On the whole CFD companies in Australia offer CFDs over the shares making up the ASX top 300, the rationale behind this is straightforward, stocks with a bigger market capitalisation are often much more liquid. Many CFD providers forget that we live in Australia, a country abundant with resources and naturally also rich in resource shares. The majority of stocks listed on the ASX are resource based, this is in actual fact the biggest sector of the Australian stock market.
Trading CFDs over speculative mining shares can be very rewarding if you choose your shares wisely. When trading CFDs over speculative shares you must always do a little analysis on the company. Prior to choosing your stocks you should make sure that the company has first-class management and a solid project. Obviously if the copper price has risen and you are searching for exposure to stocks in this sector logically you wouldn’t choose a CFD over a share with gold assets, this is the reason selecting shares within the relevant sector is also essential. It is always imperative that you remember trading CFDs over speculative stocks also has risks as these kinds of shares can go up in price just as fast as they can come down.
So why a trade CFD instead of buying the Share outright?
The answer to this question is simple and can be summed up in a few words, unrealised profits and losses. Unlike shares CFDs are marked to market every day meaning that the profits or losses are credited or deducted to and from your account each trading day. The profits and losses from buying and selling stocks are handled very differently in that they’re only realised once the equity is sold. Realising profits and losses each day means that you are able to utilize your unrealised to profits to open up new positions without needing to deposit added money into your account, not surprisingly the same goes for losses in that you’ll have to deposit money into your trading account if the trade moves against you.
It is imperative that you note the majority of speculative stocks may have a higher margin prerequisite than stocks in the ASX top 300, their margin requirement could be as high as 100% allthough the bulk are obtainable on a margin of 75%. One important factor to consider here is whether your CFD company will charge you financing on the full notional value of the trade, this could of course be rather large if the position was on a 100% margin, there are however some CFD brokers that will only charge financing on the borrowed quantity. It would be far more cost effective to select a CFD company that will only charge you on the borrowed amount, if the CFD is on 100% margin it will lead to a significant cost saving.
There are actually hardly any CFD brokers in Australia that will allow you to buy and sell CFDs on all ASX listed stocks, one of the most popular CFD companies is IC Markets. Among the list of major benefits of trading with IC Markets is that they don’t have any CFDs on 100% gearing and only charge financing on the borrowed amount meaning that you will not pay any financing costs for CFDs purchased on 100% margin.
Tags: cfd, cfds, contract for difference, contracts for difference, trading cfds
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