• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Brain Foggles

Home and Health Blog

  • Home
  • About
  • Food
  • Health & Fitness
  • House
  • Vacation
  • Finance
  • Games
  • Contact

What is a CFD in Australia?

February 18, 2022 by admin Leave a Comment

FacebookTweetPinPrintLinkedIn

A CFD is a financial instrument that allows traders to speculate on the price of an asset, like securities or currencies. The instrument works by allowing a trader to enter into a contract with another party, agreeing on a specific “notional” amount of one particular asset. For example, if you had $10 in your trading account and entered into a CFD agreement on Apple Incorporated (AAPL), this would allow you to control 100 shares of AAPL (minus transaction fees).

The point of these contracts is that they allow individuals to make profits from fluctuations in the underlying asset’s market price, which means that instead of owning the physical asset, like an individual share in a company, you control the value of that asset without actually having it. However, if the market moves against your contract in any way, it will affect how much profit or loss you make on the deal.

The CFD instrument is different to an option because with an option, once purchased. There is no set time when you need to sell your asset before the expiry date (you can hold onto an option for as long as you want). An option gives its owner the prerogative to exercise their options contract at any time until its expiry date.

So why would someone buy an option if they didn’t have to be committed to selling their asset? The simple answer is because it could allow them to earn more money. If the market price moved in the right direction, they could exercise their option and immediately sell it for a profit.

As CFDs are available to anyone with a trading account, there is no need for an individual to have an underlying asset to trade them. Meaning CFD traders can make profits from fluctuations in the value of financial investments without actually owning those assets.

What are the benefits of using CFD trading?

You don’t own the asset

CFDs allow traders to sell a financial asset without owning it, known as going short. CFD traders can earn more money if they think the price of an investment will fall.

There’s no need to use stop-losses

Using CFDs means that you don’t have to set stop-losses on your positions because even if the market moves against you, your loss will be limited by how much you initially had invested in the position (minus transaction fees).

There are lower costs involved

Compared to buying and selling securities on an exchange, using a CFD has lower costs because you only need to pay brokerage fees when you enter or exit a trade. Also, since returns are not taxed for Australian investors due to their personal use exemption – it’s important to remember that using CFDs can lead to higher taxes in the future.

You don’t have to make a market order

A market order is used by investors who want to buy or sell a financial asset at whatever price the market currently offers. With CFDs, this service is taken care of for you because your position will be closed as soon as possible once you submit a trade (minus transaction fees).

What are the drawbacks of using CFDs?

The contract can become unprofitable

CFDs are complex instruments that can be difficult to understand. For example, to close your position, a CFD trader has to sell their positions for a lower amount than they bought it despite the market favouring them. It is known as a “negative rebate”. Also, the risk here is that if the market price moves against you and continues in this way when you want to close your position – your loss will not be limited by how much you initially invested (no stop-loss).

You don’t have control over what happens next

In addition, with CFDs, you do not have direct ownership of the underlying asset, so there’s no guarantee that the investment will perform as you expect it to. As the investment doesn’t belong to you, it’s possible that if an investor with actual ownership of the asset wants to buy or sell it, they could do so before you (no stop-loss).

You can use this link to start trading with CFDs.

FacebookTweetPinPrintLinkedIn

Filed Under: Finance

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

About Us

Hello! Hello! My name is Jack, and I am a health enthusiast. I used to live a life full of guilty pleasures and control was not in the list. It was a dark time for me to lose confidence and make bad decisions about my health.

LET’S CONNECT

  • Facebook
  • Instagram
  • Twitter

Newsletter

What Type Documents Are Needed for No Fault Divorces in Alabama?

May 16, 2022 By admin Leave a Comment

An uncontested, or straightforward, divorce is a … [Read More...] about What Type Documents Are Needed for No Fault Divorces in Alabama?

TIPS TO SAFELY BUY YOUR FAVORITE ORIFLAME PRODUCTS ONLINE

May 13, 2022 By admin Leave a Comment

  People go more and more frequently to … [Read More...] about TIPS TO SAFELY BUY YOUR FAVORITE ORIFLAME PRODUCTS ONLINE

The Benefits of Taking Biotin Supplements

May 12, 2022 By admin Leave a Comment

Sometimes referred to as vitamin B7 or H, biotin … [Read More...] about The Benefits of Taking Biotin Supplements

When You May Need To Hire A Charter Mini Bus

May 5, 2022 By admin Leave a Comment

There are many reasons as to why you may need to … [Read More...] about When You May Need To Hire A Charter Mini Bus

What You Need To Know For Investing In Crypto

May 5, 2022 By admin Leave a Comment

A few years ago, many may have not even heard the … [Read More...] about What You Need To Know For Investing In Crypto

Getting Powersports Battery Insurance For Your Vehicle

May 5, 2022 By admin Leave a Comment

For many owning their very own powersports … [Read More...] about Getting Powersports Battery Insurance For Your Vehicle

Where You Can Buy A Loft Ladder Kit

May 5, 2022 By admin Leave a Comment

When you are thinking about fitting ladders in to … [Read More...] about Where You Can Buy A Loft Ladder Kit

WordPress Accessibility Requirements Around the World – accessiBe WordPress

April 27, 2022 By admin Leave a Comment

Wordpress is the most popular content management … [Read More...] about WordPress Accessibility Requirements Around the World – accessiBe WordPress

Footer

About Us

Hello! Hello! My name is Jack, and I am a health enthusiast. I used to live a life full of guilty pleasures and control was not in the list. It was a dark time for me to lose confidence and make bad decisions about my health.

Recent Posts

  • Consider a Home Gym for Your Workouts
  • Ways To Avoid Unwanted Diseases For Your Pets
  • Why Mailrelay is the best free email marketing software?
  • Top stock CFD trading strategies in Singapore
  • 6 ways to make your home more carbon neutral (without breaking the bank)

Newsletter

Copyright © 2023 · Metro Pro on Genesis Framework · WordPress · Log in