Intro

Trading financial markets is a complex trading is right for you. You’ll find information
business. Markets are constantly moving and about the tax implications of each product,
can be impacted by any number of factors, plus example trades which could help you test
from current news to company reporting, your trading methods on our demo platform.
as well as economic issues and even the We’ll also cover risk management and the
weather, depending on the instrument you costs to consider as a spread better or CFD
choose to trade. trader. You can find out more about costs and
In this guide we’ll cover the range of managing your risk via the learn section of our
instruments you can trade with CMC website.
Markets and whether spread betting or CFD

Introduction to CFD trading

点击查看中文差价合约简介

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 Intro

There are many aspects to consider when trading directly with CMC Markets rather
trading on the financial markets. Markets are than through a formal exchange, such as the
constantly moving and can be impacted by Australian Securities Exchange.
any number of factors, from current news
to company reporting, as well as economic In this ebook you’ll find information about
issues and even the weather, depending on the tax implications of each product, plus
the instrument you choose to trade. example trades which could help you test your
trading methods on our demo platform. We’ll
In this guide we’ll cover the range of also cover risk management and the costs
instruments you can trade with CMC to consider as a CFD trader. You can find out
Markets and whether CFD trading is right more about costs and managing your risk via
for you. When you trade with us, it’s known the learn section of our website.
as over-the-counter (OTC) trading, as you’re
点击查看中文差价合约简介

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 What is CFD trading?

CFD is a form of derivative trading. This means

that when you trade CFDs, you don’t own the How CFD trading works
underlying asset. Instead, you speculate or With CFD trading, you buy or sell a number of
take a position on whether you think the price units of a particular financial instrument.
of an asset will rise or fall over time. A trader For every point the price of the instrument
makes a profit or loss based on whether or not moves in your favour, you gain multiples
the market moves in their chosen direction. of the number of CFD units you bought or
sold, multiplied by the number of points the
The financial assets traders speculate on instrument price has moved. On the other
include: hand, you will lose multiples for every point the
• Currency pairs (such as EUR/USD or GBP/ price moves against you.
USD)
• Shares (like Apple or Amazon)
• Commodities (such as gold or oil)
• Indices (such as the UK 100, which is
based on the FTSE 100 and tracks the
performance of a group of shares)
• Treasuries and bonds

Please note, tax treatment on any profits or

losses resulting from CFD trading depends
on individual circumstances and can change
based on the jurisdiction or region which you
are in.

You’ll find information on CFD trading in this

guide. Turn to page 4 for specific CFD trading
examples.

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 Trading with leverage

An important aspect of CFD trading is that it Comparatively, leveraged trading allows you
gives you access to leverage. to deposit a portion of the value of your trade.
This initial outlay is known as margin. In other
words, margin is the amount of capital you need
What is leverage? to open and maintain a position.

When you buy an asset outright, for example a The important thing to remember with leverage
certain number of shares, you need to pay the trading is that while you only have to deposit a
full cost of that trade up front. fraction of the trade value to open a position,
your profit and loss is based on the full value
of the trade. So, both profits and losses will be
magnified relative to the margin requirement.

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 Trading examples
You may now know which leveraged trading option is most suitable for you.

CFD trade examples

Example 1: a profitable long trade The market has moved 20 points in your
favour (8,520 – 8,500).
When opening a long (buy) trade, or You opened your position at $3 per point,
‘going long’, you hope to profit from a so to work out your profit, you multiply
rising market. You enter a long position at this by the number of points the market
the buy price and exit at the sell price. has moved ($3 x 20 = $60).
You decide to open a long position by
buying 1 unit of Company A’s shares at You have made an overall profit of $60.
a buy price of 5,010. Your prediction is
correct. Company A’s shares increase in
price and you close your position at a
sell price of 5,020.
Example 3: a losing long trade
The market has moved 10 points in your
favour (5,020 – 5,010). You decide to open a long (buy) position
of $2 per point on Company C’s shares
You bought 1 unit worth of shares, so to at a buy price of 7,090. Your prediction is
work out your profit, you multiply this incorrect.
by the number of points the market has Company C’s shares decrease in price
moved (1 x 10 = $10). and you close your position at a sell
price of 7,075.
You have made an overall profit of $10. The market has moved 15 points against
you (7,090 – 7,075).

You opened your position at $2 per

point, so to work out your loss, you
Example 2: a profitable short trade multiply this by the number of points the
market has moved ($2 x 15 = $30).
When opening a short (sell) trade, or
‘going short’, you hope to profit from a You have made an overall loss of $30.
falling market. You enter a short position
at the sell price and exit at the buy price.

