What are CFD's

The term CFD stands for Contracts For Difference.

CFD's allow you to trade in financial products and markets including domestic and global shares, indices, foreign exchange (forex or FX) and commodities such as gold and oil using a single trading account. As Australians broaden their investment horizons, CFD trading in Australia has grown rapidly and is now not just restricted to professional investors.

In essence, a CFD is an agreement or contract between two parties (for example, you and MPlus Markets) to exchange the difference in value between the opening and closing price of a particular financial product, such as a share. Used with prudence a CFD can be a wonderful tool for investors to maximise returns from a small initial outlay.

For example, if you have an account with us and you think BHP shares are about to go up, you instruct us to buy BHP CFDs on your behalf and if they go up you profit from the difference.

You don't need a large outlay.

As well as providing global reach, CFDs offer you a level of flexibility along with potential cost benefits, since there is no requirement to make a large initial outlay to get started. That's because rather than buying the shares outright, you simply put a deposit on them.

For example, working through MPlus Markets, if you were to purchase a CFD over 500 BHP shares the deposit required would be 5% of the value of the trade. This deposit is called the initial margin in financial markets terms.

So if BHP is priced at $40.00 a share it works out like this: $40.00 x 500 x 5% = $1000. So only $1000 is needed for the initial margin rather than $20,000 to purchase the BHP shares outright. See our example cfd trades section for more information.

You still enjoy the possible gains in BHP shares as if you owned them outright.

Leverage. Every investor could use a bit.

You may have heard the word 'leverage' used in financial speak. What does it mean? Well, the way we invest for you gives your money leverage. More power. Through MPlus Markets and CFDs, leverage allows an investor to outlay a smaller amount than is normally required to invest in world markets.

Shorting. Don't sell yourself short.

Another trading strategy to discover is shorting. It gives you the potential to profit from falling markets.

Shorting means to sell something that you don’t currently own, knowing that sometime in the future you will have to buy the same quantity back. If you sell something at a high price and manage to buy it back at a lower price then the difference is your profit. It is a strategy often used by more sophisticated investors that either believe the market is going down or as part of a hedging strategy.

The risk of shorting is that the price of the market you’re trading rises, meaning a loss that could even exceed your initial investment.

However, every investment has risks.

With CFDs, the benefit is even relatively small gains in the shares or commodities you trade in can result in much larger returns than you'd get from other investment products.

The risk is even small losses will also be magnified, resulting in much larger losses than other investment products, including the risk of you losing more than your initial investment.

Hedging.

Hedging is simply a way of protecting an investment against loss by making balancing or opposing contracts or transactions with another investment. In other words you try to minimize unexpected movements against your position.

How do I start?

Take a free trial of our platform or see some trading examples to learn more.