If you want to trade CFDs, you’ll need a platform where you can place trades and have tools and features to support your trading. You can’t trade directly in the financial market. That’s where a CFD broker comes in.
A broker acts as the middleman between you and the market, giving you access to trade and helping you every step of the way. Whereas a CFD (Contract for Difference) broker lets you trade contracts based on the price movement of an asset without actually owning the asset itself. You can profit from rising or falling prices.
Want to start CFD trading but not sure where to begin or how brokers work?
Don’t worry, today, we’ll walk you through everything: what CFD brokers are, their types, how to pick a reliable one, and why FNmarkets could be the perfect choice for you.
What is a CFD Broker?
A CFD (Contract for Difference) broker facilitates CFD trading, a financial derivative that allows traders to speculate on the price movement of underlying assets without actually owning them.
Simply put, a CFD broker is the intermediary between traders and the markets to provide CFDs, access to platforms, market data, and other resources.
The trading platform comes loaded with tools and charts that help traders analyze the market and make smarter moves. Traders can buy and sell CFDs from the financial markets through a CFD broker.
Every CFD broker is responsible for setting the rules, such as contract terms, margin requirements, and the types of assets that can be traded.
Key aspects of CFD brokers:
- CFD brokers provide access to a range of CFDs on various asset classes, including stocks, indices, currencies, commodities, and more.
- They offer trading platforms with charting capabilities, order types, and other features to assist traders in executing trades.
- CFD brokers offer leverage, allowing traders to control larger positions with a smaller amount of capital.
- Brokers may charge fees such as spreads (the difference between the bid and ask prices), commissions, or other fees for trading CFDs.
- Financial authorities regulate CFD brokers to ensure transparency and protect investors.
Types of CFD brokers
There are very common terms you may have heard, such as market makers" or forex CFD brokers. This is because there are several types of CFD brokers. The CFD brokers are categorized into three types.
- Execution Model
- Based on Service Level
- Based on the Market
Let’s know about each of them briefly.
Execution Model Types
In this type of CFD broker, it is about how investors' trades are handled. Some brokers process them internally; others send them straight to the real market.
Market Makers (Dealing Desk Brokers)
Market maker brokers are also called dealing desk brokers. They create their own market for CFD trading. Instead of connecting trades to external liquidity providers, they act as the counterparty. This means they take the other side of your trade.
They offer various CFDs like forex, stocks, indices, and commodities.
These brokers set their own bid and ask prices based on the real market, but with slight adjustments. They make money through the spread and provide their own liquidity.
Traders often choose market makers because they’re beginner-friendly and affordable. They usually require lower deposits, offer fast trade execution, and don’t charge commissions on trades.
STP Brokers (Straight Through Processing)
STP (Straight Through Processing) brokers act as a bridge between traders and external liquidity providers like banks or big financial institutions. They don’t take the opposite side of your trade. Instead, they pass your order straight through to the market.
Prices are real-time and based on supply and demand. So spreads are usually variable. Since they don’t interfere with orders, there’s less conflict of interest. The trade execution is generally fast and transparent.
ECN Brokers (Electronic Communication Network)
ECN (Electronic Communication Network) brokers work similarly but connect you directly to a network of traders, banks, and institutions. You can see real market prices. This includes the best bid/ask available. ECN brokers usually offer super-tight spreads but charge a small commission per trade.
Hybrid Brokers
Then there are hybrid brokers. They combine the features of both market makers and STP/ECN models. Depending on the trade, they may either process it internally or route it externally. This gives traders flexibility, competitive pricing, and access to deeper liquidity pools.
Based on Service Level
Service level means how much help a broker gives. Full-service brokers offer advice and support, while discount brokers just let you trade independently.
Full-Service CFD Brokers
These are best for traders or investors who want personalized advice, portfolio management, and comprehensive financial planning. They go beyond executing trades. These brokers offer guidance, regular reports, tax help, and long-term investment strategies.
Discount CFD Brokers
These are for self-directed traders who prefer to make their own decisions. They offer low-cost trading, basic platforms, and some educational tools. But no personal financial advice. They're popular among experienced traders.
Based on Market Focus
This is the kind of assets a broker offers. Some focus on forex, others on stocks, commodities, or bonds.
