About CFD Brokers:
CFD Brokers, which is short for Contracts for Difference Brokers are brokers that cater economic derivatives to their clients. CFD brokers allow their clients and other investors to make use of the price movements insuch financial instruments as the foreign exchange market for their advantage. Different sets of financial instruments are to be used in order to make speculations on the foreign exchange markets. Legality wise, CFD brokers put forward a contract that binds between the seller and the investor. The two parties will then be under a set of guidelines that have to be agreed upon by the two parties. One of the stipulations included states that the amount the buyer shells out to the seller is the difference between the value at current time and the value during which the contract was signed. Those who invest on the CFD brokers will then speculate on the fluctuations of prices of a certain financial instrument. After which, the investor makes the decision whether to buy or sell a number of units for that particular financial instrument. The decisions of the investors of CFD brokers are made hoping that in the end, a profit will be gained.
Different from other forms of trading wherein a full payment is needed to purchase a financial instrument, CFD brokers do not think that way. CFD brokers are more lenient in that they only require a small amount of money for a financial instrument to be purchased. Nevertheless, different CFD brokers require different amounts but the thing is, they do not require the full payment. This small payment is only necessary in order to meet the guidelines stipulated upon the signed binding contract. For CFD brokers, this amount is termed as ‘client’s margin’, and that amount has to be maintained all the time. If for some unfortunate reasons the clients’ trades go against them, then it means more money has to be given to the CFD brokers in order to bring back the margin requirements. This process, on the other hand, is called ‘margin call’.
Most of the CFD brokers are under regulations by different investment firms like the NFA, FSA or CySEC. There are even times that that all three will simultaneously regulate a group of CFD brokers. Although it may be tough for the CFD brokers, it may also mean more clients for them because a regulated firm means a safe firm. And remember that investors would always go into something that is safe. On the other side of the coin, those CFD brokers that are not regulated at all, there is actually a risk involved behind every transaction that an investor does with them. This means that big winnings by the investors will not always be guaranteed.
Why choose CFD brokers
Many investors choose CFD brokers because:
- The financial instrument purchased by the investors may be sold back any time for as long as the value being set by the CFD brokers will be followed;
- For short term positions, investors can earn interests, and for long term positions, they can also earn dividends from their CFD brokers;
- Almost all financial instruments can be traded through the CFD brokers during the weekdays, 24 hours a day;
- Only a small amount of money is needed in order to take positions especially that contract sizes are not fixed; and
- No stamp duty is at play when an investor trades by way of the CFD brokers.
How to choose the right CFD brokers
In order for investors to maximize their profits, choosing the right CFD brokers is of prime importance. For them to know which CFD brokers are the right ones, the following guidelines may be put into mind:
- Take a look at the margin requirements that CFD brokers require. There are those that require a full margin, while others only require a small percent margin.
- Be mindful of the interest charges that CFD brokers offer. There are CFD brokers who have fixed charges, while others just add a little amount on top of the amount that they receive from the liquidity providers. There are even CFD brokers who give rewards to clients who are able to hold certain positions.
- Be very keen on the customer service the CFD brokers offer. Bear in mind that the customer service should be able to address the needs of the clients.
- See if the CFD brokers can be trusted or not. Usually, this can be seen through the accreditation that CFD brokers hold.
- Check for the payments required by the CFD brokers.