CFD brokers are often known for their expertise in providing tradable assets in different markets, how to find a good CFD broker to diversify your portfolio？

CFD brokers offer a wide range of financial instruments to enable investors to diversify their portfolios。From currencies, commodities, stocks to cryptocurrencies, CFD brokers can help traders use these tools and benefit from price movements without owning assets。

In addition, CFD brokers allow you to control large positions even with a small amount of money。In this article, we will discuss the advantages and disadvantages of CFD brokers and the criteria for reliable CFD brokers。

But before that, let's take a closer look at CFD itself。

Introduction to CFDs

A CFD (contract for difference) is a financial instrument that enables traders to speculate on price fluctuations in various assets such as stocks, indices, commodities or currencies without having to own the underlying asset itself.。CFDs have become popular as a trading method in financial markets.。

When participating in a CFD, the individual agrees to exchange the difference in the price of the asset between the opening and closing of the contract.。Traders choose a "long" CFD position if they think asset prices will rise。Conversely, if they expect prices to fall, they will choose a "short" CFD position.。

It is worth noting that CFDs are usually traded through brokers or online platforms.。The trader does not own the underlying asset and the CFD contract is settled in cash when the position is closed.。

To determine your potential profit in CFD trading, you can use the following formula:

• Percent Earnings = [(Closing / Opening) - 1] x 100%
  Unleveraged profit = percentage of profit x investment
  Total profit = unleveraged profit x leverage

List of reliable CFD brokers

• Pepperstone
  Pepperstone is known as one of the world's largest brokers, and its Razor account has excellent pricing, offering more than 1,200 CFDs trading tools, including forex, commodities, currency indices, cryptocurrencies, stocks and even ETFs.。

  FP market
  The broker is known for its low-cost trading and has more than 10,000 tradable CFD assets covering forex, equities, indices, commodities, bonds and metals.。

  XM
  XM may be one of the most popular options for retail and small-cap traders。The broker is committed to a no-re-quote policy, offering no less than 1,000 CFD instruments in which traders can trade forex, cryptocurrencies, stocks, commodities, stock indices, precious metals, energy and equities.。

  IC Markets
  IC Markets has a reputation as an original spread broker, an ASIC-regulated and competitive broker.。It is one of the world's largest forex brokers, offering more than 2,250 forex, commodity, index, bond, digital currency, stock and futures CFDs instruments.。

  Exness
  Exness is another competitive broker for retail and professional traders and is recognized as one of the few brokers with an instant withdrawal policy.。The company offers hundreds of CFDs assets covering forex, metals, indices, cryptocurrencies, energy and equities.。

  OANDA
  OANDA has long been considered one of the top brokers, with strict rules for any trader, but friendly conditions, and top-notch technology to support clients.。In terms of CFD assets, OANDA is commendable for providing more than 120 CFD instruments in foreign exchange, indices, metals, stocks, commodities and cryptocurrencies.。

Benefits of CFD Brokers

CFD brokers facilitate multi-instrument trading for their clients。A wide range of investment products gives you a variety of opportunities to take advantage of。Let's take a look at some of the benefits of CFD brokers.。

Risk Management

Diversification is a risk management strategy that spreads investments across different financial instruments。Traders in a single asset class face the risk of investment failure when the market suddenly turns against their position。

Similarly, you can also protect your portfolio by hedging trades, which involve opening opposing positions in the underlying asset to offset potential losses。For example, you can open a sell order to hedge losses on a buy position。This way, if asset prices fall, the profit on the sell order will offset the loss。

However, hedging does also reduce your potential profit。However, risk is an integral part of financial markets and you should always manage it。

strategic asset allocation

Signing CFD brokers can proactively adjust the asset allocation of your portfolio, a dynamic investment strategy also known as tactical asset allocation。

Since financial instruments tend to have their own cycles, you can allocate funds to CFDs that are currently performing well, or to avoid troubled products。This strategy is only possible if you are able to use a wide range of financial instruments across multiple asset classes。

For example, when a recession hits, you may shift from trading in risky assets to safe-haven assets such as gold, the yen or the Swiss franc。

Purchasing power

In financial markets, purchasing power is the amount of money available to investors to purchase investment products, which is the capital in your trading account plus all available margin.。

