What is a Contract for Difference?
Contracts for Difference (CFDs) offer you the ability to deal in the price movements of a wide range of financial instruments, such as stocks, without actually owning the underlying asset. Like traditional share dealing, the scope is for speculators to profit from the price moving in their favour, but CFDs give you the potential to profit from both rising and falling markets. In Australia it is becoming increasingly popular for traders and investors to use CFDs as part of their investment strategy.
Benefits of CFDs:
The ability to profit from both rising and falling prices.
Leverage/gearing; putting up only a fraction of the full contract value.
Low commissions costs across a range of markets.
Online trading platforms allowing a single account to deal in a wide range of markets.
What is Margin Trading?
Margin trading is the most powerful feature of CFDs. Margin trdaing allows you to trade an entire portfolio, without tying up lots of capital. For example if you place a deposit of $10,000 in your account, you can trade up to $100,000 worth of shares. This represents a leverage factor of 10:1.