As trading CFDs has become more popular, the number of Internet brokers and providers has multiplied. You need to take many factors into account when choosing how to trade, bearing in mind that you not only want to find it easy to make the trade you desire, but you also want the assurance that your money will be looked after and available when you want to withdraw it.

The increase in popularity of all types of trading, facilitated by the Internet in recent years, has spawned many upstart companies purporting to cater for the demand. Some of these may not live up ot your expectations.

Is The Broker Regulated?

One of the ways to ensure that there is some sort of standard upheld by the broker is to question whether they are regulated. The Internet allows brokers and companies in any country to offer services, and you may not feel comfortable dealing with an off shore company because of the difficulties enforcing action if they do not fulfill your orders and do as you request.

Do not be impressed by a flashy website at the expense of doing your homework, and make sure that the company is soundly based, and preferably registered. In the UK, brokers may be accredited and regulated by the Financial Services Authority (FSA) which provides some guarantee for your money.

What Is The Trading Platform?

The trading platform offered may be browser-based, use a customized Internet browser, or involve the installation of stand-alone software. None of these is intrinsically better than another, but you should consider the whole package that is offered by the broker to see whether it suits your style of trading.

If you are a daytrader, you may be particularly concerned with speed of execution. Do not rely on broker assurances of how good their platform is - everyone will tell you theirs is the best - but to make sure that you can open a demo or trial account and test it in practice.

Check to see what order execution methods are available to make sure that you can trade in the ways that you want. For instance, sometimes you can develop a watch list. You need to be sure that the contingency orders will satisfy your needs. You may require a "one cancels other" facility so that you can place limits with contingencies and know that your wishes will be fulfilled even if you are away from your computer. There are many different types of order and most brokers try to offer what is needed, but only you know which ones you require for execution of your trading plan.

What Are The Margin Requirements for the CFDs You Trade?

One of the major features of trading CFDs is that you can multiply your profits by leveraging your money. You will find that there can be significant differences in the amount of leverage different brokers will give you.

Of course, from a trading point of view you are probably concerned to get the maximum leverage you can in order to maximize your profit potential. As there is risk associated with high leverage, you will find that brokers will try to limit your leverage to prevent you acting irresponsibly. Sometimes this is negotiable, particularly if you can show that you are an experienced trader.

You should expect that the amount of leverage you are offered varies according to what securities you are trading. The leverage offered on equity CFDs may well be different from that on Forex CFDs, for instance. This is fundamentally because it needs to reflect the financial instrument's volatility and riskiness.

As part of your margin discussion you should investigate the broker's policy for margin calls, when you are required to add more money to your account. You will have a limited time to pay the funds if you receive a margin call, and this time frame needs to be clear, together with the broker's policy if you fail to submit the funds in time. For instance, some brokers will close out all your trades if you fail to meet margin, whereas others may just close the trade causing the call, or close sufficient trades to establish the required margin again.

How Much Does It Cost to Trade?

There are several factors to take into account when trying to determine how much it will cost to trade. If you have a track record of trading CFDs already, then you will be able to refer to the charges that you typically incur with your strategies, and do some calculation to figure the relative importance of the different costs. If not, then it is best if you review your trading strategy and make your best guess of the number of times you will incur commission charges, interest, etc. in a month so that you can make a comparison.

Depending on what you trade, you may pay commission charges for each deal. These will occur twice on a trade, once when you buy and once when you sell. Typically you may see 0.1% to 0.2% charged, with a minimum charge. If you are an active trader, these costs may add up quickly.

Another cost to trading is when there is a spread between bid and ask prices, such as you have with Forex. When you are considering a broker, you should review their sample quotes to see how much they typically have as a spread. This is another figure that varies according to the markets being traded so be sure to check for any securities that you may be considering.

Daytraders need not be concerned with this, but all other CFD traders will be interested in the overnight interest rate charged. This is the amount charged because of the margin allowed in your trading, and represents interest to the broker for providing the margin facility. It is usually based on a published bank interest rate, such as the LIBOR in the UK or the RBA in Australia. It will be quoted as a plus/minus percentage to the rate, and is typically in the range from +/- 2% to +/- 4%. The actual interest that will be charged for a long position would be the bank rate plus the percentage, worked out to a daily rate. If you are in a short position, then you would receive the bank rate minus the percentage as a daily addition to your account.

Does The Broker Cover All the Markets You Want?

One of the advantages of trading CFDs is that you can dabble in several different markets using the same broker. This means that you can try your trading strategies in different securities, and that you can concentrate on the market which seems to be performing most predictably at the time of trading.

There are in fact two separate issues here. Firstly, do they offer CFDs in the type of market that you are interested in? This could include domestic shares, international shares, market indices, foreign exchange, treasuries, and commodities such as oil, gold, and other precious metals. Many brokers will offer a wide range of markets, and you should make sure they include your areas of interest - for instance, not all brokers offer sector CFDs.

The second issue is that the range of tradable CFDs can vary from broker to broker. Some brokers might only offer CFDs for the top 200 or 500 stocks. If the broker has a limited list, you may need to back test your trading system against the CFDs that are available in order to determine whether you can live with that limitation.

How Good Is Customer Support?

If the broker offers a sound and reliable trading platform, the chances are that you will not need much customer support. However, when you need it you want it to be available and knowledgeable, so it is a good idea to check it out to the extent that you can.

Look for a toll-free number, and see how long it takes for them to answer the phone with a live representative. You will need to form a judgment about how informed and friendly the support personnel appear to be. If there are restricted hours for the opening of the support service, you will need to consider whether this matters to you.

If it's possible, try to talk to existing customers to find out their experiences. You can sometimes get recommendations from Internet forums, but you should also bear in mind that the brokers themselves may contribute to the forums and may give you a false impression to encourage you to sign up with them.