| |
How To Choose An Appropriate CFD Broker Or Provider.
By Marc Kurtis
Choosing a good online cfd broker is one of the keys to successfully trading a CFD trading system.
Most people will realise that keeping costs low is important in maximising their trading profits.
But what many people don't realise, unless or until they've traded for quite a few months, is that an appropriate CFD provider determines the profitability of your trading system not via these transaction costs, but via other factors that are equally or even more important!
What are these factors?
Well, these factors determine whether you can actually trade your system of not.
Keeping reading to find out exactly what to look for in a CFD broker or CFD provider.
These 7 points should be kept in mind when choosing an online CFD broker:
1. Their commission or brokerage each way
Most CFDs have a brokerage of about 0.1 to 0.4% of the trade size. There's also a minimum commission to consider of around $10-20, which will affect trades with small trade sizes. Some brokers have zero commission. Some CFD broker's commissions are actually negotiable, or differ according to whether you belong to a trading group, so remember to ask!
2. Their margins
Many CFD provider's margin requirements are around 10-20%. This menas they provide around about 5-10 to 1 leverage. There are some CFD market makers that require a margin of 30-80%, depending on the stock CFD that you want to trade. So if you need a lot of leverage, check the amount of leverage available to you.
3. How many CFDs are tradable
Do you need to trade the top 100, 200, or even 300 of your stock exchange? If you're trading a system that needs a large number of stock CFDs than just the top 50 say, to make its maximum profits, then check their list of tradable CFDs. Note that if you're backtesting CFD systems, that the current top 200 of a stock exchange will be different to the list a year or two ago. So there is some potential for inaccuracies here.
4. How many CFDs are shortable
Many CFDs are shortable compared to their underlying stocks or shares which are not shortable. This is one of the several reasons why CFD trading has become more popular. Again, if you need a large list of shortable CFDs for your trading system to work properly, then check the provider's exact list of shortable CFDs if possible. Sometimes they're available form their website, and sometimes they're not. If so, you'll need to email the brokers for more details.
5. The interest charge
There is an interest charge for long positions held for more than one day. CFD brokers use rates that slightly vary, and are based around a major bank's overnight interest or cash rate. The rate for long positions is typically 2-3% above that reference rate. If you're short, the interest is paid to you, at a rate that is 2-3% below that reference.
6. What are the order types that are available to be placed?
This is where a CFD broker or provider can make your trading system easy to trade or difficult to trade, or even tradable or not.
With some CFD providers, you can place your orders at when the market is closed as well as when the market is open. This is handy for those who work during the day, and need to place their entry orders and adjust their stop losses at night.
With other providers on the other hand, you'll have to place orders to enter CFD positions during market hours.
Even when you can place orders to enter a position after market hours, ask the provider:
1. Can you place limit orders or stop orders to enter positions?
2. Also, if you're placing limit buy orders to enter long positions, can you place them at above and below the closing price, when the market is closed? That is, on either the wrong or right side of the market?
Also find out about their "if done" stop loss orders, and how they're handled.
Do you need guaranteed stop losses as well? These will have a premium attached to them. And if so, can you move them at no cost?
7. Do they provide Direct Market Access CFDs where the CFD prices are the same as the underlying stock, or is the spread widened?
If a brokers widens their spread by 0.05% for example, then this may be considered a cost of trading. Consider this in relation to the other transaction costs however.
A provider that widens their spread slightly may be the one that has the smaller commissions, and vice versa. So look at their overall deal.
So there you have it.
As discussed in the above examples, there may be some CFD brokers who provide a great deal in one area, such as they have plenty of shortable CFDs but have a much higher brokerage cost. Other providers may provide the lowest commissions but do not support the trade types that you require.
There are ways around this issue, which many CFD traders are doing...
There are more keys to choosing an CFD brokers and providers, on the website in the resource box below this article.
So keep these important points in mind when checking out CFD brokers, so that you know what you're looking for, and are ensuring that your CFD trading system is profitable, and that you're able to actually trade your system properly to get into the trades that you want to get into.
About the Author
Visit Marc's site at http://www.onlinecfdbrokers.com which has a comprehensive review and comparison table of available CFD brokers and providers, so that you can easily compare and choose between CFD brokers and CFD providers
Article Source: http://www.simplysearch4it.com/article/33332.html
| If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/33332.html" as shown above and make it hyperlinked. |
| |
|
|
|
