Whether you are interested in trading currencies, commodities, or stocks through a CFD account, you must conduct your trades through a market broker. This intermediary plays a very critical role in the trading process. As a trader, you must take your time to choose the best forex broker for your trading needs.
When it comes to brokers, traders have access to thousands of options online. So, how can one be confident that they choose the right broker? Here is everything you need to know about CFD brokers.
When finding a broker, you need to ascertain that they are regulated by an authorized regulatory agency in your country. When you deal with a regulated broker, you are sure that they adhere to standard operating standards as required by law.
Some of the standards they are required to adhere to include maintaining segregated accounts to protect your funds and operant with a preset capitalization percentage. When you are under a regulated broker, you are sure that your investment is secured should the broker become insolvent.
Countries with strict broker regulations include Australia, India, the Eurozone, Switzerland, Japan, the USA, and the UK.
The software and platform
When you find a broker, you automatically gain access to their trading platform and software. The platform you use is your gateway to the market you are interested in trading in. the best brokers offer traders an array of options for trading platforms provided by third-party trading entities such as MetaTrader and MetaQuotes.
Some brokers offer their customized trading platforms as a way of standing out in the industry. These are some of the best platforms to trade on since they come fully customized to serve the needs of the broker’s clients.
Whichever options you go for, a good CFD broker should give traders options to choose from. This way, you can be sure that the platform can work on your computer or smartphone. The most common platform offered by most brokers is MetaTrader4, used by at least 80% of traders.
To determine the best platform for your need, you should consider feature such as:
- A comprehensive charting package
- Technical indicators
- One-click trading capabilities
- Risk management tools like trailing stops and stop-loss orders
Spreads and commissions charged
Most CFD markets operate under spread guidelines as opposed to commissions. This is why most CFD brokers advertise as commission-free.
Brokers make money by charging a spread. This is the difference between the buying and selling price of an asset. For instance, if you are trading currencies like a EUR/USD pair with a 1.0875/1.0878 bid and ask price, the spread for this pair is 3 pips.
There are three types of spreads that a broker can charge:
- Fixed spread – this is a non-changing type of spread where the trader knows the spread amount before a trade.
- Floating spread – this is a variable spread that always changes depending on market volatility.
- Commission fee – this is a percentage of the broker’s spread. Ensure you are aware of the amount payable before trading.
Fixed spreads are the best deal for traders who prefer certainty with trading costs, while floating spreads are ideal for any trader looking to pay a minimal spread.
The best brokers for beginner traders
If you are new to trading CFDs, there are some qualities you need to look for in a broker. These include:
Trading resources availability
The best brokers provide new traders with a wealth of trading resources and educational materials to make it easier to learn the trade. These can be in the form of webinars, courses, videos, articles, and guides.
Unlimited access to demo accounts
Any reputable broker should provide access to a demo account to all their clients. This type of account allows you to practice trading and try out different trading strategies before venturing into a live account.
A user-friendly platform interface
With so many platforms in the market, it is important to ensure that your preferred broker offers an easy platform to learn and use for a newbie. As a beginner, you do not need an overly complicated platform. The best platform should be easy to use, fast, and easy to master.
The bottom line
There are numerous factors to consider when choosing the best CFD trading broker as a newbie. This guide covers some of the most important factors to consider to get you started. Once you find a trader who fulfills most of the aspects highlighted, you can go ahead and start trading.