What is CFD trading?
Contracts for difference (CFDs) use leverage to provide maximum market exposure for a small initial outlay.
Trading CFDs gives you the freedom to trade companies, indices, currencies and commodities across Australian and international markets using a single trading account. They let you exchange the difference in the price of an underlying instrument (such as a share, index or commodity) between the time a trade is opened and the time it is closed.
Potential to profit whether the market goes up or down
CFDs allow you to trade on whether the price of a financial instrument is likely to go up in value (strengthen) or go down (weaken). Whether you make a profit or a loss is determined by the difference between the buy price and the sell price of the instrument you’re trading. While it is possible for you to pay just a small percentage of an instrument’s value – or margin – your profit or loss is the same as if you owned 100% of the physical instrument.
The smaller the margin, the greater your leverage
You are only required to deposit a small percentage of the overall value of the trade. The smaller the margin, the greater your leverage. Using leverage provides the potential to magnify your profits. However, it is important to remember that any losses are also magnified. It is important to use risk-management tools like stop loss or take profit orders to help control your risk. Minimum CFD margins typically fall between 1% and 15%, providing significant levels of leverage.