CFD is an abbreviation for contracts for difference, and they are basically like currency pairs. CFDs India combines trading in currency pairs with trading in shares or commodities. The currency pair we deal with in the Forex market is the base currency. The other currency is quoted as a pair of currencies, making it a derivative of another tradable product. Many brokers offer trading via CFDs on various stocks listed on Indian stock exchanges in India.
Some of the significant factors to consider while choosing a CFD broker from India are:
Understanding your investment objectives
Once you have considered the points mentioned earlier, understand what type of trader you are, your risk profile, and how much time you want to manage the portfolio. It will help you understand which type of trading account and which instruments to trade with.
Knowledge of market conditions
CFDs are derivatives, so they are based on another asset class, for example, equity or currencies. The price movements in closely correlated markets may impact your returns when trading CFDs. Liquidity is also a vital factor while choosing a broker-dealer, especially if you are new to the domain of CFD trading.
A liquidity provider who can provide tight bid/ask spreads will benefit you more than other providers with low liquidity making it challenging to execute exit trades at desired prices without incurring high slippage. Also, look at any entry or exit loads associated with the CFD trades.
Trading platform
The trading platform offered by the broker-dealer is also an important deciding factor while choosing a broker. Platforms vary among different brokers, and one should always go for the most user-friendly platform available, offering value-added features like multiple graphs, technical indicators, etc.
Some of the leading platforms are TS Robo Trader, R-trader Pro, Z- Trader pro, etc. Also, check if their brokerage charges align with what you expect to pay for good service. As mentioned earlier, liquidity providers who can provide tight bid/ask spreads will benefit you more than other providers with low liquidity making it challenging to execute exit trades at desired prices without incurring high slippage.
Country of origin
The country of origin is one of the most important factors to consider while choosing a broker-dealer. The regulatory requirements are different in every country, and this varies from brokers who are CySEC regulated under MiFID 2 regulations, FCA regulated brokers or CBOs regulated by SEBI in India.
A good broker should have licences for all these countries where they have their operations. Also, check out what type of customer support is available if required, i.e., phone/email/live chat/fax etc.
Checking whether your money is kept segregated with FCA or CFTC may also be beneficial as it offers security to your investments. In the case of an Indian brokerage, check what type of KYC and AML policies they follow as per SEBI guidelines.
Safety
While considering a broker, check out if the firm you choose is reputed and regulated by some authority or not. Also, find out what security features are available from the trading platform, which helps protect your account from hackers trying to access your account without authorisation.
In the case of an Indian brokerage, check whether the money kept with the broker is safe as per SEBI rules with proper documents showing how it is being held in an MF/UTI/AIF/BO etc. It will help you understand their risk management practices to safeguard your investments. Check if there are any hidden associated with withdrawing funds/closing a position etc.
In conclusion
In the end, it’s essential to understand whether you are ready for this investment instrument or not. If you feel that CFDs are the right investment strategy for your portfolio after analysing all these factors— then pick a broker that fulfils all your requirements in terms of cost, trading platform, regulatory requirements, country of origin, and most importantly, the safety of your investments.