Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.
A contract for difference (CFD) is a tradable instrument that tracks the price of an underlying asset.
CFDs are derivative contracts that can be used to speculate on the price movements of different assets including stocks, commodities, market indices, forex and cryptocurrencies.
Because CFDs are complex investment products that are typically paired with leverage, they're high-risk and best suited to experienced traders.
Instead of owning the asset itself, investors hold a contract that is attached to a specific asset. The contract stipulates that the buyer of the contract must pay the contract seller the difference between the current price of the asset and the price at the time the contract was sold.
One of the draws of CFDs is that they can go both "long" or "short", meaning a trader can speculate on prices going up and down. For this reason, CFD trading often becomes more popular during times of market volatility, as traders seek to profit by "shorting" the market when it falls.
Despite their popularity, as many as 8 in 10 investors lose money when trading CFDs.1
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Here is a list of some of the best CFD platforms, based on the results of the most recent Finder Forex Trading Platform Awards. You can see how we ranked CFD platforms via our methodology page.
When you invest in shares, you are actually buying the underlying asset. That is, you are buying a share of a company.
As a shareholder, you can benefit from the capital growth of the shares' value over time, receive dividends and may get voting rights in the company. When you sell your shares, you're selling the actual asset in that company.
But when you buy a share CFD, you do not own the shares, you're just buying a contract provided by the CFD provider. You're simply speculating on whether you think the share price will increase or decrease without ever owning or trading it. The same is true when you buy physical gold compared to trading gold CFDs. Think of it more like speculation on the asset's price.
This means if you purchase a share CFD, you wont get any of the perks that shareholders typically receive - because you are not a shareholder.
Where CFDs gain an advantage over traditional share owners is they can trade on the price movements in either direction. This means they can profit (and lose) from both a rising and falling share price.
Trading CFDs also comes with much greater risk than trading shares. This is because CFDs use leverage, which is where you borrow funds to increase the size of your trade without having to provide all of the capital yourself. If the trade goes against you, you can lose more than your initial investment, something that that isn't possible with regular share trading.
There are a few main reasons you might want to trade CFDs:
There are also many reason not to trade CFDs. Before signing up, check out some of the risks of CFD trading further down.
CFDs are extremely risky, complex products and are ideally only suited to very experienced financial traders. Here are some of the potential risks that you should know about before deciding if CFD trading is right for you:
CFDs are not recommended for beginners given they are riskier than traditional investment products and are complicated. This is especially the case when leverage is involved.
Instead, CFDs are more suited to experienced traders or those that are considered sophisticated investors.
If you're new to trading and want to learn, many brokers offer free demo accounts and educational resources. These can help you learn how the markets work as well as test your strategies prior to risking your own money.
CFDs are more suitable if:
The CFD broker you choose will depend on your trading style and what instruments or assets you prefer to use.
If you're looking for the best online platform or app for you, consider the following:
ASIC's product intervention order limiting CFD trading for retail clients started on 29 March 2021 and was extended in 2022 for a further five years, to 23 May 2027. It includes lower leverage limits and negative balance protection, amongst other measures. In its first six months, ASIC reported a 91% reduction in aggregate net losses by retail client accounts.1
"Look for a broker with both a mobile and desktop platform... A mobile app means you can place trades on the go and not miss out on any opportunities. Make sure the app is feature rich and easy to use. Many brokers have very simplified and restricted apps that don’t provide a good user experience. Go for a broker with a mobile platform as good as its desktop platform, and make sure they’re integrated!"
Forex trading specifically involves trading the price movements between two currencies.
CFDs are contracts where you can trade any number of underlying assets, including forex.
In Australia, most forex brokers are actually CFD brokers. With CFD forex brokers, you're not trading currencies directly, but trading contracts that speculate on the price movements of a currency pair.
The main differences between trading forex directly or using forex CFDs is whether you hold the underlying currency, and the types of trading fees you may need to pay. While both forex and CFDs trade based on spreads, CFD trading may attract additional trading fees, including commissions and holding fees if you keep your position open overnight.
There's also the difference in the purpose of each market. Forex was originally created to help countries trade with each other. CFDs are not involved in international trade but instead are used by traders to gain a profit or hedge against losses.
| Response | |
|---|---|
| Forex | 40% |
| Global stocks | 40% |
| Local stocks | 26.67% |
| ETFs | 23.33% |
| Indices | 23.33% |
| Cryptocurrencies | 20% |
| Commodities | 3.33% |
DMA is the term used for electronic facilities, often provided by independent firms, that permit particular investors or financial firms to access liquidity to trade securities they want to buy or sell.
Typically, these authorised firms or investors are usually brokers, dealers and banks that act as market makers. Generally they're a broker or dealer holding a certain number of shares of a particular security (at its own risk) in order to facilitate trading in that security.
By using a DMA, the investor can manage its account and trade directly without the intermediation of brokers and dealers. This means that the trader can access the infrastructure of the sell side firms with lower costs and commission.
This is a trading company that creates its own market and determines the price range for the underlying asset on which the CFDs may be traded. It creates both the buy and sell price for a financial instrument or a commodity. So if you buy a CFD over a particular asset you are a price taker (not a price maker as in DMA).
However, the prices do not differ from the market price of the underlying asset. This means you have to deal through a broker or a dealer and do not have access directly to the market as with DMA.
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See our A to Z list of CFD trading platforms and brokers that we compare at Finder.
I was with a CFD trader when I wanted to withdraw she said I need to. Pay the club with I paid over 6k and paid another 3 k for withdrawal fees and I’n the end I didn’t get a cent
Hi Jackie, very sorry to hear about this. Unfortunately it sounds like you may have been using a scam platform. The first important step is to contact your bank or financial institution to make sure no further transactions are possible. You should also report the incident: https://www.cyber.gov.au/report-and-recover/report. This may come a little late but it’s worth saying anyway – before signing up to any investment platform, please make sure it’s registered with ASIC and holds an AFSL license, you can check that here: https://asic.gov.au/online-services/search-asic-s-registers/
Good luck
How can I get an Australian CFD broker?
Hi Mahen, all of the CFD brokers displayed on this page are regulated in Australia. You can sign up by clicking on the “Go to site” button on the table.