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CFDs are a very high-risk product and should only be traded by individuals who have significant trading experience.
If you are new to trading and investing then they are not for you.
Advisory CFD brokers are not as rampant as they used to be, but they are still around in one capacity or another. So here are our three golden rules to avoid being ripped off by advisory CFD brokers.
One of the most common ways traders get taken in by advisory CFD brokers is by greed. They are contacted and offered trading ideas from a slick sounding city broker from an advisory CFD firm.
There are of course brokers out there that provide an excellent service and really do have their clients best interests at heart. But the majority of advisory CFD brokers may as well be working in a call centre selling conservatories. Generally, they are commission based and their pay is related to how many trades you as their client enter into.
So, they will be on the phone to you all day suggesting buys and sells, in small amounts with high minimum charges taking small profits. On paper, they may well have made you a profit but when you factor in commission and financing charges you’ll probably lose.
There is a great phrase that goes around the City:
Why would anyone who drives a Rolls Royce take financial advice from someone that takes the tube to work.
What this means is that it’s your money and you know best what to do with it. Don’t get drawn into the promise of quick profits.
If you want to see the top CFD brokers int he UK that provide an execution only service they see our CFD broker comparison tables.
One thing to bear in mind is that advisory CFD brokers also offer execution only services and will then try to upgrade you to a advisory account on higher commission rates. They are best avoided altogether. Most advisory CFD brokers use the services of the execution only ones then mark the commission up for their supposed added value.
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously acting as multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.