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Which CFD broker Offers The Best Chances To Succeed?
The regulations taken by ESMA have several times created waves not only in the forex business. In this article, we will briefly explain what the ESMA regulations are, take a look at the predicted results of individual brokers. Which one gives you the best chances to succeed? How different are the brokers in terms of performance?
ESMA is the European Securities and Markets Authority, whose mission is to ensure the stability of financial markets. To support it, on 22 May 2020, ESMA issued the decision regulating CFD contract and binary options trading. This – one of the most rigid decisions – came into effect on 2 July 2020.
What does the ESMA decision mean?
The changes follow regulations adopted in the USA. They put restrictions on leverage trading, adjust sustainability margins and protect from a negative balance. When I started as a trader (in 2020) it would be normal to see a broker offering leverage of 1:300. even 1:400, 1:500 or 1:1000 (!). By today’s standards, these figures seem mad. Just calculate how much you would lose or earn on the EUR/USD pair if the move was just one pip!
The ESMA regulations set for all major currency pairs (USD, EUR, GBP, JPY, CAD and CHF) the maximum leverage at 1:30, 1:20 for minor currencies, gold and the main indexes (such as S&P 500, Dow Jones, NASDAQ 100 or DAX 30), 1:10 for commodities, 1:5 for shares and 1:2 for cryptocurrencies. These regulations seem to be drastic but believe me for serious traders sticking to the principles of healthy money management it is no disaster.
The regulators have also set the minimum margin at 50% and added protection against the negative balance on an account. Again, nothing that should restrict long-term traders that much (speaking of the fundamental principles of money management), but annoying it is.
Transparency is an important part of the ESMA regulations. From now on, all brokers must report how many of their clients are profitable and how many losing.
Numbers of profitable and losing traders with different brokers
The data published below hit the forex community as well as other traders immediately. The numbers, mandatory for each broker, were processed by Finance Magnates Intelligence offering an overall picture. Our list includes a complete overview of results, not necessarily best illustrating the situation.
Statistics of earnings of traders with CFD brokers (Source: Finance Magnates Intelligence)
TOP 5 brokers – profitable clients
- GBE brokers
- HM Markets
TOP 5 brokers – losing clients
- Vestle (used to be iForex)
Can you trust the figures?
Perhaps we would not consider the numbers if the result was somewhat different. As you can see at the top of the list there are a few brokers labeled as a scam. I don’t want to say that they all are crooks – some may not have had time to build the inevitable credibility and image among the customers. So, the clients may still be checking how reliable these guys are. On the other hand, some well-reputed brokers are ranked at the bottom.
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If you are a broker that accepts every trader, offers micro/nano lots and whose minimal deposit is a few USD it is likely that a lot of your clients will lose. It’s because they use their small accounts primarily for learning. Initially, they may lose a hundred dollars or so – no tragedy. They will learn lessons and open a bigger account or a new small account. If you accept any client and give them free hand if you offer minimal education etc. the likelihood of most of your clients ending up as losers is bigger.
At the top of the list, you can see two brokers who offer social trading, i.e. copying of someone else’s trades. eToro is the better of the two. If you are their client your chances to win are quite good. Many beginners copy more experienced traders to avoid typical beginner mistakes. The goal of this article is not to judge. The activity – social trading – has already been described. Yet, it involves a lot of great pros and cons.
The figures in the above table are not necessarily 100% illustrative. It may happen that a broker whose only concern is to focus purely on his business i.e. quickly handle all orders at a given market price, offer minimal fees, etc. will be placed at the very end of the ranking. Simply because most of his clients use their micro account to test their trading skills, which frequently results in loss – no matter how good the broker is. On the other hand, a broker using, let’s say, social trading, investing more in the education of its traders and marketing may win a better place in the ranking in spite of offering somewhat worse conditions.
I view the figures with some tolerance. If, however, the broker you are doing business with is placed close to the bottom, do a small research to find out more details why this is happening. Aren’t his trading costs too high? Is the settlement process always quick? Think about his marketing and business – does he offer micro forex accounts, some form of education?
