CFDs or Contract for Difference markets are by-product markets derived from a variety of primary markets like currencies (forex), stock indices and individual stocks. CFDs are quite a new market invented in the UK but are now filtering to Asia and Europe.

CFDs- What are they?

The Contract for Difference market is an agreement among two traders to pay and/or receive the difference between the selling and buying contract values. So, for example, a trader who enters a long CFD trade when the FTSE100 stock index is at £4,000 and exits the trade when the FTSE100 is at £4,500 will receive £500 in profit from the trader entered the opposite trade (i.e., a short trade).

The Contract for Difference markets are accessible as unlisted markets (meaning they’re not traded on an exchange) and as listed markets (meaning they are traded on an exchange). Unlisted CFD markets are like the forex markets since trades are only among the traders concerned, but listed markets are like futures markets since trades go via an exchange.

CFDs are dealt with leverage and generally have lower margin needs than the equal futures markets.

For example, the margin requirement for the ASX200 CFD market is AUD 430, compared to the margin requirement for the ASX200 futures market, which is AUD 13,750. While this difference appears huge, the tick size and value must be taken into account. The tick size and value for the ASX200 CFD market are 0.1 and AUD 0.10, respectively, and the tick size and value for the ASX200 futures market are one and AUD 25, respectively. This means that 25 CFD contracts would be required in order to equal the tick size and value of the futures market. So, the equivalent margin requirement for the ASX200 CFD market is AUD 10,750 compared to AUD 13,750 for the ASX200 futures market.

CFD Availability

The Contract for Difference markets are accessible in Asia and Europe, except in the US, because of the SEC restrictions avoiding it. Also, US traders aren’t authorized to trade CFDs despite CFD’s location.

Listed CFDs are presently accessible in Australia on the Sydney Futures Exchange and incorporate CFDs based on Australian Stock Exchange-listed stocks, various stock indices, and diverse currencies. In addition, Asian and European exchanges have broadcasted devices to offer listed CFDs, which we suppose will be available soon.

Trading CFDs

Contract For Difference markets are traded similar to futures markets, except they do not expire. CFD markets can be charted directly, but since their loss and profit are directly connected to their underlying market, it would be better to chart the primary market while trading on the CFD market.

Asian and European traders can trade unlisted and listed CFDs. Again, though, it’s not recommended to trade unlisted CFDs since they usually have the same struggles as forex markets (unscrupulous brokerages).

CFDs that the Sydney Futures Exchange offers have different trading times conditional on their primary market. Thus, for example, the CFDs based upon European stock indices are open during European trading times, whereas those based upon currencies are open almost twenty-four hours per day.

CFD Markets

Here are examples of listed Contract for Difference markets (all offered by the Sydney Futures Exchange):

Stocks

• ANZ – Australia and New Zealand Banking Group
• CBA – Commonwealth Bank of Australia
• SGB – St. George Bank
• TEL – Telecom Corporation of New Zealand

Stock Indicies

• SPI – ASX200 stock index
• INDU – Dow Jones stock index
• Z – FTSE100 stock index (not yet active)

Currencies

• EURUSD – Euro to USD exchange rate
• USDJPY – USD to Japanese Yen exchange rate