In this article I will show you how to trade CFDs (Contracts for Difference). In case you were unsure, Contracts for Difference are leveraged financial instruments that allow you to take advantage of price differences over time of an underlying asset. There are many possible providers that allow you to trade Contracts for Difference online in Australia, a couple of which I will mention below.
Contracts for Difference are over-the-counter derivatives (OTC), and are available to retail investors in Australia via online brokers (I’ve listed two of my favourite brokers below.) Contracts for Difference are highly popular and risky products in Australia. CFDs are considered risky because of their leverage and due to the fast moving nature of price changes of underlying assets.
You can open an account with a broker such as Plus500 with a low minimum deposit. Because of the volatile nature of CFDs, I’d suggest you try with a demo account to get a feel for how CFD trading works if you are not already an experienced trader. To make an initial deposit with an online broker, again for example Plus500, is fairly easy – see this article for minimum deposit and instructions.
Plus500: 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Another online broker worth a mention if you are new to the CFD game is eToro. I raise them in particular because of their ‘copyTrader’ function, which allows you to copy the trades of other successful traders automatically. This can be one way to start as a beginner.
I’d definitely recommend understanding the risks involved in CFD trading before you make the jump from a demo account to a ‘real’ money account. Also be aware that you are likely to make different decisions when you have real money on the line, this is just the nature of trading psychology.
In summary of how to trade CFDs, the easiest way for a retail investor in Australia to get access to the over-the-counter Contract for Difference market is through an online broker, for example Plus500 or eToro.
Navigating the trading platforms available through providers such as Plus500 takes some practice though there are normally some great explanations available in the platforms themselves. See my article here that helps explain some of the trading software platforms that are available, there’s a wide range, varying in complexity to suit both novice traders and experienced traders.
As always, remember that there is strong risk (and reward) involved in trading in CFDs. It’s well worth doing your research and having a strategy, check out my article ‘CFD trading Strategies’ for more background information on this subject.