Last but not least, remember that in the market the losers always prevail over the winners. When trading it can’t be different. But the fact that you are reading this article gives you the potential to perform better than the rest i.e. 70% of losing traders. Discipline and self-education such as with us on xBinOp is a journey to success.
More about the author J. Pro
Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author
Top 10 Tips to Winning with CFD Trading
Contracts for Difference (CFD) have gained in popularity as a new and less capital-intensive way to trade stocks, indices, currency pairs and commodities in today’s financial markets.
The compelling benefit of cfd trading is that you do not have to buy the underlying asset at its full face value. By using leverage or margin offered by your broker, you can purchase a position in the market at a much smaller value, yet still reap the full benefit of its subsequent move in the market, as if you had followed the traditional investment route. There are other benefits, as well, including the ability to short the market without restrictions or shift suddenly to indices when the general market moves suddenly in a new direction. Pricing is typically included in the Bid/Ask spread, such that scalping strategies may not apply.
Although leverage can greatly increase your chances for profit, it can also magnify your losses. At the end of the day, trading in CFDs does not that differ that much from trading in other market mediums. You still need to have a disciplined approach and a detailed step-by-step plan for achieving your goals.
You can win with CFD trading, especially if you follow the guidance of the ten suggestions detailed below. Likewise, you can also lose and lose big time, if you do not pay attention to the pitfalls in this arena. For that reason, we have also included a companion piece to this article that speaks to what to avoid. Read about the pitfalls of cfd trading. Adequate preparation starts with awareness, and, although many of these suggestions may be familiar to you or just plain common sense, they bear repeating, if only to forewarn you.
1) Know Thyself and What You Want: Not everyone is cut out to be a trader, but if you have the will, stamina, and nerve to try risky things, then CFD trading may offer a good avenue for you. Are you a newcomer to training? Trading in any form is a high-risk activity, not suited for raw beginners. Training, education, and practice trading are a must before dabbling in any market. As you gain experience with this art form, you will begin to learn more about yourself and how you react under pressure. Risking real money is fraught with anxiety, and your ability to deal with stress will be revealed. After self-examining your objectives and your tolerance for risk, you will be in better position to assess logically how to proceed. Without this self-awareness step, it would be easy to rush headlong into CFDs, guided by your emotions alone, which can easily be a recipe for disaster. Choose a timeframe that is consistent with your needs and stick to asset choices that are familiar to you.
2) Knowledge is Power: CFD brokers offer a broad range of trading opportunities, but you will have a better chance at winning if you stick to what you know. If you have traded currency pairs with leverage, then you have a basis to build upon, without the tendency to commit early mistakes on unfamiliar ground. If you want to venture into stocks, indices, or commodities, then perform a little more research before diving in. Leverage or margin, along with stop-loss orders may act differently due to gapping and frequent market openings and closings. Use fundamental analysis to give you an alert for a particular forex pair or asset type, and let technical analysis guide your entry and exit. Conditional orders can be set to buy on strength to preserve a good entry. Study how your favorite choices have reacted in the past, what patterns and setups occur frequently, and if seasonality plays a part in supply and demand dynamics. Get comfortable first before venturing outside your comfort zone.
3) Risk Management Rules are Important: Mitigating market risk is about knowing your risk/reward expectation before you enter a position. Money management rules are part of this discipline to enable you to weather bad losing spells so that you can recover and get back on a winning streak. If you are prepared to lose $200 on a single trade, then your prudent account balance would be between $7,000 and $10,000. When market forces are moving strongly in your favor, you may consider increasing your position size to strike while the iron is hot. An active trader will also limit his open positions to three at the most. With CFDs, the need to monitor positions is greater, since major swings on the margin can easily wipe out your capital at risk, if you are not careful. Learn to accept losses as a necessary component of any trading activity. Your goal is to record “net” gains over losses, but losing streaks do happen, even to veterans.
