Maximise Market Opportunities With the Best CFD Brokers in the UK

Plus500

Besides low-cost CFD trading, Plus500 maintains its edge against peers like Trading 212 or eToro with a set of very unique and handy trading tools. We were particularly impressed with its recently launched +Insights tool. It is, in many ways, Plus500’s take on social trading – but promises a little more than just observing more experienced traders.

Being one of the best trading platforms in the market, It gives you insights into the popularity and return rates of various assets. You’ll have data on questions, such as: Which commodities were bought the most last week? What are the markets with the highest return rate? Which indices were followed the most, last year?

Mobile traders will also appreciate the versatility of Plus500’s trading alerts system. Besides simple price alerts, you can also set alerts to notify you when the percentage of buyers and sellers of an asset reaches a certain level.

Plus500UK Ltd is authorised & regulated by the FCA (#509909).

Pros

• A variety of trading alerts
• Tight spreads
• Great range of CFD trading instruments

Cons

• Customer support is not the best
• High non-trading fees

Show more

common.visitX

Plus500 Risk Warning: *81% of retail CFD accounts lose money

It’s much easier to understand CFDs in comparison to something more familiar, like share dealing.

Imagine you’d like to buy some Microsoft shares. First, you’ll need money to invest and a trading platform that has access to stocks listed on the NASDAQStock Market. Then, you buy those shares, and they are deposited into your CFD trading account. After this trade, you actually own the shares and become a shareholder in Microsoft.

CFDs are completely different. They constitute a contract between you and your CFD broker to speculate on the price movement of the stock price. When you get into a CFD contract, you don’t actually own the stock or become a shareholder.

CFDs are traded in units. 1 CFD equals 1 share, and so its price equals the price of the share you wish to trade. 2 shares would make 2 units of CFD. If the stock costs £100 per share, your contract would also cost £100. Each unit within a contract for difference represents one share. As you buy more shares, your contract will be bigger.

Say that you believe Microsoft's price will go up. You can buy a CFD to take advantage of the upwards price movement ("go long"). The price will be the current share price of Microsoft, say £250. If the price goes up by £40, you benefit from that price rise. When you close your trade or sell your CFD, you can make a profit from the difference (£40).

However, if you are wrong and Microsoft's price drops in value instead of increasing, then you have to pay the difference to your broker. If the price drops by £40 by the time you close the trade, you pay that money to your CFD broker.

When trading CFDs, you can speculate on both: prices going up or down. This is called going long or going short.

• Going Long or ‘Buy’: When you buy a CFD, or go long, you essentially trust that the price of an asset will go up in value. The Microsoft example we gave earlier illustrated a long position.

• Going Short or ‘Sell’: This time you trust that the price of an asset will go down. Normally when share dealing, the only available option is to go long – that is, to buy the asset. With CFDs, you can actually make money out of the downward movement as well. If you go short but the price increases contrary to your expectations, you will again have to pay the difference.

On CFD brokers, you’ll see two prices listed: the buy (or ask) price and the sell (or bid) price. To open a long position, you trade at the buy price. To go short, you trade at the sell price.

The ability to profit from prices going down is one of the biggest appeals of CFDs. It’s a common hedging strategy. Hedging means making an investment in a bid to reduce the risk of or offset the damage of an asset price going down. Let’s open this up with an example:

You own 10 Microsoft shares at £100 per share (so £1,000 in total). The share price drops from £100 to £50, and your investment is now worth £500. You had speculated that this drop in value might happen beforehand and opened a short CFD position at £100 for 10 shares (which means 10 CFDs). After the price drops to £50, you close your position. This results in a profit of £50 per CFD, but you have 10 of them – so your overall profit is £500. And voila! You have offset your loss from your actual share investment with your CFD position.

Leverage is borrowed money from a trading platform, it essentially increases your buying power. If you have £1,000 to trade with, for example, and your broker gives you 5x leverage, it increases your initial investment to £5,000.

Say that you opened a long position with £1,000, and the price moved up by 5%. You’ll get £50 profit when you close your trade. If you enter the contract with 5x leverage, your profit would be £250.

Leverage is seen both as a blessing and a curse. In the above example, if you use leverage to bump your position from £1,000 to £5,000 and the price actually dropped 5%, you would owe the broker £250 instead of £50.

What are the margin requirements for CFDs?

Margins basically function as insurance. For the CFD broker to give you leverage, you have to have some money in your trading account that will work as collateral – and that's called a margin requirement.

Margin requirements vary from asset to asset, and within an asset class. Shares, for example, tend to have the highest margin requirements (usually around 20%) whereas currency pairs tend to have the lowest (around 3% for major pairs).

For riskier assets, like minor currency pairs, margin requirements tend to be higher. Gold prices are less volatile than other commodities, for example. You are likely to see lower margin requirements for gold (around 5%) than other commodities (around 10% on average).

CFDs and spread betting are very similar: they both trade at the asset price and allow you to speculate on the price direction. One main difference is that spread bet contracts have an expiry date. This is when you settle the contract (either get paid if you were right or pay if you were wrong). CFDs have no set date, you can close your trade whenever you want.

CFDs are exempt from the 0.5% stamp duty you pay whenever you buy an asset online. But you still have to pay capital gains tax.

If you sell your asset for more than what you bought it for, it means that you made a profit. Say that you bought that Microsoft share for £200. Its price increased to £250, and you sold it straight after. The £50 difference is your profit. Hooray! But now the government will have some of it.