CFD brokers typically provide leverage to their clients, essentially allowing you to hold larger positions with less capital。But it's worth noting that leverage, while increasing purchasing power and potential profits, also magnifies risk。

Attention should be paid when choosing a CFD broker

Choosing the right CFD broker for you is not so easy, below we will provide you with some criteria to distinguish between reliable and unreliable brokers。

监管

Regulation is the first list to filter out unreliable brokers, yet scam brokers are still lurking, ready to prey on their next victim。They often promise huge profits to attract unsuspecting investors。To avoid such practices, reputable regulators are actively ensuring fair business practices and protecting their customers.。

In theory, regulators are committed to eliminating unethical trading practices, but not all are trustworthy。

The Financial Conduct Authority (FCA) is one of the most prominent regulators and it is well known that brokers licensed by the FCA are more trustworthy than other brokers.。Other regulators you can trust include CFTC (US), ASIC (Australia), IIROC (Canada), FSA (Japan), CySEC (Cyprus), and more。

Platforms and tools

Due to its availability and reliability, most CFD brokers offer their clients the trader's favorite MetaTrader platform。Brokers also tend to build their own proprietary platforms for advanced traders。

Due to the fierce competition in the CFD market, flagship platforms have become a necessity for today's brokers, which often offer advantages not found in MetaTrader or even its competitors.。

In addition to platforms, trading tools are also an aspect that you cannot ignore when choosing a broker.。A variety of tools can provide you with a variety of options to enter the market。First, open a demo account to see if the broker has a platform and tools that can meet your trading needs and style。

Services and Education

Serious service means serious business, and CFD brokers who refuse to serve their customers are simply not worth your time and money。

When trading, you may encounter technical problems and need quick and perfect help, a reliable broker will solve your such troubles。

Legitimate CFD brokers also want their clients to succeed and they will provide you with educational resources to learn and improve your trading knowledge。This is especially important for new traders who are still trying to figure out what is what。

Financial instruments

Although most CFD brokers are only used by traders in one or two markets, the core philosophy of CFD brokers is to provide their clients with the opportunity to diversify their portfolios。

Therefore, the range of tradable financial instruments is one of the most important aspects of choosing a CFD broker。Forex, indices, stocks and commodities are usually traded in CFD brokers, but you need to be clear about how many assets are available in each instrument。

Cost

For some, transaction costs may be the most decisive factor in choosing a CFD broker。Assuming you already have two optional brokers, and both are the same in terms of services, tools or other aspects, then the cheaper broker is definitely the final choice。Now, what if one broker is more expensive than another but offers better service？

Suppose Broker A charges 1% and Broker B charges 2%。These numbers may seem low on the surface, however, with the frequency of trading and the increase in positions, you will feel the burden of costs。

Higher costs mean smaller net profits and larger net losses。Plus, we all know that losing trades are always imminent。In short, it is wise to choose a cheaper alternative。

Also, be sure to identify all fees for trading with them, whether commissions, spreads, or withdrawal fees。These fees will just keep piling up and even depleting your deposit。And once you lose money in a row, it becomes increasingly difficult to recover your original deposit.。

Ideally, you want to sign with a broker that can reduce transaction costs。That said, opaque brokers are not unheard of。Please investigate carefully to find out if there are hidden costs and payment structures。

How CFD Brokers Make Profits

Transaction costs are some of the sources of income that brokers earn in exchange for providing trading services to traders.。Costs come in many forms and are calculated in different ways。

Point difference

The spread is the difference between the bid price (ask price) and the ask price (bid price), and CFD brokers make money mainly through the spread。For traders, lower spreads provide better overall returns for profitable trades and minimize the risk of unsuccessful trades。As competition becomes more intense, it's not uncommon for CFD brokers to tighten spreads。

For example, a forex CFD for EUR / USD is quoted at 1.2448 / 1.2446, the purchase price is 1.2448, with a sell price of 1.2446。This gives us 0.The spread of 0002 or 2 points is equivalent to a standard lot cost of $20, which is the amount you pay directly to the broker when opening a position。

Margin

The CFD broker can also charge you a commission, which is a percentage of the size of your trade。However, this practice has been abandoned by many brokers。