4) Practice, Practice, Practice: Practicing on a demo system can be boring, but you are more apt to pat yourself on the back for winning trades, than to learn from your mistakes, the real reason that practice sessions are invaluable. Veteran traders swear by their practice routines, claiming to have spent as many as three months or more before trying out their strategies with real cash. Practice sessions are also meant to steel your nerves against emotional intervention, the most prominent reason for early casualties. Your goal will be to develop a step-by-step routine that will guide your decision-making and block your emotions from interfering. Some veterans purport to having “Post-Its” stuck to their computer screens to keep their minds focused and uncluttered. Impatience and Greed are your enemies. Learn how to contain both, and you will be on your way to consistent net gains over time.
5) Patience, Patience, Patience: Trading is not about how fast or how many trades you can put on the books in a short period of time, but idle hands and minds can definitely lead to mischief. Your goal is to maintain a 60/40 split of wins over losses, as measured in currency value, not by number of trades. This point is key. Poor traders typically have a number of wins and losses that cancel each other out, but then a few large valued losses that destroy them. Veterans are able to achieve the opposite by killing losing trades early, and by waiting patiently for major trending moves to firm up. You can achieve the right ratios by consistently waiting out the market for those two or three times during the month when the opportunity for a large gain presents itself. Learn to be patient with winning trades and impatient with losing ones. If you have to be active in the market, then practice on your demo system.
6) Diversify Your Risk: CFD brokers tend to offer anywhere from sixty to over two hundred asset choices. The temptation to experiment in multiple markets is great, but try not to put all your eggs in one basket. For example, if you have several positions with energy-related assets, they all may move in tandem, both up, as well as down. To avoid this type of “sector” risk, it is prudent to diversify into other areas to buffer any major swings that might happen unexpectedly. One benefit of CFD trading is that you can quickly switch strategies if the overall market suddenly trends in one direction. When the market moves in this way, it is time buy a position in an appropriate index and then to ride the wave for as long as it lasts.
7) The Trend is Your Friend: Winning at the trading game with CFDs is no different than anywhere else – You must tilt the odds in your favor and have confidence that your trading plan is sound and giving you the “edge” you need. Veterans gave up betting on bottoms and tops long ago, and trading range-bound asset choices can be difficult with CFDs due to expanded Bid/Ask spreads. The odds then favor finding trends, after confirmation by indicators. Markets may only trend 30% of the time, but when they do, momentum is on your side. Strong moves will typically over shoot the mark, thereby providing another opportunity when the reversal occurs. Once again, patience is the key. As always, preparation precedes success, or as some have said, chance favors only the prepared mind. It is always recommended to buy into strength, and short into weakness. Do not “fight the tape”. Choose your setups, based on experience, and then follow your plan for consistent wins.
Cut Your Losses and Let Your Profits Run: You will find that it is easy to open positions, but closing them is where the rubber meets the road. If you are to win at this game, you must learn to pull the trigger on losing trades. Yes, you want to give a trade a chance by setting a stop loss that allows them to breathe, so to speak, but never drop a stop loss to let it breathe more, and never ever add more money to a losing trade in hopes of a quicker way to recover your losses. These scenarios are exactly how CFDs can wipe out your account balance in the blink of an eye. On the other hand, letting your profits run may sound easy enough, but cutting off a winning trade can also destroy your goal for consistent “net” gains over time. Impatience is the problem. The odds favor a trend continuing, such that employing a trailing stop may provide a solution worth trying to correct bailing out too early.
9) Monitor Your Results: If you are only trading high-percentage setups, then you will have time on your hands for monitoring both current and previous situations. The current aspect of this activity will depend on the trading timeframe that you have selected. Do you wish to close out each day in order to avoid overnight charges? Is your trading horizon over a few days such that minor fluctuations are not cause for concern? The issue is that a leveraged investment position is at a higher risk due to market swings. Margin calls can happen more frequently with CFDs due to the low capital entry requirement. You need to be aware of when a margin call might be imminent. Do not forget that a price-gapping episode might render your stop loss order null and void. Secondly, veterans always maintain a journal of their trades. Weekend preparation is then consumed with understanding why failures occurred and why winning trades happened. Get into this healthy habit to benefit from knowing your weaknesses, as well as your strengths.
