What Are CFDs and How Do They Work?
CFDs stand for Contracts for Difference. They are agreements between you and a broker to exchange the difference in an asset’s value from when you open a trade to when you close it. No physical asset gets delivered; everything settles in cash based on that price gap. If you think gold prices will rise, you buy a CFD on gold. If it goes up by $10, you profit $10 per unit traded, minus fees. If it drops, you owe the difference.
To trade, you open an account with a broker, deposit funds, and pick an asset like a forex pair or index. Brokers offer leverage, say 1:30, meaning $1,000 controls $30,000 worth of the asset. Positions can last minutes or months. Brokers charge spreads—the gap between buy and sell prices—and sometimes commissions or overnight swaps. Use stop-loss orders to cap losses, and monitor margin levels to avoid forced closures.
Top 6 CFD Brokers for 2025
These brokers stand out for their mix of low fees, wide asset choices, and user-friendly platforms. We based picks on factors like regulation from bodies such as FCA or ASIC, average spreads, execution speeds, and client feedback from sites like Trustpilot. Each offers demo accounts to test without risk, and most support mobile trading. Whether you focus on forex or stocks, one here fits most strategies.
eToro
eToro launched in 2007 and now serves over 30 million users worldwide. It shines for those who want to copy successful traders or share ideas in a community feed. Regulated by FCA, CySEC, and ASIC, it keeps client funds in separate accounts and offers negative balance protection. Spreads start at 1 pip for major forex pairs, with no commissions on most trades. The platform uses its own app alongside MT4 for advanced users.
eToro App Overview
Key features include:
- Over 3,000 CFDs on stocks, crypto, and ETFs.
- CopyTrader tool to mirror top performers.
- Zero minimum deposit in many regions.
- Weekly demo contests with prizes.
New traders often start by copying pros to learn patterns without full analysis. One user shared how following a diversified portfolio cut their learning curve by months, turning small deposits into steady gains during volatile sessions. Just watch for withdrawal fees over $500.
IG
IG started in 1974 as a spread betting firm and grew into a major CFD provider with offices in 17 countries. It holds top licenses from FCA, ASIC, and others, ensuring high standards for fund safety and fair pricing. Average spreads hit 0.6 pips on EUR/USD, and it offers weekend trading on select indices. The web platform includes autochartist for pattern alerts, plus Reuters news feeds.
IG App Overview
Standout options:
- 17,000+ CFDs across 80 markets.
- Advanced risk tools like guaranteed stops (for a fee).
- API access for custom bots.
- 24/5 support via phone or chat.
Traders praise IG for reliable execution during news events— one report noted sub-50ms speeds that prevented slips in fast forex moves. Beginners can use the free education academy with videos on leverage management, helping build habits like setting daily loss limits to protect capital over time.
Interactive Brokers
Founded in 1978, Interactive Brokers caters to active traders with global reach in 200+ countries. It operates under strict oversight from SEC, FCA, and ASIC, with SIPC insurance up to $500,000 per account. Fees run low: spreads from 0.1 pips plus $2 per side on some trades, scaling down for high volume. The Trader Workstation platform packs in 100+ order types and real-time scanners.
Interactive Brokers TWS App Overview
Notable perks:
- 8,500+ CFDs on stocks, bonds, and futures.
- Portfolio margin for efficient capital use.
- Free API for algorithmic setups.
- Multi-currency accounts to cut conversion costs.
High-volume users report saving thousands yearly on commissions compared to retail brokers. For instance, a swing trader on indices used IB’s probability lab to filter setups, boosting win rates by 15% through data-backed entries rather than gut feels.
Plus500
Plus500 went public in 2013 and lists on the London Stock Exchange, trading as a FTSE 250 firm. Regulated by FCA, ASIC, and CySEC, it uses tier-1 banks for fund segregation. No commissions apply; spreads average 0.6 pips on majors with risk management built in, like auto-closes at margin calls. The clean web and app design suits mobile users, with one-click trading.
Plus500 App Overview
Core elements:
- 2,800+ CFDs including crypto and options.
- Free demo with $40,000 virtual funds.
- Daily market alerts via push notifications.
- 24/7 email support.
Retail traders often pick Plus500 for its no-fuss setup—sign up in minutes and trade within hours. A common tip from forums: Use the risk analyzer tool before big positions to gauge drawdown risks, which helped one user avoid wiping out during a sudden oil dip.
