Text version: Thinking of trading CFDs
This guide from the Australian Securities and
Investments Commission (ASIC) can help you assess the risks of
How this booklet can help you
- This booklet has information about the operation and risks of
trading contracts for difference (CFDs). In producing this booklet,
ASIC does not endorse or promote this product or consider that it
is suitable for many investors.
- The complex structure of CFDs and the risks associated with
them mean that they are unlikely to meet the investment needs and
objectives of most retail investors.
- Read this booklet, especially the section 'Are CFDs right for
you?' together with the Product Disclosure Statement (PDS) before
deciding whether or not to trade CFDs.
- ASIC has also developed 7 new disclosure benchmarks for
'over-the-counter' (OTC) CFDs to help you assess the risks.
- CFDs are complex and risky products. Make sure you understand
the risks before making a decision about trading CFDs.
- The information in this booklet is general in nature. For a
detailed strategy that takes into account your individual needs and
circumstances, consider seeking professional advice from a licensed
Anything you put your money into should meet your investment
goals and suit your circumstances.
No one can guarantee the performance of any financial
You can lose all of or more than the money you put in if
something goes wrong.
You are taking a big risk if you put all your money into one
type of investment (for example, trading CFDs). Spreading your
money between different types of investments ('diversification')
reduces the risk of losing everything.
CFDs are high-risk financial products. It is important that you
understand the key features of CFDs before you decide whether or
not to risk your money.
All the information in this booklet is important if you are
considering this product. However, if you have a specific question,
the following table may help you find the relevant information.
the product is
What is a CFD?
A CFD is a leveraged 'derivative' financial product. CFDs are
derivatives because their value is derived from the value of
another asset (for example, a share, commodity or market
When you trade CFDs, you take a position on the change in value
of the underlying asset over time. You are essentially betting on
whether the value of an underlying asset is going to rise or fall
in the future compared to what it was when the contract was taken
out (or executed).
All CFD companies ('providers') let you trade both 'long' and
'short'. 'Going long' means buying a CFD in the
expectation that the underlying asset will increase in
value. 'Going short' means selling a CFD with
the expectation that the underlying asset will decrease in
value. In both cases, when you close the contract, you hope
to gain the difference between the closing value and the opening
For example, you might buy a CFD ('go long') over Company X's
shares. If the price of Company X's shares rises and you close out
your CFD, the seller of the CFD (the counterparty) will pay you the
difference between the current price of the shares and the price
when you took out the contract.
However, if the price of Company X's shares falls, then you
would have to pay the difference in price to the seller of the
contract. This could be many times the amount of money you
originally put in, because of leveraging.
CFDs do not have an expiry date like options or futures
contracts. A CFD can only be closed by making a second,
What is 'leverage'?
CFDs allow you to bet on rises and falls in shares, currency and
other assets while only putting up a small amount of your own
money. You are leveraging off the money you do have, in the hope of
With CFDs, you only have to put in a fraction of the market
value of the underlying asset when making a trade, sometimes as
little as 1%. The remaining 99% of the value of the asset is
covered by the CFD provider. Even though you only put up 1% of the
value, you are entitled to the same gains or losses as if you had
paid 100%. The actual percentage of the market value that you will
be asked to put in will vary for different CFD providers, and for
different underlying assets.
This can make CFDs seem very attractive. Even if you don't have
the money to buy the underlying asset itself, you can share in
potential gains and losses on the value of that asset.
But because you are trading with leverage, the gains and losses
are magnified-and the risks are much greater. You can end up losing
much more than you put in.
How is trading CFDs different
to investing in shares?
Unlike investing in shares, when you trade CFDs, you are not
buying or trading the underlying asset. What you are buying is a
contract between yourself and the CFD provider.
Because all you own is a contract with the CFD provider, you are
also taking a bet that the CFD provider is in a sound financial
position and will be able to meet their obligations to you. For
more on this risk, known as 'counterparty
Also, while the value of the CFD is derived from the value of
the underlying asset, it may not track it exactly. These small
differences can significantly affect any gains or losses you
What is the 'underlying asset'?
When you buy or sell a CFD, you are making an agreement
to trade the difference in the value of an underlying asset
(sometimes called the 'underlying security' or the 'reference
asset') between now and a future date. But you are not actually
trading the underlying asset itself.
