Drawbacks with Changing CFD Brokers
One of the most common thoughts amongst traders hasty to get started dealing in CFDs is that broker choice is irrelevant. At any rate, it is widely thought that switching brokers at a later date if you're unhappy is an easy and hassle-free process, that enables you to effectively have your pick of the market. Unfortunately, it's not as easy as that - after all, signing up for a trading account with a broker isn't the same as choosing a different email provider, or making a new friend on Facebook. The process is one that is at its core a legal one, and requires much more thought and consideration should you ever need to switch.
Credit Checks and Verification
The first problem that presents itself when switching CFD brokers at some midway point in your trading career is the credit check hurdle. Credit checks are conducted as routine by most brokers, and rightly so - in lending money in the form of leverage to their clients, brokers want to be doubly sure they're likely to get it back. Credit checks also perform and important role in verifying the identity of a trader, so that if they go black on their CFD debts the broker has an avenue for recovery. While these are routine processes that shouldn't prove problematic when signing up for a CFD trading account, they can present problems if you are consistently switching.
The first problem is that you may not pass the credit checking requirements with every broker. Some brokers have more stringent thresholds than others, and that is their prerogative. Similarly, your credit position may have worsened (say, for example, if you've moved house or taken out a new credit card) over the duration since you first signed up. As a result, you might find when attempting to switch to a new broker that you are unable to do so for this reason, which could seriously hamper your trading career if you close your existing account before securing a new one.
By the same token, these credit checks do show up on your credit report, and can impact on your overall credit rating. If a lender sees that you have recently requested credit, in the form of an application for a CFD trading account, this could be sufficient to flag you up as an unsuitable customer for lending.
Moving Your Trading Account
Aside from the credit and financial implications from moving, you might also experience difficulties in actually managing to close your existing trading account. Unless you are prepared to gradually wind up your trading account with your original broker, which can take a significant amount of time and effort, moving requires closing all of your open positions and withdrawing your capital from one trading account. This could have all sorts of implications, including raising tax issues and also in helping to accrue more brokerage fees with your new broker for every position you wish to carry over. There's no easy way around this problem when you have a trading portfolio ticking over with one broker that you're hoping to switch to another.
Of course, these aren't the only drawbacks. There are inefficiencies involved in beginning to trade with a new broker and a new trading platform, and these inefficiencies can lead to real world costs. Say for example, you're looking to close out a trade immediately, but are still getting to grips with the new system you've chosen to trade through. The markets don't wait for you to figure out which button to click - these inefficiencies can end up costing you your profit on certain trades, or even result in you missing your cue to buy on an upswing. For those intent on moving, this is one drawback you have to resign yourself to, and in doing so you have to be prepared to accept the associated losses and frustration that comes with these early mistakes.
Changing CFD broker, while not impossible, certainly isn't easy. That's why it is imperative for you to make the right call as early as possible into your trading career, and to stick with your decision until you become a successful CFD trader.