10) There is Always Another Opportunity around the Corner: Are you beating yourself up for closing a winner too early or allowing a loser to run longer than it should have? Did you miss a big run up in a security or currency pair that everyone else seems to have noticed? Do not give up. These situations happen to all of us, even to professionals. The typical response of the inexperienced trader is to increase the pressure to jump back into the market, but hold on! Calm down. Every veteran knows that there is always another opportunity just around the corner. If you missed out on one ride, another will soon appear. Do you see how “Patience” is the constant watchword of a successful trader? Study your mistakes, and learn from them. The more preparation, the better! Act in line with your plan, and enjoy the effort!
How To Choose the Best Forex and CFD Broker
ecnThe Forex market is the world’s largest financial market with a turnover in excess of around $4 trillion a day. Despite its huge size, this market has no central exchange for Forex traders to conduct their transactions. Instead, Forex traders must conduct their trading activities through an intermediary, the Forex broker. This shows the importance of the broker’s role in the trading process. When it comes to choosing a broker, traders have literally thousands of Forex brokers to choose from on the internet. But the real question is how can you be certain that the broker you have chosen is the right fit for your trading needs.
To help you in your broker selection process, we have prepared a guide with a list of key factors that you have to look at when choosing a broker.
The first thing that you should look at when selecting a broker is to see if the broker is regulated by a competent regulatory agency(read more about Forex and CFD broker regulations). By dealing with a regulated broker, you can have the assurance that the broker has met the operating standards imposed by the regulatory body. Some of these standard regulatory requirements include having adequate capitalization and maintaining segregated accounts in order to protect the clients’ funds. Additionally regulation offers fund protection should the firm become insolvent and ensures the broker is upholding rigorous standards as a financial service provider.
Countries that have financial regulatory agencies that are backed with strict regulatory enforcement include:
- Australia (ASIC)
- Eurozone (Mifid and local regulators)
- India (SEBI)
- Japan (FSA and JSDA)
- Switzerland (FINMA)
- UK (FCA)
- USA (CFTC and SEC)
Trading Platform & Software
As the trading platform is your gateway to the market, you want to ensure that the trading platform that you are using can be relied upon. Most brokers will offer traders a selection of trading platforms to choose from. Most of the time, the trading platforms are provided by third party trading solutions providers such as MetaQuotes Software. There are also some brokers who have taken to developing their own proprietary trading platforms in an attempt to differentiate themselves from other brokers in the industry. Often times, these proprietary platforms are the best platforms to trade with as they are specifically designed by the broker’s client base.
Nevertheless, a good broker should be able to provide a good selection of platforms. This is because some traders prefer to trade from the desktop computer and some traders prefer to trade from their smartphones. It should be noted that the most common trading platform that you will find among the different brokers in the industry is the MetaTrader 4 platform. It is estimated that at least 85% of brokers in the industry uses the MetaTrader 4 platform. So this means there is a very strong possibility that this is one of the platforms that you will be using.
Look at the features which the trading platforms have to offer. Do they come with:
- Comprehensive charting package
- Wide range of technical indicators
- One click trading on the trading platform
- Risk management tools such as stop loss order and trailing stops.
While all these may seem trivial initially, they will later play a crucial part in ensuring that you will get to enjoy a seamless and productive trading experience.
But when it comes to platform selection, it is really a matter of personal choice. Most of these platforms will have the same basic features. The best way for you to find out which platform is right for you is to try them out with the demo account provided by the broker. For those brokers that do not provide a demo account, they may not be worth considering.
Commissions & Spreads
This market unlike other traditional financial markets mostly operates on spreads rather than commissions. This is the reason why most brokers advertise their services as being commission free.
So how do brokers make money?
Simply, they earn by charging traders a spread. The spread is the difference between the buying price and selling price. For example if the Bid & Ask price for the EUR/USD currency pair is 1.0875/1.0878, this means the spread is 3 pips.
