If you have a small account (less than € 2,000), it is best to choose to trade with CFDs. My advice in these cases is to start trading with a CFD broker. In other words, if you can afford it, of course, start trading directly with a good broker of stocks, ETFs and/or futures.
But if you can’t (and the vast majority can’t, especially when it starts), don’t crash: Go with a CFD broker that is half decent.
Although it is a market maker, even if it swings with the spreads from time to time, even if it has a small range of products, etc. This broker will be a thousand times better than the broker of your bank, or even better than a great and reputed “classic” brokers, who are full of phantom commissions and absurd rigidities, which make you have to be a true trading genius to operate on the profitable way.
1. It operates in assets with little spread or less, prevents that extreme spread. Go to liquid markets.
For example: Stocks from major markets, fine. Main Forex pairs, fine. Important indexes, fine. Industrial metals and other second-order raw materials – wrong.
Do not trade CFDs on platinum if it is not strictly necessary because they will fleece commissions in the form of bloated spreads to the extreme. You can make profit revolution with CFD easily.
2. Use CFDs mainly for short positions. The interest payable for remaining in the position is lowering (sometimes practically nil) when you are sold than when you are bought.
Especially if you open mid-term positions (months), try doing it with stocks instead of CFDs; but you can open the shorts with CFD with total confidence, because they are not usually especially expensive, even if you keep them over time. And if you cannot open longs with stocks and you have to do it with CFDs, be very careful with these costs.
3. Although you are guided by the graph of real prices of the shares or the real underlying, the one that affects you is the graph of your CFD broker , so, either you operate in super liquid markets or you have to go to high time frames , daily order or higher. If not, you will despair at the differences.
4. If you trade intraday, stay away from news and other high volatility events. You already know that the broker is going to inflate the spreads and swing, taking advantage of the confusion of the moment.
5. It works well: Of course, the above points are tips for you to apply in addition to operating well. For example, if you do the idiot with the capital management everything else is absurd.
You have to operate with a clear and winning method; you have to carry out logical and profitable trading from the beginning. And, in addition to this, take care of the details that I am telling you. Thus, if you do not make a bad trade, the fact of trading with CFD will not spoil your (good) results.
CFD broker has its own advantages
Besides, a CFD broker has some advantages that come in handy when we start and we do not have a large structure built: For example, you do not need to hedge currency because exposure to currency exchange only applies to the margin and not to the nominal and you can trade without worrying about those issues.
And of course, given that the vast majority of stock-brokers don’t allow short (sell) positions, the fact that all CFD brokers do is an advantage. In fact, I think it is the main reason for people to open an account in a CFD broker, apart from not having at least the € 10,000 or € 15,000 necessary to operate in stocks with some fluidity.
Start with a CFD broker for your trading. It will not be the best in the world, but you are already on the move, you can already take advantage of many opportunities when they arise and, above all, you are taking tables for when you have the resources and motivation necessary to enter a more professional broker.