In other words, there is no trade without a "commission" and traders must pay CFD brokers fees such as spreads, which may actually be offset by widening spreads.。If they don't, they'll have to find alternative ways to generate revenue。

Financing

Financing refers to the cost that a broker marks to finance your transaction, which helps attract retail traders because it allows us to use leverage to trade。Basically, leverage is a loan made by a broker that enables a trader to hold a larger position。In return, the broker charges a financing cost, usually an interest rate plus a small markup to cover your cost of using leverage。

Hedging

Hedging is not just done by traders。CFD brokers also implement this strategy to mitigate losses by matching traders' positions and sending the remaining liability to liquidity providers (market makers, real markets, etc.)。In this way, brokers can protect themselves when traders make profits。

Note that some CFD brokers are market makers that also provide liquidity。Market makers with questionable or no regulation are more vulnerable to unethical trading practices。They are happy to trade with you and profit from your losses。Ensure that the regulation of brokers is always verified by checking the website of the regulator。

Non-transaction costs

The CFD broker may also charge you various fees for your registered account。Usually, they have nothing to do with your activities of buying and selling CFDs。Some non-transaction costs include:

• Deposit fee: The fee charged when depositing funds into an account, which can be fixed or a percentage of the total deposit。
  Withdrawal fee: This is the fee you pay when withdrawing funds from your account, which will further reduce your profits and can be very high。
  Inactivity Fee: A broker may charge an inactivity fee when no trading activity is engaged after a period of time。

Disadvantages of CFD Brokers

CFD brokers also have some drawbacks。First, your account activation may not go as smoothly as you expect; there are risks that traditional brokers do not。Let's look at some of the shortcomings of CFD brokers:

Validation Process

Credit checking is routine when signing with a broker。Since you will be borrowing money from a CFD broker in the form of leverage, the broker in turn must also verify your legitimacy as a trader。The broker can refuse your registration if you do not meet the specific requirements of the broker。These processes can be particularly hard for traders who frequently switch from one broker to another。

Leverage Risk

Lever is a two-edged sword, a silent killer。For example, if you want to buy 100,000 units of EUR / USD, since there is only $1,000 in the account, you must use 100: 1 leverage;。Therefore, leverage must be used with caution。

Long-term position

You can hold a CFD position as long as you extend the CFD cut-off date; however, this comes at a cost。Remember the cost of financing?？As long as you pay interest rates, CFD brokers use leverage to fund your trades。The longer you hold the position, the greater the interest charged, so long-term positions may not be the best choice for CFD trading。

stock CFDs

Equity CFDs create their own problems for CFD brokers。These problems are related to costs, technical issues, and lack of experience in adding stocks to tradable instruments.。Let's look at the current state of stock CFDs.。

• High cost of market data acquisition
  Licensing data from stock exchanges is costly and legally complex。The exchange is well aware of the current state of the trading industry and has introduced new policies accordingly。Today, CFD brokers who want to add shares to their products must pre-audit and pay significant license fees。Because of these troubles, many CFD brokers are not actually exchange members; instead, they work with other companies that have access to real-time markets。
  The platform is inappropriate.
  Hot MetaTrader platform may be good enough for most CFDs products, but not for equity CFDs。For example, MT5 does not provide basic search functions because the platform only lists the codes of stocks, not their names; in addition, brokers using MT4 cannot directly enter the market and must rely on bridge providers。
  Slow execution
  CFD brokers can execute trades in milliseconds, and their technology is fast, but not fast enough to handle exchanges running in microseconds。This can cause market data to be slow and slippery, which can significantly affect your position。
  Lack of experience
  When entering the stock market, CFD brokers not only compete with each other, but also directly with more experienced investment companies and banks, and the investment platforms provided by these entities are usually more convenient and attractive to stock traders.。

Conclusion

CFD trading enables you to exchange financial instruments without owning them。CFDs are often traded with CFD brokers who have a wide range of financial instruments covering a wide range of assets, which gives you the opportunity to diversify your portfolio and apply various strategies related to risk management and asset allocation。Another attractive factor for CFD brokers is that you can trade with leverage。

When choosing the best CFD broker, you should do your own research。Understand the reliability of brokers through their regulation, platforms, tools, services, education, tradable tools, and costs, including hidden costs。In addition, we recommend that you open a demo account before starting real trading。