure. This could either magnify your profit or make you lose some or all of your money.

Movement in CFDs

The rise and fall of the market depict the movement of CFDs, which means it’s interlinked with supply and demand. As the market levels rise and fall, CFD traders grasp opportunities to buy or sell in relevant markets.  

A CFD trader has to focus on opportunities where an asset is expected to be worth more in the coming days, or an investment is likely to lose its value shortly, based on what the markets look like.

If the market seems like it’s about to rise, a CFD trader will seek an opportunity to invest in that relevant market.  Meanwhile, if the market seems to be declining, a CFD trader will use it as an opportunity to sell off their exposure. In return, this causes the market to fall regardless due to the increase in supply and decrease in demand.

Key tip: Work fast. The key to making a profit with CFD is to buy or sell as soon as the market rises or falls or before the market gains momentum in a particular direction.

CFD trading guidelines

Trading CFD in stocks can be confusing, especially for those who are new to stock markets. Unlike Forex exchange, which has existed since the beginning of currencies, CFDs were introduced in the nineties. However, with the proper guidelines and valuable insight, you can make the most out of it.
Here are several guidelines for beginners looking to experience trading CFDs with reduced risk:

1. Familiarize yourself with markets before jumping into them

The primary rule of trading CFDs is to understand the market and make decisions based on it. It’s always better to stick to markets you’re familiar with to ensure you don’t miss out on opportunities or grab the wrong ones.

Similarly, it’s not a good idea to jump at multiple opportunities as soon as you start trading CFDs. Yes, there are enormous CFD markets to trade, but your aim should be to invest in a small number of familiar markets, to begin with. This would allow you to minimize risk and maximize your profits by seizing the right opportunities efficiently.

2. Take little steps

Understanding how CFDs work and making the most out of them can take a bit of experience, which is why it’s best to start small. Instead of investing a large sum of money, take your time with smaller investments or more minor risks.
The ideal percentage to risk your total capital initially should range from 1% – 2%, as this would give you space to experiment with multiple trades. Once you get the hang of it, you can increase the risk percentage and benefit from the experience to make successful trades.

3. Make sure to stop-loss orders.

It’s essential to use an effective CFD trading strategy such as a stop (stop-loss orders) to avoid significant losses. After all, the failure to success ratio in CFDs is not very favorable. Using stops or an effective exit strategy allows a trader to control the risk on their investments by closing a position when it’s going downwards. This gives traders a little space, so they don’t have to keep a constant eye on their open positions.

Whether you’re swing trading or day trading, having a clear exit strategy is necessary to minimize the risk of losing a huge chunk of your investment.
Although a standard stop does not entirely diminish the risk of loss in a position as they may suffer from slippage, which is why you should focus on guaranteed stops. It doesn’t matter how experienced a trader is; opening a position without a stop is not an option for CFD traders who want to trade successfully.

4. Choose a regulated and secure brokerage firm.

Of course, the most crucial part of trading CFDs is to select a regulated, convenient, and secure stockbroker. When it comes to CFDs, each trading platform has differing services. Some may be more suited for beginners, while others may work better for experts.

However, the ideal trading platform would be convenient to use, innovative, and suitable for all traders’ levels. For instance, Nextmarkets is known for its trading platform and the numerous tools along with convenient trading for any level CFD trader. Not just that, but it is regulated and secure. The number of positive reviews for the recently emerged broker speaks volumes for its services and reliability.

Basic CFD terms

Understanding the basic terms commonly used is an essential aspect of trading CFDs with online platforms. Here are a few of the widely used terms:

Long and short trading: Long or short are referred to as positions taken during a CFD trade. When you expect a particular market to go up, you’ll be purchasing intending to gain profit; this is considered as ‘going long.’

Similarly, if you expect a market to decline over time and sell stocks to repurchase them to make a profit, this is considered short trading or ‘going short.’ 

Maintenance margin/variation margin: The minimal total funds or equity required to be in your account to keep your trades open after purchase is referred to as Maintenance margin. 

Initial Margin: This is a certain amount of funds required in your account before opening a position. For instance, if a position is open for 100’000 GBP and the leverage is 20:1, the required initial margin would be 5000 GBP.

Used Margin: This refers to the sum of initial margins being used in all of your open positions.

Free margin: Any funds present in your account but not being used up for open trades would be your free margin. These can be used to initiate further transactions.

