Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets, CFDs, OTC options or any of our other products work and whether you can afford to take the high risk of losing your money.
In this article, we explain what a broker is, how one can increase your exposure to the financial markets, and how you can trade or invest using its services. We explain the costs associated with using a broker, as well as the benefits and drawbacks.
CMC Markets offers over 12,000 to trade on via spread bets and CFDs, so why not test out our trading platform now with a risk-free demo account?
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A broker is an individual or company that acts as an intermediary between an investor and an exchange, executing their financial transactions for a commission fee. Brokers can carry out transactions for forex, stocks, commodities or any other financial market on behalf of their investor. These are normally executed through a trading platform. Both retail traders and institutional traders can request brokerage services.
A broker must be licensed to provide financial advice and execute trades, and they are usually authorised and regulated by the Financial Conduct Authority (FCA) in the UK. For example, at CMC Markets, we comply with Client Assets (CASS) rules to ensure all client funds are protected, holding them in separate bank accounts to the company. However, remember that most investors lose money when trading with a broker on leveraged products like spread bets or CFDs, so the process isn’t entirely risk-free.
Learn more about our trading account types.
Brokers can offer a wide range of services to investors, depending on the market you’re interested in, your overall goals and profit targets, and the funds that you have available to invest. Here are some of the most popular types of brokers.
A full-service broker provides more than one service other than basic trade execution. They may also offer services such as tax and investment advice, market research, and retirement planning. Commission fees at a full-service broker tend to be much higher than those from a discount broker, given the number of services on offer. This type of broker may be useful for investors that don’t have enough time to carry out complex financial planning.
A discount broker typically executes trades on behalf of its client but doesn’t offer additional advisory services. For this reason, they charge a lower commission, which may appeal to more self-directed retail investors with a lower budget to spend. Investors are usually required to manage their portfolio themselves. In general, the more trades that a discount broker executes for an investor, the lower the cost, which usually falls around £5-£15 per trade.
An execution-only broker is restricted to solely executing trades on behalf of the client, without offering any advice whatsoever on the nature of their investments. These work in a similar way to a discount broker, but services are mainly telephone-based or online and come with lower costs than the majority. Execution-only services are perhaps suited to more experienced or professional investors that are already aware of trading risks and don’t need advisory services.
Brokerage fees can either come as a flat fee or based on a percentage of the transaction. This will depend on the services that it offers and whether this is direct investment or derivative trading.
When you trade with a broker, you should take the following costs into account.
Depending on the broker in question, you can gain exposure to an endless number of financial markets and instruments. At CMC Markets, we offer trading on 12,000+ instruments via spread bets and CFDs, although some brokers may be more specialised towards a specific market in their offering.
| Asset class | Our offering |
|---|---|
| Stocks | 10,000+ |
| Forex | 300+ |
| Indices | 80+ |
| Commodities | 100+ |
| Treasuries | 50+ |
| Exchange-traded funds (ETFs) | 1,000+ |
| Share baskets | 34 |
One of the most popular asset classes among traders, a forex broker manages the buying and selling or exchange of currencies. The forex market is open 24 hours per day, meaning that you can take a position on currency pairs during any trading session. Each forex pair has a base currency and a quote currency, which measures their value against one another.
Winner of the best forex broker award in the UK** for our spread bet and CFD products, we are fully regulated and offer a product library containing 300+ currency pairs to trade on, which is the highest offering in the industry^. This includes major crosses such as EUR/USD, GBP/USD and USD/JPY, as well as minor and exotic crosses.
A stockbroker manages the execution of trades within the share (or stock) market. Investors cannot buy or sell assets on a stock exchange directly, therefore, a licensed broker is needed to complete the transaction. For example, in the UK, a broker may negotiate between the London Stock Exchange (LSE) and its client to find the best available price.
Winner of the best CFD broker of the year** by Shares Magazine, we offer spread betting and CFD trading on over 10,000 shares in the UK, US and globally. You can take a position on blue-chip and large-cap stocks, as well as cheaper penny stocks.
A commodities broker is in charge of executing trades for raw materials such as crude oil, gold, sugar, copper and natural gas, to name a few. These can come in the form of spot trades, as well as futures and forward contracts, where a buyer and seller agree to exchange a commodity at a set price and date in the near future.
As we only offer derivative products, you can spread bet or trade CFDs on the price movements of commodities, which means taking a position without the hassle of storage or transportation of the asset. This may be a well-suited method for traders who want to speculate on short-term price movements of volatile commodities, for example crude oil, without taking full ownership.
Best Spread Betting Broker
Good Money Guide Awards
Best Forex Broker For Beginners
BrokerChooser Awards
Best Retail CFDs Broker
Finance Magnates Awards
At CMC Markets, we have won numerous awards for our spread betting services*. When you trade with us, you place a buy or sell order for the instrument whose price movements you want to speculate on. You can play both sides of the market, opening long (buy) positions if you think an asset is due to rise in value, or opening short (sell) positions if you think an asset is due to fall.
Spread bet tax-free** with us on over 12,000 financial instruments. Our derivative products mean that you don’t take direct ownership of the asset, allowing you more space to trade the markets freely.
An alternative to spread betting, you can also trade contracts for difference (CFDs) with us on our wide range of markets. Remember that CFD trading comes with additional costs, such as capital gains tax and commission fees on shares, so this may result in being slightly more expensive when compared with spread betting. However, CFDs are available globally, whereas spread betting is restricted to the UK and Ireland*, so this may be more suited to investors situated abroad.
What is an advisory broker?
An advisory broker is another name for a full-service broker, in that it executes trades on behalf of a client while also providing advisory services. These include investment, tax and retirement planning and research.
How do brokers make their money?
Brokers make their money through charges such as spreads, commissions and holding costs, which are applied to each transaction. Read more about our trading costs that could affect open positions.
Why do I need a broker?
You will need to go through a broker if you want to purchase or trade on financial instruments such as stocks. This is because brokers are specifically licensed to interact with securities exchanges, which individual investors cannot do directly. Open an account to get started.
Is CMC Markets a regulated broker?
CMC Markets is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, which means that we must comply with FCA client assets regulation, known as CASS. Learn more about our regulations.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
**Awarded Best Spread Betting Broker, Good Money Guide Awards 2021; Best Forex Broker For Beginners, BrokerChooser Awards 2021; Best Retail CFDs Broker, Finance Magnates Awards 2020; Best Spread Betting Provider, The City of London Wealth Management Awards 2021; Best Trading Technology Provider, HedgeWeek European Awards 2021; Best CFD Provider of the Year, Shares Awards 2020; Best Forex Broker, Good Money Guide Awards 2020.
^No.1 Most Currency Pairs, ForexBrokers.com.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
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