In case you ever wondered How Do CFD Brokers Make Money? Below you will find a good explanation.
CFD brokers are innovative and inventive when coming up with new ways to make money for their clients. The most important revenue streams for the best CFD brokers are:
The most obvious way for a CFD broker to make money is through the so-called spread. This is a way to make money from the CFD broker that has been built into the actual transaction and trade. The spread is the same as the difference between the “buy” and “sell” rates quoted in each market. They thus become a direct fee to be paid to the CFD broker. It works by the CFD broker creating a difference between the actual market price of the asset and the quoted price. For example, CFDs on shares in Company A may have a spread of 99-101 (2 PIPs) while the actual price is 100. If you were to buy a CFD here, you would buy a position worth 100 at a selling price of 101. This means that you only join profit in the trade when it goes above 101 and up to the next price level, which maybe 102. The difference between the actual price and what you paid goes directly to the CFD broker. Therefore, when choosing a CFD broker, it is essential to choose one that has as little spread and difference between buying and selling price as possible.