Licensed Dealer in Securities AFS License No: 238699

Date:

Contracts for Difference (CFD) Trading

What is a CFD?

CFD is an acronym representing ‘Contracts for Difference’. A CFD is an agreement to exchange the price difference of a share between the time a contract is opened and the time at which it’s closed. Similar to physical shares your profit or loss is determined by the difference between your buy and sell price. If you buy a BHP CFD essentially you are buying BHP stock however you are only required to provide a margin such as 3%.

Example:
If you buy 1000 BHP CFD’s when BHP is $35.00 you must provide a margin of:
1000 * $35.00 * 3% = $1050 and your position is long $35000 worth of BHP
To close the position you then sell 1000 BHP CFD’s when BHP is $36.00 then your margin is returned to you and your profit is $1000 (1000 BHP * $36.00 = $36000)

How can I use CFD’s for falling markets?

Example:
If you sell 1000 BHP CFD’s when BHP is $35.00 you must provide a margin of:
1000 * $35.00 * 3% = $1050 and your position is short $35000 worth of BHP
To close the position you then buy back 1000 BHP CFD’s when BHP is $34.00 then your margin is returned to you and your profit is $1000 (1000 BHP * $34.00 = $34000)

CFDs are basically traded using leverage. This can be a more efficient use of your trading dollars as you only allocate a small proportion of the total value of your position to secure a trade, while maintaining full exposure to the market.

CFDs can give you more trading flexibility and more opportunities. You can also use CFD’s to trade indices like the All Ords, Dow Jones, Hang Seng, FTSE and many more! Through CFD’s you can hedge your portfolio against falling markets in addition to trading currencies AUD/USD, JPY/USD etc!

DFS Equities will be conducting seminars on CFD’s in coming months and if you would like to get started today contact Warren Lewis on 02 9268 0250 (wlewis@dfsequities.com.au) or your adviser for more information.