Here is a comprehensive list of frequently asked questions that should address most issues associated with CFDs.
- What is a CFD?
- What steps are required to open a CFD Account?
- What is the minimum deposit to open an account?
- What costs will I incur from trading CFDs?
- What range of underlying securities are CFDs offered over?
- How is a contract value calculated?
- How are CFD prices determined?
- What is the minimum "deal size"?
- Do I receive voting rights with my CFD?
- What is interest on overnight positions and how does it work?
- What happens when the underlying security pays a dividend?
- What happens if the underlying security is subject to a corporate action?
- Can Orders be placed at any time?
- How long will my Order remain in the market?
- When does my CFD trade expire?
- What is collateral and how does it work?
- What are Mark-To-Market Payments?
- What happens if my CFD Account has insufficient funds to meet collateral requirements or Mark-to-Market payments
- What are the collateral rates and what are they based on?
Guaranteed Stop Losses
- What is a GSL?
- What is the cost of a GSL?
- How is the GSL Premium calculated?
- For what securities is GSL protection available?
- When can I place a GSL Order?
- At what price is the GSL Level set?
- Can the GSL Level be amended?
- When do GSLs expire?
- How can I deposit funds into my CFD account?
- Is interest paid on deposited funds?
- How do I transfer funds into my CFD Account that will clear on the same day?
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.
All applicants must:
- Read and understand the CFD Product Disclosure Statement
- Read and understand the CFD amendments to our Financial Services Guide
- Make an initial deposit of $5,000 into your CFD Account
Applications to open a CFD Account are subject to approval and the account will not be activated until deposited funds are cleared.
The minimum initial deposit amount required to open an account is $5,000.
Click here to find out about the fees and costs associated with trading CFDs.
CFDs are currently offered over all the securities in the S&P/ASX 300 index. This list of securities is subject to change.
The contract value of a CFD (called the CFD Value) is calculated by multiplying the price of the underlying security by the number of securities specified in the contract.
There are two distinct models by which CFD prices are offered by the various CFD providers:
Some CFD providers act as a market maker where they offer synthetic CFD prices which have the potential to be different to the underlying market price. Investors trade at prices determined by the provider - which gives the provider the flexibility to offer CFDs based on security prices which are higher or lower than the prices in the underlying market.
Other providers offer Direct Market Access (DMA) where they offer CFD prices and liquidity that are identical to the underlying market. Investors enter into CFDs at the underlying market price.
Wealth Within support the DMA model as we consider this model offers the most transparent pricing and cost structure to clients.
The minimum "deal size" for a CFD trade is one underlying security.
No. To receive voting rights related to ASX listed securities you must actually own the securities in your own name, which is not the case for a CFD.
CFDs are a leveraged product requiring a deposit of cash Collateral rather than the full value of the underlying position. Effectively cash is being borrowed by the long counterparty and lent by the short counterparty. As a result, if an investor holds a long CFD position overnight, the investor will be charged interest on the CFD Value of that open position. Conversely, if an investor holds a short CFD position overnight, the investor will receive interest on the CFD Value of that position. This interest is calculated and paid each business day.
All dividend payments in relation to CFDs occur on the ex-dividend date.
If you hold a long position in a CFD on the close of business on the day prior to the ex-dividend date of the underlying security, you will receive an amount equal to the cash dividend on that security, excluding any franking credits.
If you hold a short position in a CFD on the close of business on the day prior to the ex-dividend date, you must pay an amount equal to the cash dividend. In some circumstances you may also be required to pay the value of any franking credits applicable to the dividend.
If a position has a Guaranteed Stop Loss (GSL) over the ex-dividend date of the underlying security, the GSL Level is adjusted down (for long and short positions) by the amount of the cash dividend.
Corporate actions that affect a stock will be reflected in the value of your CFD account. The effect of corporate actions on your CFD positions will fully replicate the underlying cash market (exclusive of franking and imputation credits).
Yes. However, investors should note that CFD Orders placed outside ASX market hours are unlikely to be accepted until normal trading commences or until the counterparty is able to purchase or sell the corresponding security on the ASX; therefore the order will remain queued until that time.
Standard market hours for the ASX are 10:05am to 4:05pm on business days.
You can specify how long you would like your Order to remain in the market, assuming the Order is not already accepted. Following are the two types of period you can specify;
- Good 'Til Cancelled ("GTC") Orders: These orders remain open for an indefinite period until they are accepted or cancelled by either party.
- Day Only Orders:Day only orders expire at the end of the business day on which they were placed.
Unlike many other derivative products, CFDs have no fixed expiry date and can remain open for as long or as short a period as required, or until Closed-Out under the terms of the Product Disclosure Statement.
When opening a CFD position a deposit of cash collateral is required rather than payment for the full value of the underlying position. The amount of collateral required is based on the market value of the position and must be maintained throughout the life of the position.
In addition to holding sufficient funds in your Account to meet any fees and charges, you are required to make Collateral available in respect of each Order to open a new CFD position, as well as your existing CFD positions.
