Best CFD Trading Platforms UK

What are Contracts for Difference?

Essentially a Contract for Difference or CFD is a contract between a buyer and a seller whereby the buyer must pay the seller the difference in price between the current value of an asset and its value at the time of the contract.

This provides a means for a trader to speculate on the future price movements of an asset, without ever owning any part of the underlying asset. With CFDs, you can speculate on rises or falls in the value of an asset.

When you trade CFDs you are undertaking a contract between yourself, and the CFD broker.

Watch the video below from Capital.com for further information on what CFDs are, or alternatively read CFDs for beginners guide.

What are the disadvantages of trading CFDs?

Of course, as with any investment, there are also potential disadvantages with trading CFDs.

Higher risk than other investments. CFD trading tends to present a higher risk of losing value than other investments. In fact, CFDs are considered to be so risky that investment providers must provide a warning as to how many retail investor accounts lose money when trading with them on their platform. This figure is usually between 50-70%.

Leverage can be a double-edged sword. While leveraged trading gives you the opportunity to magnify your gains trading with a smaller upfront investment, any losses you incur will be magnified, too. So, you may lose money rapidly by trading CFDs. Make sure you fully understand leveraged trading before you invest.

Not a long-term strategy. While investing in some assets can be a long-term investment strategy, trading CFDs is generally not, as the contract has a set expiry date. As a result, they are typically not suitable for long-term investing.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

CFD trading is potentially lucrative, but these investments are also complex instruments that present a high risk to your money. In fact, more than half of retail investor accounts lose money when trading CFDs.

Please make sure that you know these risks before you start trading and that you’re aware there’s a high chance of losing money rapidly on your investment.

Who are CFDs good for?

There is a large potential to lose money when trading CFDs as they require an advanced trading strategy that is usually utilised by experienced traders only.

When trading CFDs you are speculating on whether the price of an asset will go up, or down. As a trader, you can speculate on the upward or downward movement in price. Therefore, should a trader purchase a CFD that increases in price following that purchase, the trader will offer their holding for sale. The net difference between the price the asset was purchased at, and the price it was sold at, are netted together. This gain will then be settled through the trader’s brokerage account.

However, should the trader predict that the price of the asset will fall in value, an opening sell position can be established. The purchase of an offsetting trade is then used to close the position with the net difference of the loss settling via the CFD brokerage account.

Where can I trade CFDs?

CFDs are illegal to trade in the U.S. however they are legal in:

• United Kingdom
• Germany
• Switzerland
• Singapore
• Spain
• France
• South Africa
• Canada
• New Zealand
• Hong Kong
• Sweden
• Norway
• Italy
• Thailand
• Belgium
• Denmark
• Netherlands

What are the advantages of trading CFDs?

One of the main advantages of trading CFDs is that they can potentially allow you to make money, even when the market is on a downward spiral, although this is not a sure outcome. This was the main factor contributing to the rise in CFD popularity in 2020 when the market was in turmoil following the pandemic. In addition to this, CFD traders can take advantage of the following:

Higher leverage than traditional trading. The standard leverage in the CFD market is subject to strict regulation and now lies in the range of 3% (30:1 leverage) possibly rising to 50% (2:1 leverage). Greater potential returns are a direct result of lower margin requirements which mean less capital outlay for the trader. However, it’s important to point out that whilst this can be advantageous when trading CFDs, it can also lead to greater losses.

Access to the global market. Certainly, the list of best CFD brokers UK contained within this article all provide access to most of the worlds most significant markets, with 24/7 access for investors to trade CFDs.

Shorting at any time. With CFD instruments, traders are at liberty to go short at any time and do not need to concern themselves with the shorting rules that govern certain markets and require the trader to borrow the instrument before selling short. This in turn can avoid borrowing costs.

Hedging. CFD trades are particularly useful to hedge risk. Traders can use CFDs to lock in the value of a share portfolio at a specific point, meaning that should the value of the stock portfolio fall, the losses experienced will be offset by the profit generated by the CFD position.

