The online CFD trading industry has evolved significantly in the past decade, with a large array of brokers flooding the Australian market to compete for your business. This has been both good and bad for CFD traders. Trading in leveraged financial products such as CFDs and FX carries various risks, requires a certain level of experience and may not be suitable for all investors.
Please seek expert advice and always ensure that you fully understand these risks before trading. In our own words, CFD trading is a form of leveraged trading that allows retail investors to speculate on the price movement of a whole range of financial instruments, such as stocks, FX, gold, indices, crude oil — the list goes on. With CFD trading, you can take a position on the rising or falling of a financial market and, if you speculate correctly, you should make a profit.
The same applies here except on a far greater scale — some providers offer Using leverage means you only need to deposit a small amount of money onto your CFD trading account in order to gain a large exposure to the financial markets. This can result in significant profits or losses with even just a small movement in the market. Therefore, you need to seriously consider and understand the risks involved at all times. Proceed with care as you can lose more than your initial deposit if the market turns against you.
See point 2 above! For example, a broker may offer you leverage of It is important to point that, while margin and leverage are similar concepts, they are not the same thing. Leverage refers to the act of taking on debt, whereas margin is a form of borrowed money, used to invest in financial products. In effect, you can use margin to create leverage. As you can see, margined or leveraged trading has obvious benefits, however, it is crucial to note that CFD trading carries a high level of risk to your capital and can result in losses that exceed your initial deposit.
Please ensure that you understand all the risks involved before opening a CFD account. There are a number of costs involved when CFD trading, some of these are outlined below;. Choosing a CFD broker that meets your specific trading needs is a very personal decision and you should research a number of brokers before making your final decision. It is important to consider a number of factors when undertaking your research and some of these have been outlined below:.
This is very important and easy to find out. Do not trade with a broker who is not ASIC-regulated. You should spend plenty of time investigating the costs involved with a broker before you sign up for a trading account. CFD brokers make their money in several different ways;.
So beware and do your research. The comparison table looks at some of the key features to consider when looking to open a CFD trading account.
CFD trading - some things you need to know. What is CFD Trading? What are some of the benefits of CFD trading? Profit in both rising and falling markets: With CFD trading, you are simply speculating on the price movement of an asset without actually buying or selling the physical instrument. Therefore you can speculate that the asset will decrease in value as well as bet that its price will rise.
This can help magnify your potential profits; however it is important to understand that trading with leverage can also be a very serious risk if the trade goes bad.
Access to global markets: One of the key ingredients to successful investing or trading is diversification, and CFD trading gives you just that. Ownership or lack of: How do CFDs work? There is a 2 point spread the difference between 5, and 5, You close at 5, — a difference of 37 points from where you opened the trade. What is leverage and margin? How much does it cost to trade CFDs?
The tighter the spread a broker offers, the cheaper it is to open that trade given no other charges are applied. Stock CFDs usually incur two commission charges; one when you open the trade and another when you close the trade. A broker should disclose these commission charges — ensure you check these before opening any trades. It is an interest payment to cover the cost of the leverage that you use holding your trade open overnight.
The overnight financing fee can be positive or negative depending on the direction of your position and the applicable financing rate. What are some of the risks of CFD trading? Trading CFDs is a high-risk investment strategy: Trading on margin means your potential profits can be magnified very quickly, but equally, your losses can be magnified just as quick. CFD trading requires a certain level of experience and may not be suitable for all investors.
Market volatility can be ruthless and your account can be wiped out in seconds if the market goes against your trade. Gapping is a real risk here too — gapping occurs when the price of a particular financial asset shifts suddenly from one price to another as a result of market volatility.
Losses can exceed deposits: Again, when you trade CFDs, you are trading a leveraged product and therefore, only need to deposit a small percentage of the actual value of that trade.
Beware of the risks involved before opening a trading account! What to consider when choosing a CFD Broker. It is important to consider a number of factors when undertaking your research and some of these have been outlined below: Is the broker regulated? Trading costs — how much does a broker charge to trade CFDs? Dealing Desk or No Dealing Desk? Your capital is at risk.More...