You will be notified of the Required Collateral Amount for each Order and you should ensure that you have sufficient funds in your CFD Account to cover that amount.
Mark-To-Market payments are payments required to be made in accordance with any movements in the Reference Security Price. Mark-To-Market payments reflect the profit or loss with respect to the CFD which would be realised if the CFD were Closed-Out immediately.
If the Reference Security Price increases whilst the CFD is open, the Short Party must pay the amount of the corresponding increase in the CFD Value to the Long Party. Conversely if the Reference Security Price decreases whilst the CFD is open, the Long Party must pay the amount of the corresponding decrease in the CFD Value to the Short Party
While Mark-To-Market payments are made only at the end of each Business Day, CFD Values are in fact recalculated continuously. Accordingly, you should ensure that sufficient funds are available to cover such payments at all times.
What happens if my CFD Account has insufficient funds to meet Collateral requirements or Mark-To-Market Payments?
You will be notified of any Collateral breaches via the trading platform or via an optional SMS service; however it is the responsibility of the investor to ensure their CFD Account has sufficient cleared funds at all times to meet Collateral requirements and Mark-To-Market Payments. Collateral requirements and Mark-To-Market Payments are calculated continuously. In the event there are insufficient funds in your CFD Account to meet your Collateral requirements or Mark-To-Market payments, your CFD Positions may be Closed-Out; your CFD Orders may be cancelled; you may be required to pay default interest on the cash shortfall; and your CFD Account may be closed.
The Collateral Rate assigned to a CFD depends largely on the volatility and liquidity of the underlying security. The current Collateral Rates applicable to standard long and short CFD positions range between 5% and 40%.
CFDs with Guaranteed Stop-Loss (GSL) protection require Collateral equal to the lesser of:
- the gap between the price of the underlying security and the GSL Level; or
- the amount of Collateral required for the same CFD Order or position that did not have GSL protection.
This can reduce the Required Collateral Amount for a CFD position which has GSL protection to as little as 1% of the CFD Value, although the investor must pay a GSL Premium when placing the GSL Order.
A severe movement in the price of an underlying security can give rise to large profits or losses on open CFDs. Placing Guaranteed Stop-Loss ("GSL") protection on a CFD position allows you to limit your potential losses arising from sudden market movements by giving you a guaranteed Close-Out price on that CFD.
Investors who obtain Guaranteed Stop-Loss protection in relation to a CFD will be charged a GSL Premium. The indicative GSL Premium will be communicated at the time the GSL Order is placed by the investor and is subject to change. The GSL Premium is calculated and is payable when the GSL Order is accepted.
The premium for a given GSL is calculated based on a number of factors, including;
- the distance the GSL Level is from the execution price
- the duration of the GSL
- the volatility and liquidity of the underlying security
Indicative GSL Premiums for particular trades can be viewed in the order pad display prior to execution.
GSLs are currently available over more than 100 underlying securities. The availability of GSLs over particular securities or particular GSL Levels can be subject to change at any time.
A GSL Order can be placed over an existing CFD position only when the underlying security is open. A CFD Order with a GSL can be placed at any time, including when the underlying market is closed. However, investors should note that GSL Orders placed outside ASX market hours are unlikely to be accepted until normal trading commences.
Once accepted, a GSL is a binding commitment to Close-Out a CFD at a specified price (the "GSL Level"). When placing a GSL Order, the investor specifies;
- the term required for their GSL - currently either 1 or 3 months; and
- the GSL Percentage (the percentage away from the price of the underlying security where they want their GSL protection to take effect) - currently a minimum of 1%.
The GSL Level is finalised and set in dollar terms when the GSL Order is accepted - generally immediately, using the most recent traded price for the security (in the case of a GSL over an existing CFD position) or when the CFD Order is filled (where the GSL Order is in relation to an Order that has not yet been accepted). The GSL Level in dollar terms will be the GSL Percentage away from the execution price.
No. Once the GSL Level is set it cannot be amended.
However an existing GSL can be replaced by a new GSL with a different GSL Level.
A GSL protection will cease when;
- the CFD to which it relates is Closed-Out; or
- the GSL is replaced by another GSL; or
- expiry is reached
whichever occurs first. GSLs expire 30 minutes prior to the scheduled close of trading on the underlying exchange on the expiry date.
You will be able to deposit funds into your CFD account by way of the following:
- Transfer from your external bank account
- Real time deposit using a linked bank account
- RTGS Transfer
- Cheque deposit
Funds that are on deposit that are not held as Collateral will attract interest. Funds that are held as Collateral will not attract interest. The current applicable interest rate is equal to the Benchmark Interest Rate minus 1.25%. The Benchmark Interest Rate is the interbank overnight cash rate published by the Reserve Bank of Australia .
In general, if you transfer funds from a linked CMT Account to your CFD Account prior to 3pm on a Business Day the transferred funds will clear on the same day. If you make a transfer into your CFD Account via other means, it is likely that there will be a delay in those funds clearing of approximately 2-3 business days.
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, 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.