That’s what capital gain tax is. It’s the tax on the profit you make when you sell an asset.

But it’s not all grim – you have some allowances to max out before you have to pay taxes. For the tax year 2023/2024, your capital gain tax allowance is £12,500. You have to pay 20% in taxes for anything above that by filling in a self-assessment tax return to HMRC.

The first thing you should check is whether your CFD broker is regulated by the Financial Conduct Authority (FCA) or not. The FCA is the main regulatory body that oversees financial institutions like brokers, helps keep the competition fair, and protects professional traders like you.

Back in 2015 for example, the FCA introduced negative balance protection – which is a superb risk management tool that you can use when trading CFDs. It automatically closes your position before your balance goes negative and you owe money to your broker (which can happen pretty quickly when trading with leverage).

The FCA also regulates the leverage offered by the CFD brokers in the UK as well. According to its limits, CFD traders can get 1:30 of maximum leverage for major currency pairs, while stocks are capped at 1:15.

When you trade with FCA-approved CFD brokers, you also get a free insurance policy. The government has set up the Financial Services Compensation Scheme (FSCS) that covers deposits of up to £85,000 if anything goes wrong with the company holding your cash.

These regulations also grant you access to the Financial Ombudsman Service (FOS). If you ever feel like your broker is not treating you fairly or is undertaking some shady business, provided that you couldn’t settle the issue by contacting customer support, then you can make an official complaint through FOS.

CFDs can be used with a variety of assets such as stocks, commodities, currencies, bonds, indices, and ETFs. It makes sense to go with the investment platform that offers a good variety of asset types so that you have loads of opportunities.

• Stocks and shares are the most common trading instruments. They represent a unit of a company – so when you own a stock, you essentially own a little share of a company. They are listed on exchanges like the London Stock Exchange or the New York Stock Exchange, where you can buy or sell them. The price of a stock fluctuates depending on how the company is performing and how investors feel about the stock market in general.

• ETFs are baskets of assets (like stocks). They function as pools of investments – dozens, hundreds, or even thousands of assets can be included in ETFs. They are traded on the stock exchange like stocks and are usually bundled into topical groups, like automaker companies or the best-performing 100 companies on an exchange.

• Commodities are products we consume such as energy, livestock, or metals. CFDs are a common way to trade commodities. One thing to pay attention to is that different factors contribute to the price swings of commodities, like natural events or scarcity of a commodity.

• Currencies are very common trading instruments in the UK – and CFDs are commonly used to trade them. It’s essentially swapping one currency (like British pounds) for another (like US dollars) to make a profit from price differences. Pairs that include currencies from developing or emerging economies, like the Turkish lira or Mexican peso, can be very volatile, so you should be extra careful when using CFDs for trading foreign currencies.

These are the most commonly used trading instruments for CFDs. A CFD broker may offer a variety of assets, but may not offer CFDs for each one of them. You should also check how many CFD options they offer. Saxo Markets, for example, is one of the brokers that offer the most CFDs with a good selection of over 9,000 contracts.

Pricing for UK CFD trading is different from regular trading – and we can’t stress this enough: Check. Your. Trading costs.

• Commissions are charged per trade. CFD brokers usually don’t charge commissions when trading Forex pairs and commodities, but they do so for stocks. The opening and closing of trades are considered two separate trades. This means that you have to pay commissions when you buy a CFD and also at the time of selling.

• Overnight charges are interest charges that you have to pay every day you keep your position open. They are usually calculated as a percentage of the position.

• Spreads are one of the main ways CFD brokers make money. They are the difference between the buy (offer) and sell (bid) prices. Due to spreads the price to buy an asset will always be slightly higher than the real market price and the one to sell will always be lower.

There are some trading tools CFD trading platforms offer to improve your trades. Here are the most common ones:

• Market research and price alerts: UK CFD trading is all about predicting whether the price of an asset will go up or down. There’s an element of speculation: even with all the data, you can’t be 100% sure of what will happen. But this doesn’t mean you should simply gamble.

  Popular CFD brokers usually supplement their services with extensive market research like news and analyst commentary on market events. It can also be helpful to set price alerts that notify you when the price of an asset hits a certain value – this way you’ll be able to open and close your trades timely.

• Educational resources: UK CFD trading has a very complex trading mechanism, so informing yourself is crucial. If you are just starting out, you can seek CFD brokers that cover the basics of UK CFD trading, include a community forum where you can exchange tips and ideas, and have a variety of how-to guides, webinars, and extensive glossaries.

• Leverage: For those who can stomach the risk, leverage is an attractive aspect of CFD trading. Best CFD trading platforms vary in terms of the leverage they offer – it can range from 1:5 to 1:30 and also varies by the type of asset and the asset itself (more volatile commodities for example may have lower leverages).

• Demo account (paper trading): Being able to test out your UK CFD trading knowledge without committing any money is very important, especially if you are new to trading. Search for CFD brokers that offer comprehensive demo accounts – eToro, for example, gives you $100,000 in virtual money to learn the ropes.

Risk management tools

Using appropriate risk management tools while trading CFDs is vital. You should always be on the lookout for a variety of order types that can help you minimise your losses. Here’s a list of the most common order types along with their advantages and disadvantages.

Besides conditional orders, negative balance protection is a common risk management tool CFD brokers in the UK offer. Although it's among FCA regulations, not every CFD broker in the UK offers this service. You can find it with IG, eToro, and Trading 212.