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Posts Tagged ‘trading CFDs’

Generally CFD companies in Australia offer CFDs over the stocks making up the ASX top 300, the rationale behind this is straightforward, stocks with a bigger market capitalisation are often far more liquid. Some CFD brokers forget that we live in Australia, a land abundant with resources and naturally also rich in resource stocks. A large amount of shares listed on the ASX are resource based, this is actually the biggest sector of the Australian stock market.

Trading CFDs over speculative mining stocks can be extremely worthwhile if you select your shares intelligently. When trading CFDs over speculative shares you should always do a little analysis on the company. Prior to selecting your stocks you must make certain that the company has first-class management and a good project. Naturally if the copper price has risen and you happen to be looking for exposure to shares in this sector logically you wouldn’t pick a CFD over a share with gold assets, this is why selecting shares within the relevant sector is also essential. It’s always vital that you keep in mind trading CFDs over speculative stocks also has risks as these kinds of stocks can go up in price just as fast as they can come down.

So why a trade CFD instead of buying the Share outright?
The answer to this question is simple and can be summed up in a couple of words, unrealised profits and losses. Unlike shares CFDs are marked to market each day meaning that the profits or losses are credited or deducted to and from your account each trading day. The profits and losses from buying and selling shares are dealt with very differently in that they’re only realised once the stock is sold. Realising profits and losses each day means that you are able to utilize your unrealised to profits to buy new positions without having to deposit further money into your account, naturally the same goes for losses in that you will have to deposit cash into your account if the trade moves against you.

It is vital that you note the majority of speculative stocks can have a larger margin obligation than shares in the ASX top 300, their margin requirement can be as high as 100% allthough the bulk are obtainable on a margin of 75%. One significant factor to consider here is whether or not your CFD company will charge you financing on the full notional value of the trade, this would of course be rather large if the position was on a 100% margin, there are however some CFD providers that will only charge financing on the borrowed amount. It would be much more economical to select a CFD broker which will only charge you on the borrowed amount, if the CFD is on 100% margin this will deliver a major cost saving.

You’ll find very few CFD brokers in Australia which will let you trade CFDs on all ASX listed stocks, certainly one of the most common CFD brokers is IC Markets. One of several key advanatages of buying and selling with IC Markets is that they do not have any CFDs on 100% leverage and only charge financing on the borrowed amount meaning that you will not pay any financing costs for CFDs purchased on 100% margin.