Margin trading is another advantage of CFDs. Put simply, margin trading means that the trader is only putting a percentage of the total notional value of a trade.

Despite all these advantages, traders considering CFDs should remain aware that spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

How to identify the best CFD brokers in the UK

Thankfully for CFD traders, there is plenty of competition in the UK market between the best CFD brokers. The result of this competition is more favourable terms for the trader including better pricing structures and enhanced features. Below I have detailed what to look out for when choosing the best CFD trading platform UK.

Regulation

All the best CFD brokers I have listed in this article are authorised by the Financial Conduct Authority or a suitable alternative. Tight regulation will protect you and your money when CFD trading.

Assets

The assets provided by your chosen best CFD broker will determine the opportunities you have to make a profit when CFD trading. This can vary considerably from one CFD broker to another so it’s worth checking your CFD broker offers some or most of the following:

• Commodities
• Cryptocurrencies
• Forex
• Stocks
• Bonds
• ETFs
• Indicies

Fees

There are a number of fees to be aware of when selecting your preferred platform from which to trade CFDs. These include commission, overnight charges and the spread which is the difference between the bid price (the price you paid for the asset) and the offer price at the time of the trade.

There is usually no cost involved to trade forex pairs and commodities, however, typically CFD brokers will charge a commission for stocks, however some of the platforms listed above have waived this completely in order to remain competitive. Commissions can be charged as a percentage of the sale, or as a flat fee. If you buy a position and sell it later, this would constitute 2 separate commission payments.

Should you take a long position and hold the position overnight, there will often be an overnight charge. This will usually be charged as an interest charge for each of the days that you hold your position.

In addition to the pricing laid out above, you should also be aware of any non-trading costs including deposit or withdrawal fees and any inactivity fees.

CFD Trading Platform

The ease of use of the CFD trading platform is essential when CFD trading as this will dictate how quickly and easily you can execute your trades in response to market movement. It is also worth checking that the CFD trading platform of your choice is supported on desktop and mobile device.

The CFD trading platform of your choice should provide access to education material, research tools, and be quick and easy to navigate.

Also consider: CFD Trading Platform for Beginners

Trading tools and features

The art of CFD trading is helped greatly with innovative trading tools to assist you with your strategy. The most obvious of these is an easy to use, well laid out platform, that supports the method of use you prefer, whether it be desktop or mobile app.

A free demo account is also extremely useful so you can get to grips with the CFD broker and the tools provided before risking any of your own funds on live trading accounts.

Copy trading is also a useful function, utilised by many novice traders who prefer to mirror the trading activities of more experienced and successful traders before going it alone.

Technical indicators can help you make a success of your CFD trading, however, you will need to understand how technical indicators work. Technical indicators can help you make head or tail of pricing trends however, not all CFD brokers will offer a comprehensive suite of technical indicators so this is worth checking.

Educational resources are essential if you are new to CFD trading or are looking to advance your skills. Community forums, how-to guides, webinars and educational videos are just some of the things to be on the lookout for.

Leverage is important for UK CFD traders who have a higher tolerance for risk. The best CFD brokers will offer leverage of up to 1:30 or 1:5 should you be trading share CFDs. Due to the fact that CFD trading involves leverage, day traders can find this of significant benefit in order to trade small price fluctuations.

Negative balance protection can help protect you against severe losses and is therefore essential. This level of protection can prevent an unsuccessful trade from pushing your account into the red. This is because negative balance protection will close your position automatically the moment your CFD account hits zero.

Deposit and withdrawal options

Not all UK CFD brokers will offer every deposit and withdrawal method, and for your convenience, you should ensure that they accept a deposit method that suits you and check the withdrawal times you should expect. Most CFD brokers will accept credit/debit card and bank transfer as a minimum.

CFD Frequently asked questions