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What is CFD trading?


contract for difference (CFD) is a form of derivative trading where investors speculate on price movementsCFD trading enables investors to speculate on the rising or falling prices of fast-moving global financial markets, such as forex, indices, commodities, stocks, and shares or treasuries.

CFDs work the same way as trading other financial instruments.

How does CFD trading work?

After carefully selecting a broker that offers CFD trading and after opening a trading account with them, traders can select any available CFD from within the trading platform. As is the case with any other complex instrument in financial markets, investors can enter long or short positions when they trade CFDs.

As an example, a trader may believe that the price of the underlying asset gold is going to rise. They would then enter a CFD position by going long on the popular XAU/USD (Gold – US Dollar) pair. Depending on their selected leverage level, the profits and losses are magnified.

share CFD works in the same way. A CFD trader that is looking for trading opportunities may believe that the share price of Apple is going to rise because of recent news. They would then enter into long positions on the stock price of Apple via a contract for difference.


What are the benefits of CFD trading?


When speculating with CFDs, investors can go either short (sell) or long (buy), meaning they can make a bid on an either rising or falling market price of a financial instrument.

Contracts for difference are financial instruments that can be traded on margin. Traders can use leverage to control a rather large amount of money with only a relatively small investment. Contracts for difference are also a very popular hedging tool to offset any potential loss in value of a physical investment. Investors holding certain shares may, for example, benefit from the falling price of a stock they own in the short term when initiating a CFD trade.

Lastly, CFDs are tax efficient because they do not require any stamp duty, which is especially beneficial for traders located in the UK.

Are there any disadvantages when trading CFDs?


Even though spread betting and trading leveraged products can be very beneficial, tax efficient, and simple, traders should always be very cautious and heed risk warnings before they start trading on margin. The CFD market has gained significant popularity but margin trading contains high risks to the investors’ money and retail investor accounts as losses can exceed initial depositsCFDs are very complex instruments and are therefore not suitable for everyone.

Best forex and CFD brokers that offer CFD trading on their trading platforms


As always, a trader should make sure that the forex broker of choice is properly licensed and regulated. The best brokers are typically those that are registered with strong regulators and industry watchdogs, such as the FCA (Financial Conduct Authority) in the United Kingdom, the ASIC (Australian Securities and Investments Commission) of Australia, or the CySEC (Cyprus Securities and Exchange Commission) of Cyprus.

One top forex broker we found offering currency exchange (FX), indices, cryptocurrencies, share CFD, and commodities trading is ThinkMarkets. This broker is headquartered in Sydney, Australia, and operates a European satellite office in London, UK.

ThinkMarkets allows for a maximum leverage of up to 400:1 and has set a minimum deposit requirement of only $250. They are licensed and regulated by ASIC as well as the FCA and offer low spreads and commissions. Available trading platforms are MetaTrader4 (MT4) as well as their own uniquely designed proprietary platform named ThinkTrader.

Clients can choose between three different account types as well as a ‘Demo Account’ or ‘Live Account’ version. All these three account types can be used as an ‘Individual’, ‘Joint’, ‘Corporate’, or ‘Superannuation’ account. Swap-free (Islamic) accounts are also available for two of the three account types.

All account types come with a maximum leverage of 400:1 (on forex and metals) and lot sizes are set to 1.0 lot.

Apart from a solid selection of currency pairs (38) ThinkMarkets also offers a smaller selection of indices, compared to other retail brokers, from around the globe to choose from, including the US S&P 500, Australian S&P 200 Index, UK FTSE 100 Index, Germany Dax 30, and Japan Nikkei 225. They do have one of the largest selections of cryptocurrencies available for trading as well as over 130 share CFDs.

Find The Best CFD Trading Forex Brokers for your needs


To help you find the Forex broker that is best suited to your needs, take a look at our comparison table and ranking of top Forex and CFD trading brokers above. If you require more in-depth information or are looking for more brokers to choose from, check out our detailed individual broker reviews and additional comparison tables.