AvaTrade
AvaTrade began in 2006 with a Dublin base and serves 150+ countries under Central Bank of Ireland, ASIC, and FSCA rules. It guarantees no requotes and fixed spreads from 0.9 pips, no hidden charges. MT4, MT5, and AvaOptions platforms support hedging and scalping, with add-ons like Sharp Trader for strategy backtesting.
AvaTrade App Overview
Top aspects:
- 1,250+ CFDs on forex and vanilla options.
- Islamic accounts with no swaps.
- $100 minimum deposit.
- 50+ video courses on basics to advanced.
Fixed spreads help plan entries precisely—traders note steady costs during ranging markets. A practical edge comes from DupliTrade integration: Link to signal providers for automated follows, where one group reported 25% returns in six months by tweaking risk to 1% per trade.
Pepperstone
Pepperstone, established in 2010 in Melbourne, targets forex and CFD pros with ASIC, FCA, and CySEC approvals. It routes orders via ECN for raw spreads from 0.0 pips plus $3.50 commission per lot. cTrader and MT5 shine for speed, with 99.5% fill rates. Smart trader tools include sentiment indicators from Myfxbook.
Pepperstone App Overview
Key draws:
- 1,200+ CFDs on metals and energies.
- Free deposits via cards or wires.
- VPS hosting discounts.
- 24/5 live chat in multiple languages.
Scalpers flock here for razor-thin costs—one backtest showed $0.10 per round turn on AUD/USD, slashing breakeven needs. In live trading, overlaying volume profiles on charts helps confirm momentum shifts, like entering long on USD/JPY bounces with tight 5-pip stops for consistent 1:2 rewards.
How to Choose a CFD Broker
Look at regulation first—FCA or ASIC labels mean better fund safety and dispute resolution. Next, compare spreads and commissions: Aim for under 1 pip on majors to keep costs below 0.01% per trade. Test platforms with demos for speed and charts; MT4 suits most, but check mobile sync. Factor in asset variety—over 1,000 CFDs cover diversification. Finally, read withdrawal times; top ones process in 1-2 days without fees over $100.
Here’s what to check before selecting a CFD broker:
- Regulation: Always start by checking the broker’s license. Regulators such as the FCA (UK), ASIC (Australia), and CySEC (Cyprus) ensure proper fund protection, transparency, and fair dispute handling.
- Trading Costs: Compare spreads and commissions carefully. For major forex pairs, aim for spreads under 1 pip to keep total trading costs below 0.01% per trade.
- Platform Quality: Test demo accounts to evaluate platform speed, stability, and charting tools. MT4 works for most traders, while MT5 or cTrader may offer extra analytical features and mobile synchronization.
- Asset Variety: Look for brokers offering over 1,000 CFDs — including forex, indices, commodities, shares, and cryptocurrencies — to diversify your trading portfolio.
- Deposit and Withdrawal: Check how long it takes to access your funds. The best brokers process withdrawals within 1–2 business days, often without fees for amounts above $100.
CFD Trading Strategies for Beginners
Start with trend following: Use moving averages to spot uptrends and buy CFDs on pullbacks. Set stops below recent lows. For range trading, sell highs and buy lows in sideways markets like EUR/GBP, targeting 20-30 pips. News trading involves fading spikes post-releases—wait 5 minutes for dust to settle. Always risk 1% of capital per trade; track in a journal to refine edges over 50 sessions.
Managing Risks in CFD Trading
Leverage amplifies everything, so use 1:10 max at first. Place stop-losses on every position—trail them as profits build. Diversify across assets: Limit forex to 40% of portfolio. Monitor equity drawdowns; pause if over 5% weekly. Brokers’ negative balance protection stops debts beyond deposits, but build buffers with 200% margin. Review trades monthly to cut losers early.
Fees and Costs Explained for CFDs
Spreads form the base cost—bid-ask gaps paid per trade. Overnight fees apply for held positions, like 0.5% annual on stocks divided daily. Inactivity charges hit after 12 months, around $10/month. Currency conversions add 0.5% if mismatched. Swap-free accounts skip overnights but widen spreads. Track total costs via broker calculators; aim under $5 per $10,000 traded.
Common Mistakes to Avoid with CFDs
Overleveraging wipes accounts fast—stick to position sizes fitting your risk rule. Ignoring stops leads to revenge trades after losses. Chasing hot tips without analysis burns capital; base on charts. Trading without a plan scatters focus—define sessions and exits upfront. Neglecting weekends: Gaps can jump prices, so close or hedge majors Friday.
FAQ
What is the minimum deposit for most CFD brokers?
It ranges from $0 to $200. eToro and Plus500 start at $50-100, while Interactive Brokers needs $0 but suggests $2,000 for full features.