Benefits and risks of CFD trading

Why trade CFDs?

CFDs enable you to:

1. Make capital go further with leverage
2. Go short or long
3. Trade a huge range of markets
4. Mirror trading the underlying market
5. Hedge a share portfolio
6. Access DMA

If you’re new to contracts for difference, start with our introduction to CFD trading and how it works.

Make your capital go further with leverage

When trading CFDs, you could stretch your capital further, as you only have to deposit a percentage of your trade’s full value to open a position. The deposit you’ll have to put down is called a margin. While this lowers the cost of opening a trade, it can also be very risky, as it’ll amplify your losses. This is because CFD profits and losses are calculated on the full size of your trade. Always take sufficient steps to manage your risk.

How much you’ll need to deposit depends on the size of your position and the margin factor for your chosen market. For example, many of our share CFDs have a margin of 20%, most major indices have a margin of 5%, cryptos typically have a margin of 50%, and most major forex pairs have a margin of 3.33%. Learn more about our CFD margin requirements.

For an easy way to find out the margin requirement for your trade – as well as the potential profit or loss – try out our CFD calculator. An example would be if you decided to trade CFD shares on BHP, which has a margin factor of 20%. In this case, a position worth A$1000 would only require a deposit of A$200.

However, it’s important to remember that your total profit or loss is based on the full size of your position, not your margin. So, in our previous example of BHP share CFDs, your potential for loss or profit would be based on the full A$1000, even though you only paid A$200 to open the position.

If you chose to invest in the shares outright, you’d have to open a share trading account. Leverage isn’t available with share trading (investing).

Go short or long

When you trade CFDs on our platform, you’ll see two prices listed: the ‘buy’ price and the ‘sell’ price. You’ll trade at the buy price if you think that the market is going to go up in price (known as going long), and the sell price if you think it is going to go down in price (known as going short).

If your prediction is correct, you will make a profit based on your overall position (not the initial margin amount you paid to open the trade), which can exceed the initial cost of your margin. However, if your prediction is incorrect and you make a loss, that loss is also calculated based on your total position size. This means that your losses can far outweigh the margin cost, so always ensure you are trading within your means and take appropriate risk management steps.

Trade a huge range of markets

With us, you can trade CFDs on more than 18,000 markets. This includes over 13,000 shares and ETFs, 80 of the world’s top indices, 30 commodities, more than 10 cryptos, all major, minor and exotic forex pairs and more.

You can even trade some markets outside of trading hours, to make the most of economic and political events and announcements. We have pre-market and after-hours offerings available, so you can trade long before and after the main market session on our All Session stocks.

Just keep in mind that the market’s opening price may differ from its out-of-hours price and trades opened and not closed by 9am AEDT (10pm UK time) will incur overnight funding charges.*

*International times may vary

Hedging your share portfolio

If you have other active trades or investments, you can use CFDs to hedge risk in both your leveraged and non-leveraged portfolios. Hedging means you strategically open new positions (such as CFD trades) to protect existing positions from unpredictable market movements or offset potential losses.

For example, let’s say that you owned BHP shares outright, but the price was starting to fall. You don’t want to sell your share investment, but you also don’t want to run the risk of the share price falling to a level that you’re uncomfortable with – which might represent a loss.

So, you open a short share CFD position on BHP (‘sell’ rather than ‘buy’) with the same size as your share investment. If the BHP share price falls, the gains on your short share CFD trade will help to offset a proportion of the losses on your share investment – without requiring you to sell your shares.

If you’re correct and your BHP shares drop in value, then your BHP CFD trade position would earn you a profit, offsetting your loss. If your BHP shares increase in value, you could close your CFD position.

Access DMA

If you’re an advanced trader, you can get direct market access (DMA).

Our DMA offering enables you to see and interact with the order books of stock exchanges. Instead of trading at the buy and sell prices offered by us, you can see all the available bid and offer prices at any time and trade at market prices you choose.

Using DMA means there’s no spread to pay because these trades are charged on commission. But, while DMA can be a powerful tool, there’s no guarantee that you’ll find prices that are better than the prices we offer.

DMA is only recommended if you’re an advanced trader with plenty of experience, due to the risks and complexities involved. Read about the risks of DMA before you consider this option.