CFD Trading in Australia: What You Should Know

A CFD is a contract between an investor and a financial institution, often a brokerage. It’s also a financial instrument that can be used to gain exposure to many different financial markets without actually owning the underlying assets

CFD traders in Australia offer Australians a unique method for participating in indices, foreign exchange, and even alternatives like gold and cryptocurrencies.

Here are the basics of CFD trading in Australia and the opportunities available to you.

What are CFDs?

A Contract for Difference (CFD) is a derivatives contract that enables you to speculate on underlying assets in various markets. As the buyer, you reach an agreement with the seller to exchange the difference in the price of an asset. The specified price difference is measured between:

1. The time at which the contract is opened
2. The specified time at which the contract is closed

As the buyer, you can choose to speculate on price changes that go in either direction. The subsequent profit or loss is determined by the extent to which your speculation was correct.

The Pros & Cons of CFDs

The main benefit of CFDs is that you have the flexibility to go both long/short or a buy and sell position without the necessity of having to own the asset. As there is no underlying asset ownership, there is no borrowing or shorting cost.

For example, if you want to trade currencies in foreign exchange (forex) markets, the access to the product might not be as straightforward as you imagined. Margin trading in forex is normally reserved for larger, institutional investors. 

So, CFDs present an opportunity for you to speculate on the price movements of a currency pair. If your speculations prove to be accurate, you can make a profit depending on the position you opened.

While leverage enables you to spread your capital further, it is important to keep in mind that your profit or loss will still be calculated on the full size of your position. That means both profits and losses can be magnified compared to your outlay, and that losses can exceed deposits. For this reason, it is important to pay attention to the leverage ratio and make sure that you are trading within your means.

There are also the risks of potential lack of liquidity, and the need to maintain an adequate margin.

As with all investments, weighing up the pros and cons is always important to making an informed decision.

CFD Contracts in Australia

CFDs are classified as leveraged derivatives in Australia. They enable you to speculate on short-term (sometimes mid-term) movements in foreign exchange rates or asset prices. They can also be used for speculating on index movements, or even on pooled investment securities like ETFs.

CFDs are regulated in Australia by the Australian Securities and Investments Commission (ASIC). All CFDs in Australia must follow the relevant regulations meant to protect traders/investors. These protections include leverage ratio limits, which are different for every asset the CFD is for, with a maximum of 30:1.

CFD Investments

In Australia, there are CFDs available for most of the major asset classes.

Indices

Index CFDs are used for speculation on price movements for the major listed indices. These include the top domestic indices such as the ASX 200. But Australians can also purchase CFDs for foreign indices like the EURO 50, or the S&P 500, for example.

ETFs

An ETF CFD is used for speculation on the price changes of an Exchange-Traded Fund (EFT). An ETF is a pooled security that includes several individual assets. They may track indices, industries, or any pool of investments as specified by the fund managers.

Stocks

Technically, these would be referred to as “Share CFDs”. When you trade share CFDs, you are speculating on movements for the prices of shares in individual companies. These can include some of the biggest companies in the world.

Vantage’s US share CFDs are available commission-free.

Forex

You can speculate on foreign exchange pairs with Vantage at the low cost of just $1 per lot on each side.

With more than 40 forex pairs available, you can access a number of major and minor currencies..

Commodities

CFDs are also available for trading commodities. They can be taken to speculate on price movements for some of the most important aspects of the global economy. Those options include precious metals, energy resources, and many soft commodities.

Cryptocurrencies

Lastly, predicted cryptocurrency price movements can also be traded with CFDs. With Vantage, you can trade long or short on any of the major cryptocurrencies with leverage. Options include Bitcoin, Ethereum, Ripple, and 40 others.

How to Buy a CFD in Australia

You can buy from any CFD broker in Australia that offers the kind that you are looking for. CFD providers in Australia such as Vantage can help you with any of the above investment classes.

Learn more about CFD trading with Vantage here or you can download the Vantage App now.

If you want to get your trading started today, it only takes a matter of minutes to try our special Demo Trading Account or to Open a Live Account.