CFD providers allow you to buy or sell CFDs on a range of
underlying assets. Shares are the most common underlying asset. But
most CFD providers also allow you to trade CFDs on other underlying
assets, such as commodities and foreign exchange (FX).
They may also allow you to trade certain market indices, such as
the ASX 100, which aggregates the price movements of all the top
100 stocks listed on the Australian Securities Exchange (ASX).
If you are thinking of trading CFDs, you need to know and
understand both how CFDs work and also about the underlying assets
on which the CFDs are traded. For example, if you want to trade
CFDs where the underlying asset is FX, then you must have knowledge
and experience of the FX market and the conditions that affect that
All CFD providers are legally obliged to give you a disclosure
document called a Product Disclosure Statement (PDS) before you
open an account. This document should clearly set out what the
underlying assets of any CFDs are. Read this information carefully.
If you don't understand how CFDs work and how the underlying asset,
such as FX, works, then you are unlikely to be able to trade CFDs
on that asset successfully.
For more about PDSs and information given by CFD providers, see
'Do your own research' in Part 3 and ASIC's
disclosure benchmarks for OTC CFD providers.
What's at stake for you?
CFDs are not simple products. Trading CFDs is complex for
- CFDs might seem similar to mainstream investments such as
shares, but they are very different.
- CFDs are not standardised and every CFD provider has their own
terms and conditions.
- It is very hard to assess the counterparty risks involved in
trading with any CFD provider.
- Leverage means small market movements can have a big impact on
the success of your trades.
- CFDs are dependent on conditions in the market for the
underlying asset, even though you are not actually trading the
As well as understanding how CFDs work, you also need a good
understanding of the risks of trading CFDs. For more about these risks.
Example of a CFD trade
Peter has been trading shares and derivative investments such as
options for 10 years and has recently started to trade CFDs. He
shopped around and looked at several CFD providers before opening
Peter has been doing some research on Beta Pty Ltd (Beta) and
thinks that its share price is undervalued. He decides to take a
long position on CFDs over Beta shares.
The current price of a CFD over Beta shares offered by
the CFD provider is $5. Peter logs into his CFD trading
account and places an order to buy 4,000 Beta CFDs. His order
is accepted by the CFD provider at $5 per CFD. The total contract
value is $5 x 4,000 = $20,000.
The CFD provider requires a 5% margin to open a trade, which is
deducted from Peter's CFD trading account. The margin is equal to
$20,000 x 5% = $1,000. The provider also charges Peter a commission
of $30 on this trade.
What happens next depends on what happens to the price
of Beta shares (see table below).
Any gains Peter makes on this trade are also dependent on the
CFD provider being willing to accept his trades and meeting all
their obligations to him. This includes crediting any gains to his
CFD trading account after the closing of a position and
transferring them to his bank account on request.
How the price of Beta shares affects Peter's
|If the price of Beta shares
||Peter would gain/lose
||Resulting in a return
on his initial margin of
|Rises by 20%
|Rises by 10%
|Rises by 5%
|Rises by 2%
|Stays the same
|Falls by 2%
|Falls by 5%
|Falls by 10%
|Falls by 20%
*This example assumes that Peter closes his trade at the
Gains/losses and rate of return take into account commission
charged at 0.15% on the face value of the opening and closing
trades, but do not take into account any other fees, charges or
interest. In practice, these other factors will affect your returns
from trading CFDs.
How much can you afford to lose?
The risks and complexity of CFDs mean that they are unlikely to
meet the investment needs and objectives of many retail
If you trade CFDs, you are putting potentially very high amounts
of your own money at stake. Here are some of the risks in trading
- Investment risk: This is the risk that
investment markets move against you.
- Counterparty risk: This is the risk that the
CFD provider or another counterparty to a trade fails to fulfil
their obligations to you. Trading CFDs exposes you not only to the
risk of the CFD provider failing to act as promised, but you could
also lose money if other companies the provider deals with, or
other clients, fail to meet their obligations.
- Client money risk: This is the risk of losing
some or all of your money held by the CFD provider.
- Liquidity, gapping and execution risks: Market
conditions and the mechanics of trading might mean you cannot make
trades when you would like to, or that your trades are not filled
at the price you expect.
