What is CFD Trading?
CFDs are an abbreviation for Contracts for Difference. CFDs act as an agreement between a broker and yourself to exchange, at a contract’s end date, the gap or difference between the closing price and the opening price. This figure is then multiplied by the quantity of shares in the contract, resulting in a net profit or loss.
Put simply, you can speculate that the price of a share will either rise or fall and then allocate an investment accordingly.
Going long or short with CFDs
If you believe that the price of a share will rise, you take a long position. Conversely, if you predict that the share price will fall, you take a short position. Regardless of the choice of long or short, you will make a profit or loss on your initial investment. This is the biggest differentiator between buying CFDs and say buying traditional shares in a company.
Going short allows the investor to make money, even in the event of a lower share value, provided that you have
a) made an accurate prediction; and
b) taken a short position.
By going short, you sell off stock that you don’t own and in the future, buy it back at a reduced price, resulting in a profit.
Unlike in a traditional share buying model, in CFD trading, you never actually buy the underlying share; the CFD acts as an instrument for you to access changes in the price of a share. Like traditional shares, in the event of you taking a long position, you would be entitled to future dividend payments.
CFD Brokers in Australia
The following CFD Brokers provide investors the ability to buy CFDs on the ASX
CMC Markets
CMC Markets have been operating in Australia since 2001, by providing traders with market access and education. CMC Markets currently operate globally with online financial trading on 4 continents. CMC Markets are winners of the following awards:
Money Magazine Best of the Best Awards – Best CFD Provider (2008)
Smart Investor Blue Ribbon Awards – Recommended for CFDs (2008)
First Prudential
First Prudential Markets (FPM) is an Australian company specialising in CFDs and offer Direct Market Access (DMA) to a large range of Australian share CFDs, Global Index, and Share CFDs on over 24 exchanges.
As a full participant of the Sydney Futures Exchange Limited (SFE), First Prudential Markets are a key participant in the launch of the world’s first exchange traded CFD – ASX CFDs.
IG Markets
IG Markets is part of the IG Group, which has several operating companies offering a variety of speculative products to a retail and professional client base. Some facts about the IG Group
- UK FTSE 250 member
- Over 70,000 active clients worldwide
- ASIC-regulated
IG Markets provides traders with access to thousands of global share CFDs plus forex, indices, commodities.
MF Global
MF Global Australia Limited (MFGA) provides traders with a full range of financial products and services. The products offered include exchange traded futures, options and futures on options, foreign exchange (Margin FX), Contracts For Difference (CFDs) and equities.
Marketech
Marketech is a Contracts for Difference (CFD) provider that offers Direct Market Access (DMA) to the Australian Securities Exchange (ASX). We offer trading on over 2600 ASX listed companies, through our very own trading platform. Marketech offer the following features:
- Direct Market Access (DMA) only
- CFDs on every listed ASX stock
- Free live data for accounts valued higher than $5,000
- Margins from 5%
- Free trading platform