Overnight charges: Also referred to as an overnight finance charge, an overnight charge is a cost your broker implements on you for holding a position open overnight. It is linked to the interest rate of the underlying currency. In other words, it’s a charged amount of interest you have to pay for the leverage you use overnight.

Lot: This refers to your CFD trade’s size and may vary in terms of value point per movement depending on each market.

Slippage:  This refers to the difference between the price requested for a trade and the cost of the actual trade that occurred. The two factors that determine slippage are liquidity and volatility, meaning it can occur if the market changes rapidly or lacks liquidity.

Stop-loss order: A risk management tool commonly used while trading CFDs. If the market starts to go opposite to a trader’s position, he can immediately close his position to avoid significant loss.

Best forex broker - Nextmarkets

How to trade CFDs

Trading CFDs online started gaining popularity in the early 2000s. The rapid technological developments and widespread internet access helped online trading become the new norm. With the ease of online trading, several digital trading platforms have climbed their way to the top.

People can now trade CFD shares conveniently. All you need is a laptop, phone, or tablet and a stable internet connection. 

Firstly, you’ll need to register with an online CFD broker platform. The usual time taken for account verification is merely two days. After account verification is done, you’ll be asked to fund your account through your Debit/Credit card, bank wire, or online payment provider.

 That’s just the easy part, though; the actual challenge is getting a grip on how CFD trading works and opening your first CFD trade. Although with the right platform, you’ll get the hang of it in no time.

Nextmarkets allows traders to open a free demo account for a hands-on experience of CFD trading with virtual currency before they jump into the market. It’s always better to do a trial run beforehand as it helps you understand the market without losing any capital.

Find the best CFD broker

Finding a great platform to trade CFDs can be tricky as each trading platform offers different perks. For instance, one might offer better interfaces, while another might have better CFD trading products. It all comes down to which CFD trading platform offers the best tools paired with convenience and guidance for traders.

It’s common for investors to assume that brokerage firms don’t play an instrumental role in their investment actions’ success or failure. The truth is, it doesn’t matter how much research you do, nor does it matter who you consult; you’ll find the same notion everywhere; choosing the right broker does have a significant impact on the success of your investment.

Whether you’re a beginner or expert trader, choosing the best trading platform for your CFD trades can set you up with a much higher chance of long-term success with CFDs. The million-dollar question is, how do you choose the best amongst CFD trading platforms?

The answer consists of three words, research, research, and research. Don’t jump at the first platform you come across; instead, make sure that the platform offers professional insight, educational tools, trading tips, and access to graphs or daily analysis. Each of these features plays a vital role in the successful trading of CFDs, especially for beginners.

Best CFD trading Platform

Offering over 800 unique trading options and round-the-clock exceptional FX & CFD trading services from Monday through Friday, Nextmarkets is one of the best online brokers out there. Though the brokerage firm is still new in the market, they stand out amongst competitors based on the numerous unique and innovative services they’re offering.

Having been founded in 2014, Nextmarkets has grown tremendously over the past few years, showing traders a bright future for CFD trading. In other words, Nextmarkets is revolutionizing online brokerage.

The stockbroker has expanded its product range with 7000 shares from 52 countries worldwide and 1000 ETFs (Exchange trading funds), free of commission.  

The securities broker also offers online brokerage so you can hop on to your computer, register an account, and experience the world of stock markets while testing your trading skills with convenience. Although CFD trading is a more recent concept than FX, it’s essential to understand what risks are involved and how Nextmarkets can help you make the most out of your money with its CFD trading tools and services.

Identify the best CFD trading platform

1. Reputed and regulated

The primary factor any trader must consider is whether or not their broker is safe and regulated. Fortunately, Nextmarket is licensed and regulated by the MSFA (Malta financial services authority) as a financial services company under the license IS/77603.

Being regulated by the MSFA subjects the company to EU/ESMA guidelines as well, including the leverage restrictions. Similarly, being subject to many rules such as a minimum capital requirement of €730,000, providing fair dealings, reporting client activity, etc., allows clients to trade without worrying about losing their money.

2. Most innovative broker 2020

The most innovative broker award is one of the most sought-after Brokercheck Awards because every trader out there wants to benefit from modern-day technologies and unique functions. The founders of Nextmarkets, Manuel Hayden and Dominic, furthered classic social trading while introducing innovations into the industry, such as various CFD baskets.

Providing traders with innovative tools allows them to trade CFDs more conveniently and with lower risk. The brokerage firm is also introducing more innovative financial instruments this year to add to its innovative features.

