Forex, the international currency market, is considered the largest market in the world; no wonder so many investors want to try it. Instruments that allow you to trade in the market include CFDs. What is CFD trading and how do you choose a broker that will give you access to it?
What is CFD trading?
Investments in the foreign exchange market are very popular. All because it is easy to trade in the market even with a small capital. There are brokers who give the opportunity to enter the market even only a few tens of euros in their wallet.
You can invest in forex through CFDs, futures and options. Retail investors, especially speculators, most often choose to trade CFDs. These instruments allow you to invest both long and short term. Trades can be opened and closed in seconds.
Many people wonder why open a position that will close after a few seconds. However, it is one of the many strategies used by investors and one of the most popular. CFDs are instruments that can be traded with leverage. This means that you can trade them with only a margin.
CFD trading with leverage allows you to maximize your profits. That is why you can make money even with small price fluctuations that take place in the market during the day. It should be remembered that trading with leverage also increases risk, which means that the investor can not only earn more, but also lose more.
CFD trading is possible through online trading platforms, such as Admiralmarkets. With the help of a computer network, special software connects investors who, thanks to modern technologies, can conclude transactions with each other without physical location.
What is a CFD Broker?
The CFD trading broker gives individual investors access to the market, even if they have a small capital. Brokers, in a sense, mediate transactions between different market participants, allowing investors around the world to trade with each other.
As already mentioned, CFD trading is possible through online trading platforms. These are brokers who give access to it to individual investors, and to obtain it, it is enough to open an account. The formalities usually take a few minutes, but the verification of your identity, necessary in the case of a real invoice, can take some time.
A CFD broker may charge a commission for opening a position, although this is not always the case. All because it can work with different models. The three most popular models are:
- Market Maker (MM);
- Electronic Communication Network (ECN);
- Straight Through Processing (STP).
Commission is not charged primarily by brokers operating in the Market Maker model.
CFD trading: How to choose your broker?
Knowing what CFDs, CFD trading and CFD brokers are, it is worth thinking about how to open an account, and in particular how to choose a good broker. Where the investor trades will depend on transaction costs, the length of time they will wait for orders to be executed, and the safety of their funds.
When looking for a broker, there are a few key points to pay attention to. One of the most important is whether the broker has the appropriate licenses and a capital guarantee. It is worth looking for a broker that belongs to a compensation fund. One such fund is the Investor Compensation Fund (ICF), which offers a capital guarantee of up to €20,000 to investors in Cypriot investment companies, including CFD brokers.
When comparing the offers of individual brokers, it is worth paying attention to the spreads they charge. One should consider the broker with the lowest spreads, provided, however, that they do not charge commissions or additional fees. In terms of costs, it should be ensured that the selected broker does not charge a fee for accessing quotes or charts.
It is extremely important that the broker provides access to as many markets as possible. The more instruments available, the greater the investment opportunities and the greater the freedom to diversify your portfolio. It is worth creating an account with a broker that will allow you to invest in many markets at the same time, reducing the costs associated with maintaining multiple accounts.
CFD trading is done through trading platforms. The most popular on the market are MetaTrader 4 and MetaTrader 5. Each platform offers different advantages. Some are very intuitive, while others provide access to many useful tools. Before opening an account, the investor must think about the platform that will suit him best.