ASX CFDs are Contracts for Difference (CFDs) available on the Australian Stock Exchange (ASX) rather than in their more common over-the-counter format from a broker. ASX CFDs as you might expect for a market-traded instrument, are more standardised than an over-the-counter CFD. The fundamental premise of a CFD, however, is maintained with the difference between the opening and closing position of your CFD determining whether you have made a profit or loss. ASX CFDs can be bought or sold (going long or short), and are based on the price of a nominated underlying asset.
ASX CFDs are not available through all brokers, those that do carry it as an alternative are listed on the ASX Website. Normally an additional CFD agreement is required to trade in ASX CFDs, even if you already trade shares or other derivatives with the broker.
ASX listed CFDs are traded on the ASX Trade24, and are cleared through ASX Clear(Futures), and the market itself operates under ASX24 Operating Rules.
Why trade an ASX CFD?
Some of the advantages of trading ASX CFDs as opposed to normal over-the-counter CFDs are the transparency of being in a more-regulated and public market, rather than a private over-the-counter contract. Counter-party risk is also reduced by using an ASX CFD, and spreads and fees are also standardized, as are contracts themselves.
To summarize this further, ASX CFD trades are more transparent than over-the-counter because they are placed through an order book on the ASX. The contracts are standardized, meaning that contract terms and conditions are stipulated by the ASX.
Why stick to over-the-counter?
On the other side of the coin, over-the-counter trades result in a far more bespoke position over typically a wider range of underlying assets. You have more control over the contract itself. In terms of volume, over-the-counter is way ahead of exchange-traded CFDs in Australia in both dollar amount and number of trades transacted.
The big disadvantage of Exchange Traded ASX CFDs is that there is a fairly limited subset of CFDs available when compared to over-the-counter. Though at first glance it may seem that ASX CFDs are cheaper because of their standardized fees and spreads, in practice this normally turns out not to be the case when compared to the majority of OTC trades.
Liquidity can also be a problem with ASX CFDs, largely due to the lack of market take-up that has occurred over the years.
If you are particularly concerned about counter-party or using non-standardised contracts, ASX CFDs in the Australian market may well prove to be useful for you. The majority of traders and speculators in Australia however have stayed with the over-the-counter offerings. You can find out more information on ASX and Exchange-traded CFDs at asx.com.au.