CFDs And Australian Traders
CFD means Contract for Difference, CFDs are a financial agreement made between a buyer and seller to make good the profit or loss incurred between the CFD was purchased to when it was sold. CFDs are common in both Australia and the UK, they are mostly offered over indices, equities and forex.
In the early days in the UK where CFDs started out they were referred to as SWAP contracts. It wasn’t until approximately 2001 that CFDs grew to become popular with retail investors. It was CMC Markets and IG Markets, two large spread betting providers based in London that bought CFDs to the forefront in the retail investors arsenal. CFDs suddenly grew to be well-liked in the United kingdom as they didn’t attract any stamp duty.
In 2002 both CMC Markets and IG Markets opened offices in Australia and started to actively market CFDs to Australian traders, the popularity of CFDs peaked in 2007. Because of their popularity amongst Australian traders and investors many offshore CFD providers saw the potential in Australia and opened up offices. There are over 13 CFD providers operating in Australia and an estimated 35,000 retail CFD traders.
In recent times CFDs have received much negative exposure because of traders incurring losses due to overexposing themselves to the market during volatility. This combined with the recent collapse of CFD provider Sonray Capital Markets has led to increased scrutiny by the Australian financial Services Regulator ASIC relating to how CFD providers handle client money.
At present CFDs remain by far the most widespread financial product for retail traders in Australia, although unconfirmed it’s estimated that CFD volumes account for around 35% of ASX exchange turnover. As CFDs are an over-the-counter product it is hard to verify this number.
CFDs in Australia are largely traded online through a selection of proprietary CFD trading platforms offered by the major companies. A lot of of these platforms were initially developed for forex CFD trading however due to the similarities between share CFDs and forex CFDs the platforms have be tailored to suit share CFD traders.
As Australia has the highest proportion of share ownership in the world on a per capita basis it’s not unexpected that almost all CFD traders have experience trading shares online. The historical growth of the Australian share market has made share and CFD trading a common pass-time for Australians.
Before you run out and join the 35,000 CFD traders in Australia you must ensure that you’re completely aware of the risks involved in CFD trading. Like all leveraged financial product CFDs offer sizeable benefits however these don’t come without risk. You must make certain that before you jump into CFD trading you understand the Product Disclosure Statement (PDS) obtainable from your CFD provider that outlines the disadvantages and benefits of trading CFDs.