While you can take steps to reduce some of these risks, you
cannot protect yourself from all of them. If you are considering
trading CFDs, make sure you understand these risks. See also 'Are
CFDs right for you?' in Part 2 and ASIC's
disclosure benchmarks for OTC CFD providers in Part 3.
When you buy a CFD over a share, index or commodity (known as
'going long'), you hope that the value of that underlying asset
will rise, so you can sell the CFD for a profit. If you a sell a
CFD over a share, index or commodity (known as 'going short'), you
hope that the value will fall.
However, the reality of investment markets means that even the
most educated predictions can prove wrong, especially in the short
term. Unexpected new information, changes in market conditions,
changes in government policy and many other unpredictable events
can result in quick changes in market value.
Because CFDs are very highly leveraged, even a small change in
the market can have a big impact on your trading returns.
If changes in market value have a negative effect on your trade,
the CFD provider may demand that you put more money in at short
notice (called a 'margin call') to cover the adverse change and
keep your trade open. If you cannot meet this margin call, you may
have to sell at a loss, or the CFD provider may close out your
trades at a loss without consulting you. For more about margin
calls in Part 3.
Providers of OTC CFDs that meet ASIC's disclosure benchmark on
margin calls should clearly explain their policy on margin calls to
A 'counterparty' is the person or company on the other side of a
financial transaction. When you buy or sell a CFD, the only asset
you are trading is a contract issued by the CFD provider, so the
CFD provider becomes your counterparty. In addition to the CFD
provider, trading CFDs also exposes you to the provider's other
counterparties, including other clients and other companies the CFD
provider deals with.
Counterparty risk (sometimes called 'credit risk') is the risk
that a counterparty fails to fulfil their obligations.
ASX exchange-traded CFDs carry a much lower level
of counterparty risk compared to over-the-counter (OTC)
CFDs. This is because the exchange's clearing
house, ASX Clear (Futures) Pty Limited, acts as the counterparty to
each trade, so both the buyer and the seller contract with the
clearing house and not directly with each other.
All ASX exchange-traded CFD trades are centrally cleared and
processed by ASX Clear (Futures) Pty Limited, which can also draw
on money in the Fidelity Fund. The Fidelity Fund is designed to
assist investors where an investor has given money or other
property to an ASX participant for a transaction and the
participant has misappropriated or fraudulently misused the money
or other property.
For more about the differences between ASX exchange-traded CFDs
and other types of CFDs in Part 2. For details
about ASIC's counterparty risk disclosure benchmarks for OTC CFD
Following are some examples of the different counterparty risks
that can be involved in trading OTC CFDs.
The CFD provider
The success of CFD trading doesn't just depend on picking the
right CFDs to trade. When you trade CFDs, you are relying on the
CFD provider to accept and process your trades, make payments owed
to you while your trades are open (for example, notional 'dividend'
payments), credit any proceeds of profitable trades to you, and pay
you money out of your CFD trading account when you ask for it.
If the CFD provider gets into financial difficulties, they may
fail to meet some or all of these obligations to you. This means
that even if you have been trading profitably, you may never
receive those profits.
Check the financial statements of an OTC CFD provider, if they
are available, to get some idea of whether they have sufficient
financial resources and cash available to run their business. Check
also the OTC CFD provider's disclosure against Benchmark 4 (Counterparty risk - Financial
If the CFD provider's business is concentrated with a few
clients and one or more of those clients suffer trading losses
which the client can't cover, this may cause significant financial
problems for the CFD provider, which may then affect whether or not
they can meet their obligations to you.
Because most OTC CFD providers pool the money of different
clients together into one or more client accounts, your access to
money held by the CFD provider could be affected if other clients
fail to pay the CFD provider the money they owe. For more
information, see 'Client money
Other companies the CFD provider deals with
OTC CFD providers generally have arrangements with other
companies that can have a significant impact on you. If one or more
of these companies gets into financial difficulty, this may affect
the ability of the CFD provider to meet their obligations to
For example, the CFD provider may 'hedge' your trades with one
or more other companies. This means that if you place a CFD trade
over a particular share, commodity or index, the CFD provider may
take out corresponding arrangements with another company to get
exposure to that share, commodity or index for internal risk
management purposes. If the other company doesn't deliver what they
promised under the hedging arrangement, the provider may close your
trades without warning or be unable to pay you any profits or other
Look for information in the CFD provider's Product Disclosure
Statement (PDS) or ask them about their hedging arrangements. If
they hedge with multiple companies of strong financial standing,
this can reduce the risk of something going wrong.