As a Forex trader, you will come across 3 kinds of trading cost structure charged by a broker:
- Fixed spread – where the spread is not changing and you know the spread amount before you trade.
- Floating spread – this spread is variable and always moving depending on the market volatility.
- Commission fee – this is calculated as a percentage of the brokers spread. You should be aware of the amount payable before you trade.
Generally for traders looking for certainty with their trading costs, fixed spreads will be the preferred choice. Traders who are looking to pay a smaller spread would prefer floating spreads. Ultimately as to which is better will depend on your specific trading needs.
The kind of spreads that you will receive depend to a large extent on the kind of business model the broker is operating on.
Broker’s Business Model
In the course of your search for a broker, you will come across terms like “STP”, “ECN”, “NDD” and “Market Maker”. All these terms are in fact used to describe the business model which the broker is operating by. So what do they all mean?
There are two major types of broker – Dealing Desk and Non Dealing Desk.
Forex dealer or Market Maker processes their clients trading instructions through a dealing desk within their company. A dealing desk broker takes the other side of the trade to you, meaning when you open a position like the EUR/USD the trade will be executed by the broker and they are then exposed to that trade.
A Non-Dealing Desk (NDD) broker passes the trade straight through to a third party. There are two kinds of NDD broker (ECN and STP). They are both essentially the conduit between you the trader and the market maker or dealer.
With the first type (ECN) when you press “Buy” on your trading platform, your trade orders will be processed on the broker’s computer trading system automatically and transmitted through the Electronic Communications Network (ECN) without a dealing desk (This is where the term “Non Dealing Desk” (NDD) comes from).
With the second type of NDD broker, upon receiving your trade orders they will pass the trade orders directly to another party to be executed by the market maker’s dealing desk. In this instance, the broker is known as a Straight Through Processing (STP) broker.
Both the Forex ECN and STP brokers are intermediaries to several dealing desks or market makers in the global Forex market. Market makers or dealers will transmit their pricing to the ECN or third party liquidity provider together with the volume which the quote is valid for. The ECN/STP will in turn distribute the pricing to traders/market makers linked to the system. It should be noted that the ECN/STP does not execute trades but rather acts as the conduit for transmitting the trade orders from the trader to the dealing desk where the trader took the price from.
Why is this important?
The business model of the broker is important as this will affect the kind of spreads that you will receive and whether the spread will be fixed or variable.
Forex Broker for Beginners
For beginner traders, look for brokers with the following qualities:
- Comprehensive trading education resources – many brokers supply a suite of education materials to help push traders into mastering their skills. These usually include webinars, videos, courses, guides and articles.
- Unlimited access to the demo account for practice trades – most if not all Forex brokers supply demo-trading accounts to their clients. This is particularly useful if you are new to the world of Forex trading or if you’d like to test-drive a broker’s platform before you trade for real.
- User friendly trading platform – there are a whole host of trading platforms on the market, some more complicated than others. As a beginner trader you will not need a complicated platform with features like EA’s and complex trading strategies. That comes later, but now you should be looking for a platform that is fast and simple to grasp.
Forex Broker for Professionals
For professional traders, their trading needs differ significantly from those of a beginner trader. Generally, professional traders prefer brokers which can provide them with:
- Comprehensive trading tools – as a professional trader you will now need a variety of tools including commission calculator, economic calendar and of course complex live charts in order to implement trading strategies.
- High leverage – not for the faint hearted, professionals will seek to use leverage in order to multiply their capital. Leverage increases the risk and equally increases the reward.
- Low spreads – if you trade a lot you want to ensure that your spreads aren’t eating away at your capital. It’s important to check the spreads payable before you select a broker, usually the greater the account type you take the lower are your spreads.
Forex Broker for Day Trading
Generally for a day trader, most brokers will be able to meet their trading needs. However given the shorter time period with day traders are trading with, it is best that the broker is able to provide a diverse range of instruments for the day trader to scout for trading opportunities. These can include a signal service, tools like an economic calendar, updating market news and also earnings reports. As you will probably be placing more short term trades make sure that you are aware of the spreads before you trade.