- Stock CFD brokers focus on CFDs based on shares/stocks.
- Commodity CFD brokers specialize in commodities like gold, oil, etc.
- Forex CFD brokers deal with currency pairs and forex CFDs.
- Bond CFD brokers offer CFDs on government or corporate bonds.
How Does a CFD Broker Make a Profit?
CFD brokers earn money in a few different ways. This actually depends on the business model. Some charge traders directly. Others build costs into the trade. Here are the common ways they make money:
Spread: This is the difference between the buying price and the selling price of a CFD. Brokers add a small markup here. Then they keep the difference as profit.
Commission: Some brokers charge a small fee per trade, especially on stocks or ECN accounts with tight spreads.
Overnight Fees (Swap): If you hold a trade overnight, the broker may charge a fee for keeping that position open. This is another way brokers can make money.
Account Fees: A few brokers may charge fees for inactivity, withdrawals, or using certain features.
Taking the Opposite Side (Market Makers): Market maker brokers sometimes profit when a trader loses. Because they act as the counterparty to the trade.
How Does the Whole Process Work?
So, how will you start trading with your broker? Here are 6 simple steps that are common to start CFD trading with any type of broker. Or sometimes there can be slight different steps; that totally depends on the broker you choose.
1. Sign up with a broker
First, you need to create an account with a CFD broker. Choose one that’s trusted, easy to use, and fits your trading goals. The signup process is usually quick. You need to input some basic info and ID verification.
2. Fund your account
Once your account is ready, it's time to deposit the money. Most brokers offer different ways to deposit. There are bank transfers, cards, or online wallets. You'll use this fund to open trades.
3. Choose your CFD asset
Now, pick the CFD asset that you want to trade. CFDs cover many assets like forex, stocks, commodities, indices, and even crypto. Before you choose, consider your deep understanding of that particular asset and need to be confident enough.
4. Place your trade (buy or sell)
If you think the price will go up, you can go for a buy position. If you think it’ll drop, you can go for a sell position. Since you are trading CFDs, you don’t own the asset. You’re just trading based on price movement.
5. Monitor, manage, and close the trade
Once your trade is live, you can track its performance on the platform. You can set stop-loss or take-profit levels. Or close the trade whenever you want. Stay updated.
6. Profit or loss is calculated on the price difference
When you close the trade, your result depends on the price change between when you opened and closed it. If you predicted right, you’ll profit. If not, there might be a loss.
What to Look For in a CFD Broker
Finding a reliable and trusted broker may not be that easy. You need to know the terms; based on that, you can look for a good broker. Also, check the reviews and their industry experience, and consult with other traders.
Here are four core points you can use to find a good CFD broker.
Trading Platform
CFD brokers offer the platform you need for trading. So, you must check if the platform is easy to navigate, the execution speeds, and how fast you can close trades. Also, check the tools and resources section, such as blogs or tips on trading. These will help you for the betterment of your trading strategy.
Spreads and Other Fees
If you are a new CFD broker, then first get to understand the spreads and other fees your broker might charge for your trading. Then check for the charges, with the hidden fees. You do not want to be surprised by an additional cost-cutting on your profit. Choose a broker who is transparent with their charges.
Customer Support
Now the customer support comes and you must ensure your broker is available 24/7. Why? You never know when you need instant support from your broker. It can be related to something trading, and you can not wait for your broker to respond, as every second is valuable in the trading industry.
A Range of Asset Classes
Check for the assets your broker is offering. If you are into where you want to have wide market exposure, then go for someone who provides multi-assets. It can be forex, crypto, indices or commodities.
Why Choose FNmarkets as Your CFD Broker?
FNmarkets is built on the strong foundation of FundedNext, a trusted name in proprietary trading. We stepped into the brokerage world with one mission: to give traders a better, smoother, and more supportive trading experience.
- You will get 24/7 real human support.
- Fastest execution time.
- 1:500 leverage.
- Lowest deposit requirement to start trading.
- No hidden fees.
- Three types of accounts to meet your specific needs.
At FNmarkets, we know that great trading starts with great support. That’s why we offer demo trading too, so you can test, learn, and build your strategy before going live. We’re here to guide you every step of the way, because when you trade with confidence, you trade better.
