If you’re planning to choose a CFD broker, you may be confused by the wide variety of options available to you. According to our research, the top two CFD brokers are Plus500 and eToro. Read our detailed breakdown of eToro and Plus500 to find out the best CFD broker for you. If you are just starting out and you are not sure what exactly are CFD’s then read this explanation here.
Lowest Spreads & VIP Accounts
Between the two brokers, Plus500 almost always displayed lower spreads than eToro. However, eToro does offer VIP accounts, which Plus500 does not.
Evaluating the reliability of a CFD broker is more complicated than it might seem at the beginning. Our 8-point test for CFD broker evaluation can help in determining broker reliability. Here are the 8 points you need to consider when evaluating a CFD broker:
- Age of Company
- Separation of Funds
- Fines and Penalties
- Public Listing
Using these 8 points, we concluded that eToro is the more reputable broker. Keep reading to find out why.
Both Plus500 and eToro are regulated by the Financial Conduct Authority, ASIC, and CySEC. These three regulators are among the strictest regulators in the world. As far as external regulation, Plus500 and eToro are at the same level.
Age of Company
While the age of a company is no guarantee for its reliability (see GE), companies in the Forex market that have been around longer tend to be more reliable. This is because continuously and repeatedly complying with all regulations every year requires brokers to have stable management processes and safety mechanisms in place.
At the time of writing, eToro has been around for about 14 years, and Plus500 has been around for nearly 12 years. In terms of investing, this is not a very long time for either of the two brokers. But, as both brokers are roughly the same age, at this point, both Plus500 and eToro remain equal.
Separation of Funds
Many people don’t understand why it would be necessary for CFD brokers to separate company money from client funds. This is extremely important because, in the past, some brokers have paid company debt using client funds. When the company experienced difficult financial times, there was no money left to pay back their clients. The company was closed, and the clients lost their investments.
Both eToro and Plus500 maintain separate accounts for client funds and company funds.
Some people are surprised to learn that brokers use banks to store client funds. All reliable brokers use “tier 1” banks to store client funds. Examples of “tier 1” banks include Goldman Sachs, HSBC, Barclays, Citibank, and Chase. Each of these banks manages trillions of dollars annually and has been around for over 100 years. These banks are reliable and lend their reliability to the brokers who work with them.
Both eToro and Plus500 state the use of tier 1 banks. However, it is unclear which tier 1 bank either one uses. We consider this a negative point on both brokers as the lack of transparency could cause reduced trust.
Fines or Penalties
Fines and penalties placed on a broker are a red flag for new clients. Generally, this means that the broker was caught by a regulator doing something that they were not supposed to do. Some of these issues may be very small, but some may be very complex and dangerous. For this reason, any fine or penalization in the last 5 years should be considered a negative mark for that broker.
At the time of this writing, there are no fines or penalties imposed by regulators on eToro or Plus500 in the past five years. This is a positive mark for both companies.
Popularity alone is not a useful metric for a good broker. However, in conjunction with the other standards used in this article, popularity can be a valuable when estimating the reliability of a broker.
In this comparison, eToro comes out as a clear winner with over 6 million traders. By contrast, Plus500 has a mere 300,000 traders.
Being publicly listed is considered a positive point because brokers who are publicly listed are required to release their financial details to the public.
In this area, Plus500 is the winner because Plus500 is a publicly listed company while eToro is not.
Reliable brokers are usually located in major capital cities or some financial hub. Both Plus500 and eToro fulfill this metric because Plus500 is located in Haifa, Israel, and eToro is located in Limassol, Cyprus.
If the broker you’re considering meets all eight of these standards, more than likely, you have chosen a reliable broker. The next step in evaluating which broker is best for you is focusing on the features they provide you. These features can be broken down into seven categories:
- Instruments & Services
- Account Types & Platforms
- Trading Features
- Risk Management
- Funding Methods
Let’s look at each one in turn.
Instruments & Services
As far as options for trading, Plus500 and eToro offer many of the same services:
- Forex trading
- Crude oil
Plus500 tends to offer a wider variety of currency pairs, CFD types, and cryptocurrencies. In contrast, eToro offers “social trading,” allowing you to copy the trades of other traders.
Account Types & Platforms
Both eToro and Plus500 offer top-tier trading platforms allowing you to complete trades 24 hours a day. Regarding account types, eToro offers a wider variety of account types than Plus500, including:
- Mini account
- Standard account
- VIP account
Plus500 offers fewer account types but does offer an account type that eToro does not. That account type is the Islamic Account. Islamic accounts do not incur rollover swap points nor accrue interest because this is prohibited within the Islamic faith.
When adopting a new broker, it’s essential to evaluate the types of trading strategies that are allowed by that broker. For example, trading strategies such as scalping and hedging are not permitted at eToro, but they are permitted at Plus500.
Concerning risk management, Plus500 has a more robust feature set. They offer negative balance protection, limit orders, stop loss or limits, and price alerts. eToro does not offer these services.
PayPal is accepted at both eToro and Plus500.
The last step in the process of evaluating a CFD broker is to look at the fee structures between them. This can be a very confusing aspect as spreads and fees can change drastically from one currency pair to another.
For example, trading the USD/EUR currency pair at Plus500 will cost you 0.60 points. eToro charges 3.00 points for the same currency pair. Obviously, Plus500 is more affordable on this instrument. However, other instruments or currency pairs may be the exact reverse having a Toro being more affordable than Plus500.
Lastly, one fee area that many people forget is deposit/withdrawal fees. For example:
- Some brokers charge only deposit fees;
- Some charge only withdrawal fees;
- Some charge both deposit and withdrawal fees;
- Others charge no deposit or withdrawal fees;
Be sure to verify which fees are charged by your broker.
Sadly, no broker does everything perfectly for everyone. However, it is possible to find brokers who match your needs and your style of trading. Based on our eight-point checklist for evaluating brokers, eToro is more reliable. In contrast, Plus500 has more instruments available for trading. Plus500 also has lower spreads, particularly on the most popular of its instruments such as USD/EUR.
Both brokers offer demo accounts that you can use before signing up for a paid account.
Check them out!
- 1 Lowest Spreads & VIP Accounts
- 2 Reliability
- 3 Regulation
- 4 Age of Company
- 5 Separation of Funds
- 6 Reputations
- 7 Fines or Penalties
- 8 Popularity
- 9 Public Listing
- 10 Location
- 11 Features
- 12 Instruments & Services
- 13 Account Types & Platforms
- 14 Trading Features
- 15 Risk Management
- 16 Funding Methods
- 17 Affordability
- 18 Conclusion