You decide to open a short position of $3

per point on Company B’s shares at a sell
price of 8,520. Your prediction is correct.
Company A’s shares decrease in price
and you exit your position at the buy

All financial trading involves a certain amount of risk, and it’s not realistic to expect to make a profit from 100% of your trades. It’s inevitable that at some point you will make
a loss. CFDs are also complex instruments with increased risk due to leverage. There are ways to manage risk, which could help to limit losses on any losing trades. We cover
risk management in the next section of this ebook, and you can also read more about the different ways to support your trading in the learn section of our website.

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 Risk management

To help manage your risk, it’s important that Example

you understand the markets you’re trading. A You hold a long (buy) position with a stop-loss
trading plan can help you define and stick to order attached at 10,250. The market falls, and
your overall trading goals. the price gaps from 10,260 to 10,240.
Your stop loss is executed at 10,240 as this was
Stop-loss orders the first available price after your stop-loss
level.
A stop-loss order is a certain type of order. It
allows you to specify the price at which your Other order types
position will be closed out by the platform, if
the market moves against you. It’s designed to Guaranteed stop-loss order: for a premium,
help you manage risk. GSLOs give you 100% certainty that your stop-
loss will be executed at the exact price you
While a stop-loss can help limit losses, it does want, regardless of market volatility or gapping.
not guarantee that your position will be closed The premium is refunded in full if the GSLO is
out at that specific price. If there is market not triggered.
volatility or gapping, it will only execute at
the next available price through the stop-loss Trailing stop-loss orders: a trailing stop-loss
order level. will follow a price as it moves favourably for
you, remaining at the distance specified when
the order was placed.

Take-profit orders: this order type is used to

set a predetermined target level at which you
would like the platform to close a trade and
secure the profit from that trade.

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 Costs and considerations

Spread • Account inactivity charge: there is a

monthly charge of $15 on dormant accounts,
The spread is the difference between the but no deduction is made if there are no funds
buy and sell. As a general rule, the tighter the in the account. An account is considered
spread, the better value you’re getting as a dormant if there has been no trading activity
trader. This is because you enter a buy trade for a continuous period of 12 months.
using the buy price quoted and exit using • Market data fees: these fees are variable
the sell price, so tighter spreads mean that and may not apply to all markets, this will
you can make a profit or loss from smaller depend on whether you are a private or a non-
movements in price. private investor. There are no market data fees
for viewing or trading share CFDs from other
Different factors can affect the spread. For countries available on the platform.
example, the volatility of the market, or how
• Commissions: you must pay a separate
liquid the market is (how many buyers and
commission charge when you trade share
sellers are active at a certain time).
CFDs.
Other costs
Margin calls and auto close-out
• Holding costs: at the end of each trading
At certain times, a broker may require a trader
day (at 5pm New York time), any positions
to deposit more funds into their account.
open in your account may be subject to a
A margin call will occur when an account’s
charge called a ‘holding cost’. The holding cost
funds fall to a specific value calculated by
can be positive or negative depending on the
the broker. Or, if the market is going against a
direction of your position and the applicable
trader and they are nearing auto close-out, but
holding rate.
want to keep their positions open. Auto close-
• Rollover costs: some instruments have out is when a trader’s position is automatically
expiry dates, which means that the trade will closed by the platform if the balance of their
automatically expire on that date. If you want account falls below a set level.
to keep the trade open beyond that date, you
are able to roll forward positions. When you
roll a forward position to the next contract,
your profit or loss is realised and you enter
the new trade at the mid-price, saving 50% on
the spread cost.

Conclusion

When trading CFDs, there is a lot to consider. In addition to keeping up with market news, traders
should consider specific trading costs and the leverage requirements of every trade. As you learn
to trade, you can refer back to this guide as well as exploring some of our other resources, such
as the news & analysis and learn sections of our website. Plus, get to grips with the basics and
test your trading skills on our demo platform.

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 Disclaimer

This guide provides general information only and does not take into account your objectives,
financial situation or needs. Consequently you should consider the information in light of
your objectives, financial situation and needs.

Investing in CMC Markets financial products, including derivatives carries significant risks
and is not suitable for all investors. You could lose more than your deposits. You do not own,
or have any interest in, the underlying assets. We recommend that you seek independent
advice and ensure you fully understand the risks involved before trading. Spreads may
widen dependent on liquidity and market volatility. It’s important for you to consider the
relevant Product Disclosure Statement (‘PDS’) or Information Memorandum (for CMC Pro
accounts) for Australia and any other relevant CMC Markets Documents before you decide
whether or not to acquire any of the financial products. For Australia customers, information
about CMC Markets’ services, including our fees and charges, is also contained in our
Financial Services Guide (FSG) and Information Memorandum (for Australian CMC Pro
accounts

The examples in this guide are hypothetical and are provided for illustrative purposes. They
are not intended to suggest how an underlying asset might perform or how CMC Markets
might exercise its power or discretions. Fees, charges and margin rates are subject to
change.

CMC Markets Asia Pacific Pty Ltd ABN 11 100 058 213 AFSL No. 238054
www.cmcmarkets.com.au

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