- CFDs track the underlying price movements of an asset allowing you to trade on live market prices without physically owning the underlying asset.
- CFDs give you the freedom to trade global markets without putting up the full value of your position. CFDs are a leveraged product, offering you an efficient way to manage your capital. However, their benefits are matched by their risks as you can potentially lose more than your initial deposit. Please see our CFD disclosure document.
- CFD trading allows you to profit no matter the direction of the underlying market. Go Long (buy) to benefit from rising prices. Go Short (sell) to take advantage of falling prices or hedge your portfolio to offset potential losses in physical assets.
Contracts for differences can be traded on a vast range of different financial instruments, depending on the access that your CFD broker has to various underlying market price feeds and the range of markets available to trade is constantly expanding. The main CFD market types include:
Who Trade CFDs?
Take advantage of short to medium term price fluctuations with low cost CFD trading.
Hedge your portfolio against bearish moves in assets or reduce your exposure to currency risk. Go short share CFDs to protect individual holdings or go short share indices to hedge broad market exposure.
from 4.4 points, 0.5% margin
from 0.5 points, tiered margins
Share CFDs give traders exposure to the underlying stock on a leveraged basis with most share CFD orders executed on the exchange via the CFD Broker. Share CFDs are very popular for obtaining short term leveraged exposure to a stock and are second only to currency CFDs (Forex) in terms of popularity.
With Share CFDs you can leverage your money. For a small initial margin, which is usually around 10% of the face value of the stock you can gain exposure to the stock with only a small initial outlay. CFDs can also be traded in small sizes meaning traders with limited capital can still gain exposure to a stock.
The benefit of being able to leverage your exposure to a particular stocks means gains are magnified for winning trades, however there is also risk with losses being magnified at the same rate as gains. This makes CFDs a very risky product, but does make them affordable in terms of cost, which is typically lower than for shares.
For Example: Say you wish to purchase Share CFDs in BHP Ltd, a mining stock listed on the ASX as well as other exchanges. Let’s say BHP is trading at $35 in this example and the trader would like to buy 100 shares. With a 10% initial margin the trader would outlay $350 (10% of $3,500 Face Value). The initial margin is simply a deposit held by the broker to cover any potential loss on the trade. Let’s say price moves up to $36.00 and the trader sell BHP. The profit would be $100 ($1.00*100 shares less interest). Conversely if the price moved down the $34.00 the trader would lose $100 less interest. There is an interest cost associated with the trade which would reduce the profit by the interest amount and increase the loss by the interest amount (depending upon the interest rate charged and the amount of time in the trade). Interest is charged on the full face value of the trade. If the Broker Interest rate was 4% on this trade and the trade was held for 5 days the interest cost would be $3,500*4%*5/365=$1.91. At the end of the trade the initial margin is refunded plus any profit or less any loss.
Metal CFDs on Gold and Silver provide exposure to these commodities for as little as $1 per point with very low initial margins. The CFDs on Gold and Silver track the futures markets for these products as the underlying contract and as such rollover on the expiry dates of the futures meaning you may pay or receive a rollover charge depending on whether you are long or short.
The big advantage of trading CFDs instead of futures are that the point value is only $1 per point making these products accessible to traders with very small accounts.
Another advantage of trading Gold and Silver CFDs is broker liquidity and spreads are often more favorable than the futures market and the low outlay makes it easy to diversify your holdings into these products.
Trading Indices offers access to a whole new range of markets, meaning you can diversify your trading strategies across uncorrelated instruments as well as take advantage of opportunities that global equities markets present.
Equity indices have gained in popularity as index prices have significantly appreciated over the past several years. As more private companies underwent initial public offerings to raise equity from the capital markets and became publicly-traded, the capitalization of the global equity markets dramatically expanded and now exceeds US$ 50 trillion.
Most major financial centers have at least one equity index and offer traders with exposure to companies domiciled in the U.S., Europe, Asia, and elsewhere.
Commodity CFDs, in particular those targeting energy markets like Crude Oil and Brent Crude track the futures contracts as the underlying market. This means that these CFDs rollover at futures expiry and a large spread may be paid or received at this time. The big advantage of trading with CFDs as opposed to futures is that the point value on a CFD can be as low as $1 per point making them accessible for traders with smaller accounts. Also data fees and platform fees may also be eliminated or reduced. Trading Crude Oil CFDs in the Metatrader 4 platform allows traders to create indicators, strategies and systems to trade these markets in a manual, semi automatic or automatic manner.
Our Account Managers are here to help so if you’d like to trade CFDs call us today on +649 281 2012.