Compare The Best CFD Stock Brokers

Trading stocks using CFDs has increased in popularity in recent years; however so has the number of CFD stock brokers offering their services to traders. This can make it confusing and difficult to find your perfect broker. So where do you start?

Well, this page (and website) is here to help you! On this page you will learn;

• What CFD stock trading is and how trading stock CFDs works.
• The benefits of using CFDs to trade stocks.
• The difference between CFD stock trading and traditional stock trading.
• Important considerations when choosing a CFD stock broker.

CFD stock trading is when you speculate on the price movement of a particular share. Unlike traditional share trading, you do not own any stock when trading CFDs; instead you are purely speculating on whether the price of that share will go up or down (more on this below).

Not so long ago, online share trading was more or less reserved for large financial institutions or wealthy individuals. The arrival of the internet changed all of this and allowed everyday investor’s (i.e. you and me) the opportunity to open an account with an online broker, deposit some funds and trade the world’s financial markets.

The difference is simple; when you buy shares in a company – that is, you buy the underlying asset – you become a shareholder in a company. Being a shareholder means you are eligible to receive a small portion of that company’s profits if they decide to pay dividends etc. However, if the company does not perform as well as intended, their share price might drop in value. This means your shares in that business are no longer as worth as much as when you purchased them.

Now, when you trade stocks using CFDs, you are essentially betting that a stock will go up or down in value, rather than buying the physical share as explained above. When you trade a stock via CFDs you do not own the share, you are merely speculating on whether the value of that stock will go up or down.

Remember, if you’re looking to trade shares using a CFD trading platform, you are “just” speculating on the price movement of that share. You are not buying the share and becoming a shareholder in that company. Trading using CFDs also means you will be trading on margin. This means you only need to deposit a small amount of money in order to open significantly large positions.

For example, if your broker offers 100:1 leverage (or a margin rate of 1%), you could deposit $1,000 onto your account and be able to open a stock trade with a notional value of $100,000! Trading on margin increases your buying power – this can help magnify potential profits, but on the other side, leveraged trading can bankrupt you just as quickly.

If you believe the price of a share is going to increase, then you would enter a “buy” position, or “go long”. If you believe the price of the stock will decrease then you would enter a “sell” position, or “go short”.

Make a profit in both rising and falling markets

With online (CFD) share trading, you are speculating on the price movement of a particular stock without actually buying the physical stock. Therefore, you can speculate that the price of a share will increase as well as decrease. Put simply, profitable CFD stock trades can be achieved in a rising market by buying (“going long”), or in a falling market, by selling (“going short”).

Leverage

Allows CFD stock traders to trade the financial markets using funds that represent a small fraction of the trades’ actual value. This can help magnify potential profits however it is important to understand that trading with leverage can also be a very serious risk if the trade goes against you.

Lack of ownership

As you are merely speculating on the price of a stock and not actually purchasing the physical asset, you don’t have to worry about ownership costs etc.

Choosing a stock broker to execute your trades with is a considerably difficult decision to make. This is because there a large number of brokers to choose from. Each have their strengths and weaknesses. Please spend some time conducting research on a couple of brokers before committing to one. Some important factors to consider;

Trading costs

Research and review what each broker is going to charge you to trade. Common stock CFD costs are spread, commission, overnight financing and dividend adjustments. Do your research on what each broker will charge before opening an account. You can see some examples of these costs in the comparison table above.

Is the broker regulated? 

Do not trade with a broker that is not regulated by ASIC or another recognised governing regulator. It’s easy to find out if a broker is regulated. Simply go to a broker website and search for their AFSL licence number. Trading with a regulated company has many advantages. Most notably, that a broker will be very closely monitored by the countries’ governing regulator. This ensures they work within a strict framework and run a business in accordance with the local laws & regulations.

Availability of education

Brokers will typically offer market news and updates, as well as other research tools. This will allow you to review the trade history of individual stocks etc. Also look out for brokers that offer a wide range of education: modules,
webinars, seminars, videos, trading guides etc.

What is the broker’s trading app and platform like to use?

Before you decide which broker you want to trade with, you need to be comfortable with their trading technology. There is nothing worse than finding the perfect broker and then realising you dislike their platform. We’d recommend downloading a couple of demo platforms to find out what you like and don’t like. Then you can make an informed decision about who to open a live account with.