Learn more about CFDs
A Contract for Difference (CFD) is an over the counter derivative contract under which two parties agree to exchange the difference between the opening and the closing value of the contract, with reference to an underlying security. Put simply, CFDs allow Investors to speculate on the rise or fall of ASX listed securities, without the need for ownership of the securities.
CFDs are a leveraged product requiring a deposit of cash collateral rather than the payment of the full value of the underlying position. Effectively cash is being borrowed by the long counterparty and lent by the short counterparty to finance the purchase or short sale of the underlying security.
The following table summarises the major cash flows attributable to fluctuations in security prices and interest and dividend payments, as they impact on long or short CFD positions from the point of view of an Investor:
| Investor's CFD position | If the underlying share price rises | If the underlying share price declines | Pay Interest | Dividend amount |
| Long | Receive Mark-to-Market payments | Pay Mark-to-Market payments | Pay interest | Receive cash amount of any ordinary dividend |
| Short | Pay Mark-to-Market payments | Receive Mark-to-Market payments | Receive interest | Pay the cash amount of any ordinary dividend |
Features of CFDs
Leverage / Gearing: Gain access to larger amounts of trading capital
CFDs offer a potentially large exposure to the underlying security. Investors are able to outlay a relatively small amount of capital (in the form of Collateral) to secure an exposure to the underlying security. This will have the effect of magnifying profits or losses, and consequentially carries significant risk.
Trading any Market Direction: Ability to take short positions
With CFDs you can trade both long and short positions giving investors the ability to exploit both trading and hedging opportunities from increasing and decreasing security prices.
Optional Guaranteed Stop-Loss Protection: Limit potential downside
A severe adverse movement in the underlying security price can give rise to large losses on open CFD positions. Obtaining Guaranteed Stop-Loss ("GSL") protection for a CFD position allows investors to limit their potential losses arising from sudden market movements by providing a guaranteed Close-Out price for that CFD.
Highly Flexible: Direct access to real time market prices and multiple order entry options
We give the investor direct market access to real-time pricing and market depth information. Investors have the ability to place Orders in real-time over the internet, with the flexibility of utilising Market, Limit, Stop-Loss, and Guaranteed Stop-Loss Orders.
Dividends and Interest
Holders of long CFD positions receive the benefit of cash dividends paid to holders of the underlying securities, but are charged interest on the value of their open position. Conversely, holders of short CFD positions must pay an amount equal to the value of any cash dividend paid to holders of the underlying securities (and in some circumstances, franking credits), but receive interest on the value of their open position.
Worked Examples
Set out below are simple and hypothetical examples of how CFD positions may operate. The Reference Security Prices, Guaranteed Stop-Loss premia, dividend rates, interest rates, and charges quoted in the examples are provided for illustrative purposes only and should not be taken as an indication or commitment by Wealth Within as to the values of these parameters that will actually apply on a CFD or Order. Investors should read and understand the Product Disclosure Statement, particularly Section 4 "Risks", in order to gain a complete understanding of the operation of a CFD Account, and discuss these matters with their financial adviser before making any investment decision.
Example 1: Long CFD Position
Opening the Position
It is early July and you decide Woolworths shares (WOW) are looking cheap. WOW shares are quoted at $20.09/$20.10 on the ASX, and you place a Market Order to enter into a CFD to take a long position (i.e. effectively "buy") 5,000 WOW shares. Your Market Order is accepted by Macquarie at $20.10.
The Collateral Rate applicable to WOW shares is 5%. The Required Collateral on this position is $5,025.00 (5,000 shares x $20.10 x 5%).
The Trading Fee applicable to opening the CFD position is 0.16% or $160.80 (5,000 shares x $20.10 x 0.16%)
Below is an outline of the main cash flows arising from a CFD that may occur while your CFD position remains open.
Interest on Open Positions
Interest is payable by you, as the long party, where the CFD is held open overnight. The interest payable by you for your open long CFD position is calculated daily, by applying the applicable interest rate to the CFD Value at the relevant Closing Time. The CFD Value is the number of shares multiplied by the Reference Security Price.
In this example, and on this particular day, the applicable interest rate is 8.50% and the closing price of the shares is $20.51.
Accordingly, the interest payable by you (which is deducted from your Online Investor Account) for the CFD position for this particular day would be $23.88 (5,000 shares x $20.51 x 8.50% / 365)
Each day's interest calculation will be different as the applicable interest rate and the closing value of the CFD will vary.
Dividend Adjustments
In late July your CFD position is still open at the WOW ex-dividend date. The amount of the ordinary cash dividend is 24c per share.
The dividend payment of $1,200.00 (5,000 shares x $0.24) is credited to your Online Investor Account.
Closing the Position
By August WOW's share price has risen and is quoted at $20.94/$20.95 on the ASX. You decide to take your profit by closing out your CFD.
You place a Market Order to sell effectively 5,000 shares and Macquarie accepts your Market Order at $20.94
You have held the position for 21 days.
The Trading Fee payable on the Close-Out of the CFD is 0.16% or $167.52 (5,000 shares x $20.94 x 0.16%)
Calculating the Overall Result
To calculate the overall profit on the CFD transaction you have to take into account the opening and closing value of the CFD as well as the fees you have paid and the interest and dividend adjustments that have been credited and debited. The summary below sets out the profits and losses attributable solely to the price variation between the opening and Close-Out of the CFD and does not include any fees or charges.*
| Opening Contract Value | ($100,500.00) |
| Closing Contact Value | $104,700.00 |
| Profit / (Loss) | $4,200.00 |
| Trading Fee | ($328.23) |
| Interest Adjustment | ($501.48) |
| Dividend Adjustment | $1,200.00 |
| Overall Profit / (Loss) | $4,570.20 |
Illustrative figures only. Actual figures may differ materially.
