Trade Contracts for difference on ASX shares

Trading ASX share CFDs is a great way to capture the movements in stocks listed on the Australian Securities Exchange, while lowering the initial capital requirement to open the trade. This is achieved through the use of leverage and therefore any trader considering contracts for difference, must ensure they are sufficiently experienced in trading financial derivatives and fully understand the risks associated.

It would be remiss to discuss CFD online trading without first discussing the risks, especially for those wondering what is CFD trading.

All derivatives, including over-the-counter (OTC) ASX CFDs, operate on leverage. The common saying is that leverage can be a “double-edged sword”. This statement essentially means that while their are potential benefits in ROI for a sophisticated experienced trader, by utilizing leverage, however the very same leverage will also magnify losses. Losses experienced trading these complex financial instruments can exceed your initial account deposit and therefore no-one should commence trading CFDs online until they fully understand the risks associated with CFD trading and read the applicable product disclosure statement (PDS) from the CFD provider.

ASX CFD ticker and price chart
Image Source: AAP

CFDs on ASX Equities

When discussing ASX CFDs I am referring to contracts for difference products provided by retail CFD brokers, not exchange traded ASX Listed CFDs (a CFD traded directly on the Australian Securities Exchange). While the ASX used to offer these products, they were withdrawn from the Australian market in June 2014.

This leaves over-the-counter (OTC) CFDs as the only option available for those wanting to trade an ASX CFD (a CFD based on the underlying physical share). There are a couple of choices available to traders:

  1. Direct market access contracts for difference on ASX equities (DMA ASX CFD);
  2. CFD on ASX equities that has straight through processing and bid/offer prices that match the underlying ASX shares;
  3. Market Maker CFD that is a price “made” by a CFD broker operating on the market maker pricing model. These prices are based on the underlying instrument however the broker is actually making the market and therefore can set the bid/offer prices themselves, rather than offering the exact same bid ask prices available on the physical shares trading on the ASX.

ASX 200 Indices

Trading a CFD on the S&P/ASX 200 Index (often referred to as the AUS200 by CFD providers) is an alternative for those wishing to have exposure to movements in the top stocks listed on the Australian share market, without having to purchase the individual share CFDs. A contract for difference on the ASX 200 cash index (ASX code: XJO), or the ASX SPI 200 Futures index, is generally available at most ASIC Australian regulated CFD brokers.

Last Updated: 2nd January, 2021
Your capital is at risk. Forex & CFD trading can result in losses that exceed your initial deposit. Please ensure you fully understand the risks involved.