What is a CFD | Online CFD Trading

Transcript

WHAT IS A CFD?

A CFD (Contract for Difference) is an agreement to exchange the difference in value between the contract’s opening and closing price.

CFDs allow you to potentially profit when markets move down as well as up. You never technically own the asset or share because you’re only trading on a price derived from the underlying market.

WHAT IS CFD TRADING?

A flexible alternative to conventional forms of trading, CFD trading allows you take a position on rising or falling markets.

We offer CFDs on a wide variety of markets including forex, shares, commodities, stock indices and more.

HOW DOES CFD TRADING WORK?

A buy (bid) and a sell (offer) price is show for each asset. These prices are derived from the underlying market.

When you believe markets are going to rise in value, you can ‘go long’, meaning you buy at the offer price. If markets are falling and you think this will continue, you can ‘go short’, meaning you sell at the bid price.

Your profit increases the more the market moves in the direction you predicted. However, if the market moves in the opposite direction, your losses could also potentially increase. It's up to you how long you keep the trade open, because most CFDs have no time limit.

DO I NEED A DEPOSIT?

A major benefit of CFDs is that they are leveraged products, so a small initial percentage of your overall exposure to a financial market is needed. For example, say you want to trade 20,000 shares in a company, with traditional share trading you would have to buy 20,000 shares at the full market price. With CFDs, a small initial payment of the total value in needed as a deposit, from as little as 5%.

Your deposit is only a small percentage of your overall exposure, meaning you could potentially lose more than your deposit if the trade goes against you. To reduce your risk exposure, we offer a range of tools including Guaranteed Stops, which means a trade will automatically close if it goes against you by the amount you specify. View our range of resources that can help you manage your risk.

WHAT MARKETS CAN YOU TRADE ON?

We offer a wide range of global financial markets to trade CFDs on, including forex, shares, commodities, stock indices, exchange traded funds and more. View our entire range of markets.

WHAT ARE THE COSTS?

You may be required to pay a small commission when opening or closing a CFD trade, which can be as low as 0.1% for shares. A number of markets including indices and forex are commission-free; all you pay is our competitive dealing spread.

Other charges to make note of include interest adjustments that are added or subtracted from your trade to positions held overnight, and adjustments for dividend payments.

EXAMPLE: A CFD TRADE

In August 2012, Westpac Banking Corp’s share price was currently at $23.54/$23.56. You believe the price will rise and decide to trade 1000 shares. You buy at $23.56 per share, which gives you a total exposure of $23,560. You pay a 5% deposit of $1178 which is the initial deposit requirement. You pay 0.1% commission to open the trade.

1000 shares x $23.56 x 0.1% = $23.56 commission

Nearing the end of the trading day, Westpac’s shares have risen to $24.41/$24.43 and you choose to take your profit.

Selling 1000 shares at $24.41 will mean you need to pay a commission on this of $24.40. Your profit is calculated below:

• The opening level of the trade is $23.56 and is closed at $24.41. This gives a difference of 85 cents.
• 85 cents x 1000 shares bought is a profit of $850.
• Costs were $47.95.
• Net profit on the trade is $802.05.

Note: On Australian Share CFDs the minimum commission is $8. For more information on commission rates, please refer to our contract details