CFD broker is actually a misnomer because technically he is a principal and not an agent. The reason for this is that in the CFD market trades are placed directly between a dealer, commonly known as a CFD broker and a trader. However, in certain cases there may be a broker acting on behalf of a CFD provider.
Regardless of whether we call him a broker or dealer, the job profile is the same as a traditional broker. The difference is that stock broker is an agent who acts as a go-between you and the stock exchange and earns through the commission he charges on each trade. A
CFD broker, on the other hand, does not charge a commission but earns his profit from spreads. A spread is the difference between the rate at which he sells a CFD and the rate at which he buys.
A stock broker does not carry any risk. He will allow trades only of as much value as there is money in the trading account of a client. A CFD broker, on the other hand, is counterparty in the contract and must cover his risk by placing counter trades in the market pertaining to the underlying asset. For example, if you buy a Telstra CFD worth 100 shares, the CFD provider will sell 100 Telstra shares in the stock market at the current prevailing price to hedge his risk.
A CFD broker provides traders with the ability to open, close and manage market positions through a web-based trading platform. A stock broker may however do the same through proprietary software made available for download to a client’s computer.
One of the many ways by which you can trade on the forex market is day trading. In most cases, standard day trading deals are opened and closed on the very same day. It is up to you to decide the number of trades that you want to make throughout the course of the day. However, most people think that all day trades should be closed on the same day. That’s not true. In some cases, a day trading deal may extend longer than a single day. If that happens, the deal is renewed of its own accord at 22:00 GMT each night until it goes in to closure. Of course, you will be charged a small fee for every renewal for the additional 24 hours that you get.
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I enjoyed reading your blog. Nicely explain difference between Stock Broker and CFD Broker. Thanks
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