Contracts for Difference are over the counter (OTC) products that are designed to help you to trade instruments globally without actually owning them. They can provide you easy access to shares, forex pairs, indices, and other assets all over the world without having to register in different markets and exchanges.
Because of regulatory differences, not every broker offers CFDs in certain countries. Choosing a broker both suitable for you and eligible to provide services in your country might be a complex and confusing process. We will provide guidance and resources to help you in that, and also share some details concerning a number of countries.
First let’s take a look at the types of CFD brokers (with CFDs they are also called providers, as they provide the contracts for the traders as counteerparties).
Market Makers and Direct Market Access Brokers
The distinction between MM and DMA brokers is similar to the MM-ECN/DMA difference in forex trading. Market Makers pool their orders meaning they pair incoming short and long trades and don’t necessarily trade the underlying asset every time for the individual trades.
DMAs, on the other hand, are obliged to trade in behalf of the CFD holder, thus assuring matching the price of the CFD and the underlying.
The overwhelming majority of trading is conducted through MMs in the CFD market as the demand for DMAs is much lower than in the forex market.
CFDs in the United States
With the strict financial rules for US residents, it isn’t possible to trade with CFDs as an individual. It is considered a form of gambling, so illegal. Without getting deep into the matter, it doesn’t seem fair that although you can freely trade options, forex, and futures that can be as dangerous if used improperly, you are restricted to trade CFDs.
Will this ever change?
We don’t know, but given the lobby-power of financial institutions that protect their business, it is highly unlikely.
A grey area for the law is the solution of setting up an off-shore company and to open an account in the name of that entity. But counting all the costs involved and the “shadiness” of the process it might easier to reach all the markets you want to trade traditionally through a general broker like Interactive Brokers, or TD-Ameritrade.
Trading CFDs in Australia
CFD trading is popular in Australia and customers can choose from a large number of offers. You could have also traded exchange traded CFDs in the country until 2014. These special instruments were traded on the ASX end had been regulated like other exchange traded instruments but because of their higher costs they were not popular enough.
CFDs in Canada
IG Markets is the market leader of CFD trading offering CFDs on a wide range of local shares and global assets. It is one of the biggest players in CFDs in the worldwide market too. Also present with a local office is ACM Gold but you may also choose from several international options.
A lot of brokers turn to Asian markets lately with promotions and offering dedicated customer service. Now it is much easier in a number of countries to trade in the local language in both forex and CFDs than it was before.
CFDs are not legal in all countries, though. In India, it is illegal to trade on margin in general so CFDs are not allowed to be traded by individuals. CFD trading is also illegal In Hong Kong.
The best providers
Instaforex and FXCM and FBS are great providers of CFDs with comprehensive support for local traders including Malaysia, China, Indonesia, and Japan. If you want to trade CFDs in Singapore, Oanda or IG Markets might be the best choices for you.
When choosing your CFD provider be sure to examine the offered products as there is much bigger variance between brokers than in the case of forex offerings and if you would like to specifically trade local assets, you might find what you are looking for at the right provider.