Having various CFD trading tools helps facilitate traders. It makes it easier to trade regularly or keep an eye out for investment opportunities without fearing substantial loss during trades.

3. The convenience of trading from anywhere

Nextmarkets online trading software can be accessed from anywhere, even through your phone. This means traders can trade with ease around the clock. All you have to do is download their trading application on your phone and enjoy managing quick trades without compromising other commitments.

This allows users to make sure they don’t miss out on opportunities for CFDs and promptly buy and sell whenever the market falls or rises.

4. No hidden or extra charges

Nextmarkets does not charge its clients order fees, custody charges, or in fact, any hidden costs. Instead, the stockbroker offers its clients 200 real-time investment ideas through seven asset classes taught by several trading coaches, absolutely free of charge.

The brokerage also offers commission-free trading of shares via the stock exchange and allows traders to trade fractions of shares. Trading fractions means you can trade expensive stocks for as low as 10GBP. This is a massive opportunity for traders, especially those who are new to the trading market.

5. Daily trade analysis

Clients can keep in touch with their trades with the help of the daily trade analysis provided. Staying in touch allows you to make better trading decisions while monitoring your transactions efficiently. Users can access this feature from either their phones or laptops, whichever is convenient.

6. Education and trading come hand in hand.

Not only do you get access to regular trade analysis, but the Nextmarkets platform allows clients to subscribe to specific trading coaches as well. This allows the trader to get the coach’s comments in the form of a chat monologue and can visualize the coach’s analysis charts and indicators.

The founder of Nextmarkets calls this model ‘Curated investment’ because if a coach makes a profit through his analysis, the trader can follow in their footsteps and make successful trades as well. This is specifically even more beneficial for beginners as it would eradicate risk and increase the chances of making successful CFD trades while learning pro techniques.

Our final thoughts

While CFDs are a high-risk instrument and not suitable for everyone, they’re worth trying if you want to trade with leverage. The key to avoiding high risk in CFDs is developing and deepening your understanding of how they work and choosing a trading platform that provides you with the set of tools, analytics, educational material, and guidance needed to reduce risk and maximize chances of making profits.

Several trading platforms allow you to trade CFDs online, but choosing the best CFD trading platform amongst those requires research. Our research shows that Nextmarkets would be an ideal option for CFD trading for beginners and experts alike. Mainly because it is not only innovative and client-oriented, but its tools and services are highly suited to reduce risk and promote learning.  

The benefit of trading with Nextmarkets is that it offers traders a free demo account, and we highly recommend beginners give it a try. Research shows that 2/3rd people lose their money while trading CFDs, and hence it’s declared a high-risk instrument. To help beginners eliminate part of this risk, a demo account can give you a clearer idea of where you stand in terms of trading skills and knowledge.

Once you’re confident that you’ve developed the required practice to trade CFDs, all you have to do is jump to the trading website and register a trading account. After that, you can build on to your skillset as you continue to trade and hopefully soon become an expert in trading CFDs.

CFD trading FAQs

💸How can I make money from CFD trading?

Making money from CFD trading can be tricky, and there are a few things to take note of beforehand. First of all, you must be good at analyzing the market, so you can predict whether the market will rise or fall.

Secondly, you must try out a free demo account to test your trading skills and get hands-on trading experience within the stock market. Lastly, you must understand what’s at risk and grip strategies and learning tools that could lower the risk.

❓Can you make a living from CFD trading?

While it’s definitely possible to make a living out of CFD trading, there are many additional factors to be considered. Firstly, you must have a thorough understanding of how CFDs work because they’re highly risky instruments.

Secondly, you must be willing and financially able to bear the loss as CFDs are high-risk instruments, and 2/3rd of CFD trades result in loss. Finally, you must be aware of the top CFD trading platforms and should focus on doing extensive research to make sure you select the best one for yourself.

The first and most crucial part is selecting a CFD trading platform that offers high-quality trading tools and services. Then you’ll have to register for an account, which normally takes a few moments. Once you receive your trading account, you can add funds to it and initiate your first trade.

Many trading platforms, such as Nextmarkets, offer free trading accounts and commission-free trading of CFDs. You can also hop onto their site and try out a free demo account to get a one-on-one risk-free trading experience. This would allow you to work out your confusion and learn the basics of trading CFDs online.

Smarter Trading
  • Trade with Europe's commission free online broker
  • Receive up to 200 professional analyses per month
  • Trade more then 8000 shares, ETFs and other products
Start trading now
x