Ok.. tell me more about these ASX CFDs
This page covers the following topics:
What is a CFD?
A CFD (Contract for Difference) is an agreement between a buyer and a seller to exchange the difference in value of a contract between when the contract is opened and when it is closed. The difference is determined by reference to an 'underlying' instrument (e.g. a share, index, FX rate or commodity) and the period over which the CFD is held.
One of the main sources of appeal of CFDs for traders has been that they are leveraged instruments. That means they enable a trader to obtain full exposure to a share or commodity without outlaying the full capital value of the underlying instrument. CFDs require only a small initial margin to secure a trade.
Traders have also been particularly attracted by the ready ability to 'go short' that CFDs provide. That means that CFDs allow traders to make money even when a market is going down.
Also, traders have been attracted by the simplicity of CFDs. Their pricing mirrors the price of the underlying instrument and is not affected by factors such as time to expiry.
ASX CFDs are fundamentally different to earlier CFDs and are a better alternative for most traders. They combine the main features of the earlier CFDs with the unique attributes of exchange traded markets - notably price transparency, exchange independence and greater investor protection.
For example, with ASX CFDs:
- All prices and market depth are fully transparent in the ASX CFD central market order book. This reflects ASX's statutory obligation to conduct fair, orderly and transparent markets. All traders in the market are given equal access with buyers and sellers able to make or take prices.
- ASX, as an independent market operator does not take a position against you. There is no conflict of interest.
Importantly, ASX CFDs are centrally cleared which means that traders don't have counterparty exposure to others trading in the market. There is no need to worry about the other party to your trade meeting their trade obligations or their financial robustness. Counterparty risk is transferred to the clearing house (SFE Clearing Corporation) and the performance of the trade is guaranteed by SFE Clearing Corporation.
The Trader Dealer WebIRESS trading platform enables clients to execute ASX CFD orders on the ASX using "straight through processing" technology.
Getting Started
As leveraged investments, CFDs create the opportunity for gains and losses to be magnified compared to that of direct investments in the underlying instrument. It is therefore important to understand both the upside benefits and downside risks. It is a requirement of Trader Dealer that you have read and understood the Product Disclosure Statement - (temporarily unavailable) and the ASX publication “Understanding ASX CFDs” before you commence trading in ASX CFDs.
Important notes
- You can only trade ASX CFDs with Trader Dealer through the WebIRESS trading platform. ASX CFD trading is not available through the Bourse Web Trader platform.
- With Trader Dealer, you can trade ASX CFDs on the S&P ASX 200 index and Australian shares.
- The information provided below is highly summarised and very general. It does not replace your need to read and understand the Product Disclosure Statement.
Opening and Closing a Position
Rather than “buying” or “selling” securities, with CFDs you “open” or “close” a position.
If your view of the underlying instrument is increasing prices, you would place a buy order to “open” a position. This is called “going long”. A sell order for the same number of CFDs with the same underlying instrument will “close” the position.
If your view of the underlying instrument is decreasing prices, you would place a sell order to “open” a position. This is called “going short”. A buy order for the same number of CFDs with the same underlying instrument will “close” the position.
You can close a “long” or a “short” position over more than one trade and over any period of time.
Margins
If you have an open CFD position at the close of a day’s trading, margin will be held as security against your net position for each CFD. The Initial Margin is expressed as a number of cents per underlying security and will be deducted automatically from your account. A margin is required whether you have a net long or a net short position.
At the end of each further trading day, adjustments to your margin known as Valuation Margin are processed to reflect the day’s movement of the underlying instrument value - a process often referred to as “mark-to-market”.
When you finally close your position, only the Initial Margin is returned to you, less any amount owed on the position. You keep any Valuation Margin paid to you. Conversely, “the market” keeps any Valuation Margin paid by you.
Although not expected to be a regular occurrence, intra-day margin calls may be required by the SFE Clearing House and/or Trader Dealer.
In addition to any margin deducted from your account, Trader Dealer requires that your account retains a minimum available cash balance equal to the sum of Initial Margins on your open positions. Should your account balance fall below this level, Trader Dealer may, at its discretion
- request that you top up the account immediately, or
- close any or all of your open positions without your consent and without further advice to you.
Interest Charges
There are two types of daily interest charge:
Contract Interest Charge
- Paid by you if you hold a net long position in a CFD.
- Paid to you if you hold a net short position in a CFD.
Open Interest Charge
- Paid by you, whether you hold a short or long position.
These charges are maintained on the fees page of our website.
Dividends and Franking Credits
If you hold a long position in a CFD,
- You will be paid the equivalent cash value of any dividend payments (or capital returns).
- You will be paid a proportion of the equivalent cash value of any attached franking credits.
If you hold a short position in a CFD,
- You will pay the equivalent cash value of any dividend payments (or capital returns).
- You will pay the full amount of the equivalent cash value of any attached franking credits.
Corporate Actions
Corporate actions (adjustments) for Exchange Traded CFDs are intended to maintain the same economic exposure as far as is practicable, as the underlying security. The aim is to not advantage either the buyer or seller of the CFD by the adjustment. This does not extend to tax exposure.
Client Reporting
Trader Dealer provides its CFD trading clients with a comprehensive, electronic daily report setting out details of margins collected/paid, interest charges collected/paid, realised profits/losses from closed positions, open position summary, unrealised profits/losses from open positions and brokerage.
Reports will be provided to you daily and at end of month where there has been trading activity on your account or where you hold an open position.
Trade ASX CFDs with Trader Dealer
Select ASX CFDs from the “Join Us” menu selection above to access the full disclosure information and the application forms.
