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CFDs provide the opportunity to make profits (or losses) from a wide range of markets including equities, indices, currencies and commodities. CFDs are a flexible alternative to traditional trading.
Below you will find what we hope is useful information to assist you in understanding CFDs. Remember, with CWA Global Markets you can always Talk to an Advisor; Not a Platform so you should contact us for ideas and information.
Or you can visit our Frequently Asked Questions Section. If you are unsure what we mean by some of the terms we use check definitions in our Glossary. And remember, you can click here to view or download our Learn to Trade Guide or sign up for an online seminar today.
How do CFDs work?
At its simplest, a CFD is an agreement to pay the difference between the opening and closing value of a contract. Rather than buying or selling the underlying instrument on which your contract is based, such as a company share, you simply place a CFD trade with a provider such as CWA Global Markets. The price of your CFD will then mirror the price of the underlying asset giving you a profit (or a loss) as the price of the underlying moves.
CFD prices
Just like traditional shares, CFD prices are quoted as a Bid (the price you can sell at) and an Offer (the price you can buy at). You then buy a CFD based on the value of a number of the underlying assets.
Margin trading
To open a CFD position, you need to deposit only a fraction of the full value of your trade, usually from 2% -30%. CFD trading can offer the possibility of a much better return on your initial investment than you would receive if paying for the trade in full. Conversely, losses will also be amplified, as shown in the example below.
Why trade Contracts for Difference (CFDs)?
CFDs provide an alternative way to trade. Retail traders and investors now have the opportunity to benefit from institutional instruments at a global level.
Leverage
CFDs are traded on leverage, providing exposure within the market without the costly initial outlay needed for physical shares. Take the opportunity to profit from market movements and diversify your trading strategy and portfolio for a smaller initial investment. It is necessary to be aware that just as magnified exposure can increase your profits, it can work similarly with losses and you can potentially lose more than your initial deposit.
Opportunity
Waiting to set aside the capital to buy a share portfolio can mean missing valuable trading opportunities. CFDs allow you to be involved in the market now. And with only a proportion of your capital invested using CFDs in comparison to physical shares, you have the freedom to use the difference for other investment opportunities – making your money work smarter.
Shorting
Markets don’t always move up. Shorting offers the flexibility to profit in bull and bear markets by selling high and buying back low – an opportunity not available with physical shares. Additionally, depending on the instrument you may be paid financing fees on positions held overnight.
Hedging
CFDs can be used to offset risk. They can work as a shorter-term strategy to protect your longer-term investments. If you fear a fall in the value of your physical investments, but selling has tax implications, an exact hedge with CFDs can ensure that any loss on your physical share holdings is counter-balanced by the profit from your CFDs.
Global markets
Trade where you want, what you want, when you want. Accessibility to global markets lets you trade shares, indices, commodities, bonds, sectors and FX CFDs 24 hours a day. Global markets offer more opportunities to trade and diversify your portfolio.
Lower trading costs
CFDs incur lower trading fees than shares, with commissions on share CFDs starting at $15.00 or 0.15%. If you’re a high volume trader, trading over $5M face value per month, this drops to even lower levels.
Trade FX, indices, commodities and all non-share CFDs commission free, without the management fees of margin loan
CFD commissions and pricing
CWA Global Markets CFDs offer you a cost-effective way to access the markets of your choice. In every market we cover, CWA Global Markets offers highly competitive spreads and charges.
Spreads
The spread is the gap between the prices at which you go long or short on a particular market. If you are offered a spread on the ASX 200 Index of 4150/4155, that 2-point gap separates the price above which you will profit from a rise if you go long from the one below which you will profit from a fall if you go short. Go long, and you will profit from every point that the ASX 200 reaches above 4155. Go short, and you will profit from every point that it falls below 4150.
CWA Global Markets quotes narrow spreads across all the index markets it covers, offering you the maximum opportunity to profit from your predictions for market movements, whether you are going long or short.
Dividend adjustments
The ASX 200 CFD and other cash CFDs will be subject to a dividend adjustment for positions held at the close of business on the day before an ex-dividend date. Usually this applies to positions held at close of business on a Tuesday. This is to reflect the fact that the ASX 200 Index will (everything else being equal) open at a lower level on this date as some of the constituent members go ex-dividend. A dividend adjustment is credited to long CFD positions and debited from short CFD positions.
Commission on equity CFDs
Our equity prices mirror the underlying market prices of the shares themselves. Because there is no spread beyond the market bid / offer prices, we charge a small commission on each equity CFD trade. Specific costs for these can be found in the Product Disclosure Statement.
Financing charges
Overnight financing charges are applied on rolling positions – positions that have no set expiry and close only when you choose. As with our spreads, these charges are set to maximise your investment potential.
On Australian equities positions, for example, overnight long rolling positions will be debited a financing charge of RBA IOCR + 2%, while short rolling positions will be credited finance of RBA IOCR - 2%. Similarly competitive rates are applied across all markets.
Further Information
More information can be found in our Product Disclosure Statement. Unsure what we mean by some of the terms we use? Check definitions in our Glossary. Instant answers to frequently asked questions about our trading platform, order types and margins are available by referring to our Frequently Asked Questions Section.
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