Often choosing a broker can be confusing to say the least. In fact, knowing even where to start can be a challenge in itself. Fear not, to help you with this conundrum so you can choose the best CFD broker for your trading style, we’ve developed a 5 step guideline.
Before we begin though, it is important you understand the importance of choosing a good broker that suits your specific needs. This decision can be one of the most critical investment decisions you make for your trading business, as the costs of trading can greatly affect your profitability as a trader.
Step 1. Identify Your Specific Needs
Your choice in brokers will largely depend on the type of trader you are. It is therefore essential that you determine what your personal trading style is and what your specific needs are prior to making your first trade. Are you an intra-day trader who needs fast execution of trades and order depth information? Or maybe you’re a longer-term trader who needs historical price information?
Once you’ve narrowed down your initial broker search by deciding your needs, your next step is to then evaluate what level of service you require. Your options range from full-service brokers, discount brokers and online brokers.
- Full service brokers offer an extensive range of personalised services to their clients (research, advice, tax info etc), however, this level of service comes at a premium price.
- Discount brokers, on the other hand, perform buy and sell orders at a reduced commission rate but provide minimal or no investment advice.
- Online brokers generally provide the cheapest services. All interaction is conducted online and adopts a more “do it yourself” type of trading approach.
For those new to trading, you’ll often be encouraged to conduct your initial trades through a full-service broker. However, this may prove to be unrealistic for the majority of beginners as the excessive fees associated with this type of brokerage may not be financially feasible.
Step 2. Establish Which Trading Tools You Require
Now that you’ve established what your specific trading requirements are, the next step is to determine which trading tools you need to help you with your trading activities. There are an array of trading tools available, so for new traders this can become quite overwhelming.
Firstly, evaluate whether you’ll use fundamental analysis or technical analysis (or both). Both offer a wide range of trading resources.
If you use technical analysis, check that a broker’s charting program suits you and includes indicators you’d like to use. Also decide if you want to use conditional orders like stop-loss orders, guaranteed stop-loss orders and limit orders, and make sure they are provided.
If you are unsure of the tools that you will need, research what is most commonly used for your style of trading and then check they are offered by the CFD brokers you are considering.
Step 3. What Are The Trading Costs Involved?
Once you’ve established what you need from your broker, you need to investigate what that broker charges in terms of trading costs (commission fees, spread costs, ASX exchange fees, overnight financing charges, inactivity fees etc.).
As you can see, there are a range of trading costs that a broker may charge, however, these will largely depend on the level of service being provided. It is crucial to evaluate the trading costs involved as they will impact heavily on your bottom line.
Please ensure your CFD broker ticks all your boxes before opening an account with them. Ask the following;
- Who has the tightest spreads?
- Who has the lowest commission fees?
- What are their leverage rates?
- Are there additional hidden fees?
- Can you afford the minimum deposit required to open an account?
Reducing your trading costs is a key factor in successful trading. Read our How to Tell if Your CFD Broker is Ripping You Off to find out how!
Step 4. Trade Execution
The execution of your trade is another crucial element. In fast-moving markets, the timing of your trade execution plays an integral role. In trading environments such as these, immediate execution with no slippage may be a necessary requirement for you.
By ensuring that your trades are executed at the same time that they are initiated, you will have less fluctuation between the expected price and the actual price the trade is executed at, as well as any changes between spreads.
Step 5. How Safe Are Your Funds?
In the event that your broker was to go into liquidation or bankruptcy, no matter how unlikely that scenario may be, how safe would your funds be? What are the safety precautions and measurements currently in place to ensure your funds are kept safe? What are the minimum requirements? Are they exceeding these?
Don’t just assume that every broker out there is squeaky clean. It’s definitely worth your while to research this information. If you aren’t able to find the answers to these questions on the CFD broker’s website then give them a call.
Look for a broker where client funds are held in a segregated client accounts with a reputable bank and are not used for hedging purposes, meeting the trading obligations of other customers or any other business dealings.
Deposited funds are held by TradeDirect365 in a segregated client account with a top-tier Australian bank (Westpac Bank). These funds are NOT used for hedging purposes, meeting the trading obligations of other customers or any other business dealings. If you would like to know more, visit our Client Money Policy for additional information.
Choosing Your Broker: The Bottom Line
Once you complete these steps, you should have a pretty clear idea of the specific features you require from a broker and as a result know whether a broker is a good fit or not.
If you’re looking for a full-service broker, you would expect to receive customised service with in-depth advice and efficient management of your investments, but you would also expect to pay a premium price. On the other hand, if your specific needs best align with an online broker, then you would expect to have competitively-priced commissions, low fees and tight spreads, but with minimal investment advice.
One of the most important factors in online trading is choosing the best CFD broker to suit your trading style and your specific needs. Identifying your trading needs will be realised during the development stage of your trading plan. This will allow you to understand what you require from a broker, what level of service suits your needs and the fees & commissions you would expect to pay. Understand what you are looking for in a broker, and research accordingly. Also, read the fine print!
Unsure about your current broker? Find out here if your CFD broker is ripping you off