More Info on CFDs

FAQ'S ON CFDS

What are CFDs (Contracts for Difference)?

• CFDs are Over-the-Counter (OTC) financial products, which provide leveraged exposure to an underlying share.

• CFDs trade at prices that mirror their underlying instrument.

• CFDs offer the benefits of owning a share without having to physically own the stock with the benefit of participating in dividends.

What are the benefits of trading CFDs?

• You can use CFDs to go long or short, allowing you to profit from rising or falling prices.

• CFDs are traded on margin, so you can establish a position with only a small proportion of the trade size.

• Cube provide advice to trade CFDs are on the top 200 ASX shares

• A variety of order types are available including market orders and limit orders, contingent and 'one cancels other' orders to limit your risk and provide flexible trading opportunities.

• Provide an attractive alternative to margin lending

• Allow clients to readily take 'long' or ‘short" positions to hedge existing exposures or profit from falling prices

• Trade in real time with prices that mirror their underlying instruments

To open a CFD trading account call 1 300 853 856

Key Features of CFDs

CFDs are geared or leveraged instruments. This means that a deposit from as little as 10% of the value of the CFD is required. Consequently, it is possible to hold a position 10 times greater than would be possible with a traditional investment. Clearly, this degree of gearing means that for a correctly anticipated price movement a greater profit will be generated.

On the other hand, the risk of loss increases commensurately if the anticipated price movement proves to be ill founded. In the case of substantial and adverse market movements the potential exists to lose all of the money originally deposited and to remain liable to pay additional funds immediately to maintain the margin requirement.

You can trade with advice through Cube Financial on the stocks or shares of companies comprising the ASX200, in Australia. The counterparty to the holder of a long CFD position will have had to borrow the stock in the market and in order to fully mirror the economics of physical purchase interest will charged.

The margin deposit is held to secure the performance of the contract and is not available to be set-off against the Contract Value. Therefore, a long CFD holder will pay interest on the day-to-day Contract Value. Conversely, the holder of a short CFD position will receive interest also based on the day-to-day Contract Value. Interest is typically calculated at a margin above or below the relevant Inter-Bank Offered Rate for long and short positions respectively.

Other than shareholder privileges, a CFD reflects all corporate actions affecting the underlying stock or share. The net dividend declared by a company will be paid to the holder of a long CFD on the Stock Exchange ex-dividend date. This will be advantageous in cash flow terms as the dividend pay date will normally be several weeks after the ex-dividend date. Holders of short CFDs pay 100% of the gross dividend declared and this must also be paid on the ex-dividend date.

These payments reflecting the dividend are made on the ex-dividend date as, all things being equal, the share would be expected to fall by the amount of the declared dividend per share. Similarly, bonus and rights issues and splits are replicated in the CFD on the corresponding 'ex-date'
Equity CFDs offer a number of investment opportunities and strategies, some of which are unattainable in traditional share investing. They can be summarised as: 

•  An alternative to traditional share trading
• Providing economic exposure to a company’s share performance without taking or making physical delivery
• Counterbalancing economic exposure on an existing physical share holding, i.e. as a hedging or risk management tool
• Affording access to a wide geographical range of markets and exchanges
• Delivering a geared return on the capital employed
• Freeing-up capital not required for margin for other uses
• Allowing you to close-out a position at any time
• Potentially positive daily cash flows

Risk Management
Trading CFDs allows you to limit your risk exposure by offering a Guaranteed Stop-Loss facility. This means that your position will be closed at a level pre-selected by you, in spite of dramatic market movements. Guaranteed Stops carry a  premium and must be selected at the time of the trade. Other risk management tools include: Limits (take profits), Stop-Loss, If Done (Contingent) and OCOs (One Cancels Other). This facility is rarely offered when Share trading.

Education on Trading CFD's with Cube Financial

Cube have taught over 10,000 investors how to trade and we can teach you. Click here to find out about the courses in CFDs and other derivatives like Options and Warrants that we provide.

DISCLAIMER: The content of this website does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs. Derivative products can be risky and are not suitable for all investors; it is advisable to seek independent advice if necessary. A Product Disclosure Statement for CMC Markets' derivative products is available from CMC Markets, www.cmcmarkets.com.au, and should be considered before deciding to deal in CMC Markets' derivative products. CMC Markets is the trading name of CMC Markets Asia Pacific Pty Ltd (ABN 11 100 058 213) (AFSL No. 238054)