Some CFD providers 'white label' another company's CFDs. This
means the CFD provider relies very heavily on the other company to
be able to offer CFDs, process trades and administer client CFD
trading accounts. The CFD provider is also totally reliant on this
company for hedging. In this situation, the CFD provider may have
only very little capital or resources themselves. This exposes you
to the double risk of either the CFD provider or the company they
rely on getting into financial difficulties.
For details about ASIC's disclosure benchmarks covering counterparty risk for OTC CFD
The law sets down some requirements for how CFD providers deal
with your money, including how they handle it and what they can do
with it. They must separate your money from their own money. They
are not obliged, however, to separate your money from the money of
other clients and most providers 'pool' all their clients' money
into one or more pooled client accounts.
While the client money provisions in the law protect you from
some misuses of your money by the CFD provider, they don't protect
you in all circumstances.
When you place a CFD trade, the law permits the CFD provider to
withdraw an initial margin and any further margin required from the
pooled client account while the trade is open. Not all CFD
providers do this. If the CFD provider does withdraw margins from
the client account, the money ceases to be 'client money' and is no
longer protected by the law.
The customer agreements used by some OTC CFD providers allow
them to make withdrawals from client money for a wide range of
other purposes. You should check the details carefully as these
clauses mean that your money is much less protected. Read the terms
of the client agreement and PDS carefully to find out where you
stand. For the client money disclosure benchmark for OTC CFD
The actions of other clients can also affect the protection of
your money. Because most CFD providers pool all their clients'
money together in one or more accounts, if one client fails to pay
money they owe (for example, on a losing trade), the pooled client
account which is holding your money could be in deficit. If the CFD
provider does not cover this deficit, there may not be enough money
in the account to pay you what you are owed. If the CFD provider
goes out of business while the pooled client account is in deficit,
there is no guarantee that you will recover all or any of your
money that is in the account.
Liquidity risk, gapping and other trading risks
Liquidity risk is a reality of trading on any market.
If there aren't enough trades being made in the market for an
underlying asset (called a lack of 'liquidity'), you may be unable
to trade CFDs over that asset. The CFD provider may either decline
to fill your trades, or only agree to process the trade at an
inferior price, even if you already have an open CFD position over
that underlying asset. This means you could be left with an open
CFD position that you are unable to close.
CFD and other market prices can move very quickly and sometimes
they can even skip one or more price points. For example, the price
of a CFD could fall from $2.54 to $2.50 without trading at any of
the prices in between. If you had placed a trade to sell this CFD
at $2.52, your order may only be executed at $2.50 (or less) or
alternatively not executed at all (depending on the order type).
This is known as 'gapping'.
Gapping is a fundamental risk of trading CFDs. You may be told
or hear that a stop-loss strategy or a particular order type can
mitigate the risk of gapping. You should be wary of such advice.
See our warning on stop-loss strategies in Part 2.
In addition, when you place a buy or sell order with a CFD
provider through their trading platform or over the telephone,
there may be a time lag between when you place your order and when
that order is executed (this is called 'execution risk'). If the
market for the underlying asset moves in the time between when you
place the order and the execution of the order, this could also
result in your trade being executed at a worse price than when the
order was made, especially if markets are very volatile.
What's at stake for you?
The risks of trading CFDs are significant, and some of them can
be very difficult to assess. Even if you manage investment
risk and the risks associated with leverage, it is very difficult
to manage the other risks of CFDs-such as counterparty risk,
client money risk, liquidity risk, gapping and execution risk-and
these could result in losses you did not expect.
You need to consider whether the uncertain returns from trading
CFDs justify the time and effort you need to put in to assess and
try to manage these risks. Remember, if things go wrong, your
losses could outweigh any gains you have made. Depending on
the terms and conditions of your agreement with the CFD provider,
the potential losses are unlimited.