* The interest adjustment is an estimate based on an average closing price of $20.51 for the duration of the CFD contract.
Example 2: Short CFD Position
Opening the Position
It is early February and you decide XYZ shares are looking expensive. XYZ shares are quoted at $3.80/3.81 on the ASX, and you place a Market Order to enter into a CFD to take a short position (i.e. effectively "sell") 20,000 XYZ shares. Macquarie accepts your Market Order at $3.80.
The Collateral Rate for XYZ is 5%. The Required Collateral Amount for this trade is $3,800 (20,000 shares x $3.80 x 5%).
The Trading Fee applicable to opening the CFD position is 0.16% or $121.60 (20,000 shares x $3.80 x 0.16%).
Below is an outline of the main cash flows arising from the CFD that may occur while your CFD position remains open:
Interest Adjustments
As the short party, you will receive interest where the CFD is held open overnight. The interest that you receive on your open short CFD position is calculated daily, by applying the applicable interest rate to the CFD Value at the relevant Closing Time. The CFD Value is the number of shares multiplied by the Reference Security Price.
In this example, and on this particular day, the applicable interest rate is 3.50% and the closing price of the shares is $3.86.
The interest paid to you (which is credited to your Online Investor Account) for the position for this particular day would be $7.40 (20,000 shares x $3.86 x 3.50% / 365)
Each day's interest calculation will be different as the applicable interest rate and the closing CFD value will vary.
Dividend Adjustments
XYZ does not pay a dividend during the period your CFD is open.
Closing the Position
By late February XYZ’s share price has risen and is quoted at $3.95/$3.96 on the ASX. You decide to cut your losses. To Close-Out your position you place a Market Order to effectively buy 20,000 shares. Macquarie accepts your Market Order at $3.96.
You have held the CFD position for 22 days.
The Trading Fee applicable to the Close-Out of the CFD is 0.16% or $126.72 (20,000 shares x $3.96 x 0.16%)
Calculating the Overall Result
To calculate the overall profit on the CFD transaction you have to take into account the opening and closing value of the CFD as well as the fees you have paid and the interest and dividend adjustments that have been credited and debited.
Certain other fees and charges will accrue and be payable from your Online Investor Account in addition to those set out above, including Adviser Commissions (up to a maximum of 2% plus GST (as negotiated with your adviser) of the value of the CFD when it is entered into or Closed-Out), ASX Royalty (currently a maximum of $38.50 per month) and SMS Fees, as well as Stock Borrowing Charges. The summary below sets out the profits and losses attributable solely to the price variation between the opening and Close-Out of this CFD and does not include any fees, interest or dividend adjustment:
| Opening Contract Value | $76,000.00 |
| Closing Contact Value | $(79,200.00) |
| Profit / (Loss) | ($3,200.00) |
| Trading Fee | ($248.32) |
| Interest Adjustment | $162.80 |
| Dividend Adjustment | $0.00 |
| Overall Profit / (Loss) | ($3,285.52) |
Illustrative figures only. Actual figures may differ materially.
*The interest adjustment is an estimate based on an average closing price of $3.86 for the duration of the CFD contract.
Example 3: Leverage
The major difference between CFDs and more traditional methods of equity trading is that of leverage (which enables investors to gain a large exposure to the movement of underlying securities for a relatively small initial outlay). CFDs are a leveraged product requiring a deposit of cash collateral rather than the full value of the underlying position. Leverage will magnify an investor's profit or loss on a CFD position and therefore carries significant risk.
|
Share | CFD |
| Opening Contract Value | ||
| Quantity Purchased | 10,000 | 10,000 |
| Price | $13.06 | $13.06 |
| Contract Value | $130,600 | $130,600 |
| Initial Collateral Required @ 5% | $6,530 | |
| Initial Outlay | $130,600 | $6,530 |
| Market/Closing Contract Value | ||
| Quantity Held | 10,000 | 10,000 |
| Market/Closing Price | $13.96 | $13.96 |
| Contract Value | $139,600 | $139,600 |
| Gross Profit/Loss | $9,000 | $9,000 |
| Gross Return on Initial Capital Outlay | 6.89% | 137.83% |
Illustrative figures only. Actual figures may differ materially.
Note: These examples are calculated on a gross basis and does not include any fees, interest or dividend adjustments. For a full review of costs and fees payable in respect of Macquarie CFDs, see the PDS. Certain other fees and charges will accrue and be payable from your Online Investor Account in addition to those set out above, including Adviser Commissions (up to a maximum of 2% plus GST (as negotiated with your adviser) of the value of the CFD when it is entered into or Closed-Out), ASX Royalty (currently a maximum of $38.50 per month), SMS Fees and Stock Borrowing Charges.
CFDs are highly leveraged and carry a high level of risk. Additionally, any profit or loss accruing to the investor will be adjusted to take into account certain fees and charges. Investors should not invest in CFDs unless they are experienced in equity derivatives and understand and are comfortable with the risks of investing in CFDs. Investors should read the Product Disclosure Statement for CFDs, particularly section 4 "Risks You Should Consider" and obtain their own financial advice as to whether CFDs are an appropriate investment for them.
Wealth Within has an agreement with Macquarie Bank Limited (MBL), under which clients of Wealth Within are able to enter into CFDs with MBL. Wealth Within assists clients to open an account with MBL which allows clients to execute orders to enter into CFDs with MBL. Wealth Within is not a representative of MBL in undertaking these functions. Wealth Within does not give advice to clients in relation to CFDs.