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Finding the right CFD broker - THIS is important!

  • Post category:Broker
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In the field of CFD trading, there are a lot of CFD brokers that compete for customers. When choosing a CFD broker, it is important to consider some criteria if the decision is to last for a longer period of time. A closer look at the offer and a CFD broker comparison is useful for every beginner in CFD trading

The legal regulation of CFD trading

When deciding on a CFD broker, the topic of regulation should be an important argument in the selection process. Which authority supervises the financial service provider depends on where the company is located. There are a number of regulatory authorities here, such as the German BaFin, the Cypriot CySEC or the British FCA.

Depending on the regulatory authority, the regulations may be slightly different. The regulatory authority of the respective country also exercises control over CFD trading here. Because the European Securities and Markets Authority (ESMA) also keeps a watchful eye on what is happening around CFDs, the customer can also definitely trust CFD brokers in other European countries.

Their preferred locations can be found in the United Kingdom, Malta, Cyprus and also Poland. However, it is generally recommended to find out about the exact conditions and regulations in advance.

Margin call for CFDs abolished in the EU

Unlike a warrant, a CFD can not only become worthless, but even fall into the negative. If the account then even goes into the red, the CFD broker demands new capital, i.e. the margin. In the case of a particularly unfortunate price development for the investor, it even comes to existence-threatening debts. But this no longer exists in the EU!

In the past, trading CFDs was particularly risky also because of the margin call. Today, however, the "margin call" goes nowhere for private or small investors, because ESMA have declared such requirements null and void and banned them through corresponding regulations.

According to EU regulation, the CFD broker must warn the client in case of losses. The Maegin call is a warning that the equity (margin) deposited in the CFD account has decreased significantly. If the losses increase, the CFD broker will automatically close the positions at a loss as soon as the margin is used up. Therefore, when choosing a CFD broker, it is important to make sure that the broker does not have a margin call obligation.

Number of different underlyings and markets

A decisive argument for or against a CFD broker is the range of tradable underlyings. The personal interest of the investor is decisive in determining which one he should prefer in the end. After all, the individual providers offer a selection of CFDs that differ significantly from each other.

Most offer currency pairs and stock indices. Oil is also standard, but the range of commodities may be limited. Stocks are usually found by the investor as a selection of blue chips. So if you want to trade a smaller companies and small caps, you will be disappointed with many brokers.

Cryptocurrencies are also often represented, because they were able to attract attention especially in recent months with sharp price movements. Meanwhile, some CFD brokers also offer real shares to expand the trading opportunities. When choosing a broker, the investor should therefore first carefully study the list of offers before opening a trading account.

CFD broker fees and spreads

But not only the CFD offer studies and evaluates the investor. The spread also deserves attention, which is often very wide for some CFDs. The spreads are an important evaluation criterion for the fees of a CFD broker.

In the case of frequently demanded assets, the CFD broker is content with a small difference between the buy and sell price, but often even silver, copper or soybeans are considered exotic. With corresponding disadvantages for the investor, who cannot necessarily expect his CFD to reach the profit zone with high spreads - and low price increases.

The costs incurred in CFD trading sometimes determine the performance, especially with small price movements. Setting up a trading account is usually free with CFDs, including account management. If fees are actually incurred, they are usually very low and not a real exclusion criterion.

The CFD broker therefore does not earn through the usual order fees, but through the spread. The difference between the lower bid (offer price) and the higher ask (ask price) must first be earned by the investor, his position is therefore initially in the red, and only with rising prices he gets into the profit zone. Basically, there are three different types of spread.

Contact options and support

In general, CFD trading also runs smoothly. Nevertheless, it may happen that problems arise, either with the provided trading platform or during deposits or withdrawals.

The live chat is now a frequently offered form of communication between trader and CFD broker. But the familiar contact options should also be available, such as the telephone, email or the online contact form. All these options are part of a convincing service offer, and charging fees for these self-evident services suggests an excessive profit interest.

Another plus point is if the CFD broker offers customer service in the respective national language. This facilitates contact and is a sign of a reputable CFD broker.

Clear trading platform

Especially for beginners it is important that the CFD broker offers a platform that is clear. All fees and conditions for the CFDs should be clearly visible. The respective underlying assets should be easy to find in categories. This makes it easier to find the desired CFDs and makes trading pleasant.

Trading via app

Smartphones have become an indispensable part of our everyday lives. There is now a suitable app for everything, and even household appliances can be controlled via cell phone. Particularly advantageous is the flexibility created by the smartphone, which makes the user independent of the stationary PC. What applies to everyday life should also apply to CFD trading.

CFD trading is also possible on the tiny screens. Opening or closing positions, tightening the stop loss and the like, all this is also possible on the smartphone.

The chart analysis, however, remains superficial, because only a few apps offer indicators, and if they do, then only a small number. Drawing trend lines is also not necessarily part of the equipment of the trading apps. The screen does not allow an overview of long-term asset developments, which is why many investors reject trading via smartphone.

Nevertheless, many CFD brokers now offer apps for mobile trading. For the most part, these are also very similar to the desktop version of the CFD platform.

Deposit and withdrawal options

The CFD brokers also differ in the deposit and withdrawal options to the CFD account. Most CFD brokers accept credit cards, instant bank transfer or PayPal are also widely used as payment methods, the same applies to Skrill and Neteller.

For security reasons, the transfer is usually only made to a reference account specified by the customer. Thus, incorrect bookings are almost excluded. However, only a few CFD brokers offer bank transfers. Those who value transfers should pay closer attention to this. However, some CFD brokers charge fees for many orders, whether for deposits or withdrawals. 

Offer a free demo account

The trading platforms of CFD brokers differ significantly from each other. A demo account, however, gives them the opportunity to try out exactly what support he gets, what options the platform offers. Many rely on indicators, alerts or other signals when making trading decisions. If the customer can try out the options offered by the software over several weeks with the help of a demo account, the decision for a particular CFD broker has a reliable, because practical basis.

Sufficient chart analysis tools

In addition to the real events in the economy, the charts are often an essential basis for the orientation of the stock exchange trader. He also makes his decisions based on chart formations, moving averages and other indicators. Thus, the trading platform should offer a comprehensive selection of indicators. In addition, many traders draw trend lines, resistances and supports into the price picture as part of the chart analysis.

Therefore, they make corresponding demands on the CFD platform. If wishes remain open here, another broker can certainly convince with a better offer.

Possibility of stop loss and take profit

Especially in the case of CFDs, market participants protect themselves against setbacks by setting a stop loss. In this way, they limit losses that can always occur with any investment. Only, the trader should not rely too much on the automatic closing of his position. This is because when the market opens, there are often large price gaps. If the first price is below the stop loss, it will not be triggered and the investor may have to accept further losses. Some CFD brokers offer a guaranteed stop loss for a fee.

Stop loss and take profit are now standard equipment on CFD platforms. However, a good CFD broker offers other order types, such as limit order or trailing stop loss.

Conclusion: Calmly try out CFD brokers with the free demo account

The range of CFD brokers is very large. At first glance, the differences also do not seem to be particularly large. Therefore, a look behind the scenes is very important. CFD brokers usually offer free demo accounts, where the trader can extensively test all functions and make his experience with the CFD platform. A good orientation for the pre-selection of CFD brokers offers our big CFD broker comparison.