Are CFDs right
Perception versus reality
Unfortunately, many novice traders are attracted to CFDs by
slick advertising and free seminars (see 'Tips and traps' in Part 3). Yet people
who have traded CFDs point out that CFDs are not 'get rich quick'
People who have traded CFDs say that novice or beginner
investors should not start by trading CFDs. These products do not
suit people who are risk averse or conservative in their investment
You should only consider trading CFDs if:
- you have extensive trading experience
- you are used to trading in volatile market conditions, and
- you can afford to lose all of, or more than, the money
you put in.
The following table compares the expectations people might have
before they trade CFDs with the reality of trading CFDs.
|CFDs are easy to trade and don't require a lot of effort.
||CFD trades need to be regularly monitored.
|CFDs generate high returns.
||People who trade CFDs often suffer trading losses. Large
returns on individual trades are often counterbalanced by losses on
|Trading CFDs is similar to online share trading.
||While CFD trading platforms are similar to those for online
share trading, the nature and risks of trading CFDs are quite
|Education seminars will provide the necessary skills for
||People who attend education seminars before trading CFDs still
have to learn a significant amount about the products while
"I didn't realise how stressful it would be if trades were
not doing what [I] expected. What do you do, how do you cope with
that? Because [nobody] really talks about that. They said, "You've
got to manage your risk", but what does that mean?" -
What's at stake for you?
If you are thinking about trading CFDs, here are some
questions you should ask yourself:
- How much experience do you have trading shares? Do you
understand the differences between investing in shares and trading
- What are your investment goals? Does trading CFDs fit in with
- How much risk are you willing to take when investing?
- How much of your investment portfolio are you looking to put
into trading CFDs?
- If your trading goes badly, do you have extra money or assets
to cover any losses?
- How much experience do you have with other speculative or
volatile investments? Is it enough?
- How much experience do you have in borrowing to invest?
- How much time can you devote to trading CFDs and monitoring
your trades? Will it be enough?
- Have you read and do you understand the PDS for the CFDs?
- Do you have a plan to monitor and manage the risks of
- How well could you cope psychologically with wide swings in
returns on trades?
Not all CFDs are
CFD provider business models
If you decide to open an account with a CFD provider, you should
know what the provider's business model is (that is, how they
structure and price their CFDs). In Australia, there are three
types of business models: 'market maker', 'direct market access'
Market maker and direct market access models are both provided
over-the-counter (OTC) and are the most commonly available CFDs in
Australia and overseas. Several CFD providers offer both market
maker and direct market access CFDs, so you need to pay careful
attention to what type of CFDs you are buying or selling for any
trade. Exchange-traded CFDs are provided by the Australian
Securities Exchange (ASX) and this model is unique to
In all cases, the CFD provider determines the underlying assets
on which CFDs may be traded. They also define the terms and
conditions of the client agreement, including the margin requirements for client accounts.
The following table summarises the features of each model.
|Market maker model (OTC)
||In a market maker business model, the CFD provider comes up
with their own price for the underlying asset on which the CFDs are
|Direct market access model (OTC)
||In a direct market access model, the CFD provider places your
order into the market for the underlying asset. The price you pay
will be determined by the underlying market.
|Exchange-traded model (ASX)
||In the exchange-traded model, you are trading CFDs that are
listed on the ASX. ASX exchange-traded CFDs can only be traded
through brokers authorised to trade these CFDs.
What are market maker and direct market access CFDs?
With these OTC CFDs, you enter directly into an agreement with
the CFD provider to trade CFDs. The term 'OTC' refers to the fact
that each provider has their own CFD terms and conditions, and that
the CFDs are traded directly between clients and the CFD provider,
rather than on an exchange such as the ASX. CFD providers may issue
OTC CFDs either via the market maker or the direct market access
Market makers quote their own prices for all CFDs
they offer. The price offered may or may not diverge significantly
from the market price of the underlying asset. People who trade
CFDs are expected to be price takers (rather than
price makers as for the other business models). Market makers may
or may not hedge client positions with other counterparties or in
the underlying market (see 'Questions to ask
the CFD provider' for more about 'hedging'). This means that
the CFD provider may directly benefit if you lose on your
Market makers tend to offer more CFDs than other providers as
they can write CFDs against 'synthetic' assets (for example, an
index) or against real assets, even if there is little or no
liquidity in the market for the underlying asset, or a market does
The CFD prices of direct market access providers
correspond directly to the prices of those assets in the underlying
market. These CFD providers automatically place each client order
into market for the underlying asset, so people who trade CFDs are
price makers. The CFD providers do not carry any
market risk from the trade. As a result, these providers will only
offer CFDs over an asset if there is sufficient trading volume in
the underlying market.