Forex Broker for Scalping
Scalpers are traders who hold their market positions for an extremely short period. While they only hold a market position a short period of time, the frequency of their trades is higher than the average trader. Their objective is only to make a small profit on all the trades that they make spread across a large number of trades. Note that not all brokers allow scalping. As such if you intend to trade as a scalper, you should always check with the broker that you intend to sign up if they allow scalping.
The majority of the forex brokers in the industry offer traders a selection of trading accounts to cater for different categories of traders.
- Micro Account – The smallest type of trading account is the Micro trading account where one trading lot is equivalent to 1000 units of the instrument traded.
- Mini Account – The next type of trading account higher up the hierarchy is the Mini account where one lot represents 10,000 units.
- Standard Account – The standard account is where one lot is equivalent to 100,000 units.
With the Micro and Mini account, only a low minimum initial investment is required to let you start trading. With the standard account, although the minimum investment may vary from broker to broker, generally you will need a higher amount of trading capital. Given the varying minimum investment for each type of trading account, you should select the trading account that is commensurate with your investment capital.
Most beginner traders tend to forget to factor in customer service when making their choice of the broker to sign up with. They may not realize the importance customer service plays in their overall trading experience. With customer service, it is not whether you will ever need their assistance but rather a question of when you will need their assistance. Because regardless of how experienced or knowledgeable a trader might be, there will always come a time when assistance from customer service is required. When that time comes, you want to be able to get in touch with the support team without any difficulties. So it is important to check if the broker that you intend to sign up with is able to provide you with reliable customer support.
Check to see if there are multiple ways of contacting customer support. Most brokers will provide their clients with several ways such as email, live chat and telephone for their clients to get in touch with customer support. In short, you don’t want to be in a position where you have to spend countless nights worrying about what your broker is going to do with your problem.
Value Added Services
In an industry as competitive as the online forex trading industry, some brokers will try to distinguish themselves from other brokers, by offering additional value added services such as free market analysis, real time news feeds and trading signals. Most of these value added services are provided free of charge but there are some brokers which may require you to deposit a minimum amount before you can have access to these services.
Questions to Ask the Broker
If you have any general questions regarding brokers we can usually advise and recommend, however for more specific information you can read our broker reviews for deep insight. Our video reviews cover many aspects of the trading cycle. Please note, it is important that if you have any doubts about a broker’s product offerings or service, by asking the right questions you can clear up any ambiguity that you might have before they develop into an issue later after you sign up.
The kind of questions that you should ask include:
- How the broker maintains the safety of your funds
- The broker’s regulatory status
- The range of instruments that is available for trading
- Their business model
- Their customer service hours
- Their deposit and withdrawal process and whether there any fees involved
- Whether there are any conditions attached to the value added services provided
Check our broker filter tool >>> FX Empire is perfectly placed to help our readers choose reliable CFD brokers to work with. We have compiled this resource, which looks at all the key factors a trader should consider before selecting a broker to work with. We hope you find it useful.
How Can I Choose A Broker?
We are here to help with that! Check out our list above and choose the most suitable broker for you.
Should I Pick a Regulated Broker?
Yes, you should try to pick a regulated broker to work with. This ensures recourse in the event of a dispute or should your broker face insolvency. Remember by using a regulated broker you will also have access to an investor compensation fund, which insure your deposit up to a certain amount.
What Else Should I Look at When Selecting a Broker?
You should look at the range of platforms on offer and even ideally test-drive the platform you may wish to use. Take a look at the additional resources being offered by that broker eg. Signal service, educational tools, copy trading. Finally remember to find out about spreads, and account types before you place a deposit.
As noted above, there are many factors that you have to consider when selecting your broker. Nevertheless with the help of this guide that we have provided, you should be able to see which broker is better suited to your needs. To further facilitate your search, we have also conducted in-depth reviews and vetted each of the brokers in our recommended list to ensure they meet up the right standards. Once you have found the right broker to work with, you can focus more on your trading activities and trade more confidently thereby increasing your chances of success trading the market.
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