What are ASX exchange-traded CFDs?
ASX exchange-traded CFDs are listed on the ASX. They are traded
through brokers authorised by the ASX to deal in these CFDs. The
CFD terms and conditions are standardised by the ASX, which reduces
some of the risks. The market for these CFDs is separate to the
market for the underlying assets.
In the exchange-traded model, CFD prices are determined by
trading activity in the CFD market, and people who trade CFDs may
be price makers. CFD prices closely follow the market price of the
underlying asset, although there may be divergence if there is
limited liquidity in the CFD market.
ASX 24 (formerly the Sydney Futures Exchange), which is part of
the ASX Group, is responsible for registering, clearing and
processing all trades in ASX exchange-traded CFDs. ASX 24 acts as a
counterparty to these transactions, which means that both the buyer
and the seller contract with ASX 24 and not directly with each
other. This significantly reduces counterparty risk (see Part 1) you are
ASX exchange-traded CFDs are regulated by ASX and ASX 24
operating rules and ASIC market integrity rules.
What's at stake for you?
In the market maker business model, the CFD provider determines
their own price for the CFDs they offer, which may be the same
as the market price for the underlying asset, or may involve an
extra margin on that price (known as a 'spread'). This means you
must accept whatever price the CFD provider makes for the
underlying asset (or other products) on which you are trading. The
CFD provider can also reserve the right to re-quote prices after
you have submitted an order.
In the direct market access business model, the CFD provider's
prices match those in the underlying market. But if there is not
much trading in the underlying market, you may not be able to open
or close CFD trades when you want to. These providers also tend to
offer fewer CFDs than market makers.
In the exchange-traded model, you can't directly trade ASX
exchange-traded CFDs yourself. This means you must open an
account with a broker authorised to trade these CFDs. However, the
counterparty risk is less. Check the ASX
website for a full description of how ASX exchange-traded
CFDs work and a list of authorised brokers.
Questions to ask the CFD
It can be difficult to figure out which business model a
particular CFD provider uses. Ask the CFD provider these questions,
or look for answers in the PDS, to work out which model they use
and what it means for you. For OTC CFD providers, check whether
they meet ASIC's 7 disclosure benchmarks in Part 3.
Q: What is the financial position of the CFD
To adequately run their day-to-day business, a CFD provider must
have enough capital and cash flow. Don't take glossy advertising
and a slick website as a sign that the provider is financially
secure. Wherever possible, check the facts by reading the
provider's financial statements if they are available.
Q: What is the CFD provider's policy on the use of
The law sets down some requirements for how CFD providers deal
with your money. Not all CFD providers handle and use client money
in the same way. Some providers give your money more protection
than others, so make sure you find out what a CFD provider's
policies are, and check how they compare to other providers. For
more information, see client money risk in Part 1.
Q: How does the CFD provider determine the prices of
CFDs they offer?
CFD providers should let you know how they arrive at their CFD
prices. Some OTC CFD providers' prices mirror the price of the
underlying asset (direct market access providers). Other OTC CFD
providers (market makers) may add an extra amount ('spread') to the
underlying market price. The spread may be fixed or may vary.
The pricing of CFD providers who use the direct market access
model is more transparent, but they may offer a more limited range
of CFDs. CFD providers who determine their own prices generally
offer more CFDs, but you need to consider the impact of wider
spreads and the possibility of re-quoted prices on your trading
Prices for ASX exchange-traded CFDs are determined by trading on
the ASX CFD market, which is transparent.
Q: Can the CFD provider change or re-quote the price
after you have already placed your order?
Some CFD providers reserve the right to re-quote prices to you
after you have placed your order. While these CFD providers tend to
offer a wider range of CFDs than other providers, re-quoting of
prices by providers can affect the profitability of your
Q: When processing CFD trades, does the CFD provider
enter into a corresponding position in the market for the
CFD providers using the direct market access business model
promise to 'hedge' all client trades in the underlying market.
This means that when you place a CFD trade, you should be able
to see the corresponding trade being placed in the underlying
market. This makes the CFD pricing and trading process more
transparent for people trading CFDs, although it limits the number
and types of CFDs that can be traded. Even though the order is
placed in the underlying market, it doesn't mean that you own or
are entitled to the underlying asset, and you are still subject to
Market maker CFD providers may also hedge the CFDs they offer,
but these arrangements are generally less transparent than for
direct market access providers. Market makers may not hedge all the
CFD trades you place, and so may directly benefit if you lose on
For all OTC CFD providers, make sure you read the PDS or ask the
provider about their hedging policy, including what will happen to
your trades or your account if the hedging fails. If a provider
only hedges with one company, this can significantly increase the
risks for you. Check whether the provider meets ASIC's 7 disclosure
Q: If there is little or no trading going on in the
underlying market for an asset, can you still trade CFDs over that
Being able to make trades even if there is little or no trading
going on may be useful if you have an open CFD position that you
want to close. However, in these circumstances, CFD providers are
very likely to apply wider spreads or re-quote on CFD trades, which
can affect your trading bottom line. Also, most CFD providers
reserve the right to refuse to accept trades, so you can't rely on
being able to trade in these circumstances.
Q: Does the CFD trader let you trade CFDs even if the
underlying market is closed?
While it might seem good to be able to trade whenever you want,
there are additional risks involved if the CFD provider lets you
trade when the market is closed. When the underlying market is
closed, you can't check how CFD prices compare to market prices,
which could result in price distortions.
How you trade CFDs depends on the CFD provider. The terms and
conditions of client agreements vary widely and can be structured
in many different ways.
It's especially important to understand how the CFD provider
handles trades, including what trading platform they use and what
you'll be paying to trade.
More about CFD trading jargon in Part 3 and what it
CFD trading platforms
A CFD trading platform is the system a CFD provider uses to
allow you to make CFD trades.
Usually, when you open an account with a CFD provider, you are
given online access to their trading platform. You log on to the
platform and place your buy and sell orders. The platform also
provides you with a suite of research tools and certain kinds of
information, such as data on the way underlying assets are
performing in the market.
CFD providers each have their own particular platform. Some may
be physically easier to use than others. Some CFD providers may
offer telephone or mobile phone services through which you can
place buy and sell orders.
You must do your own independent research on the quality of the
trading platforms that are currently available. If possible, you
should trial a CFD provider's platform before opening an
Fees and charges (including
You must pay the CFD provider fees and charges to trade
In all cases, CFD providers will charge you for each order that
you place on their trading platform. This charge may vary from
provider to provider.
In most cases, CFD providers will also charge you for additional
information or research data, such as data on ASX or foreign market
shares. Some CFD providers may tell you that you have access to
certain information free of additional cost, as long as you make a
certain number of trades per month. But remember, you are still
paying for those trades.
As well as fees and charges for trading, the CFD provider will
charge you interest on any long CFD positions held open overnight.
Often interest is charged on the full face value of your
trade. The interest rate you are charged will vary depending on the
The PDS and the terms and conditions of the client agreement
should clearly set out all fees and any other charges. It should
also clearly set out how interest will be charged on any leveraged
trade. While it may not indicate a specific amount, it should give
you a method for calculating the interest and explain how and when
interest is charged.
Make sure you understand what you are paying for and how you
will be charged. Keep records of what you pay. If you have any
complaints or disputes about fees and charges that you can't
resolve with the CFD provider, contact the provider's external
dispute resolution scheme.
To open a CFD trade, you need to pay a margin, which will be a
percentage of the total value of the trade. For example, if you buy
a CFD over XYZ shares, you may need to pay a margin equal to 5% of
the current XYZ share price. The initial margin amount will be
withdrawn from your account by the CFD provider when you place the
Different CFD providers will have different margin requirements
for CFDs over the same underlying asset. Margin requirements will
tend to be higher for CFDs over shares than for other assets.
Even if you shop around for the lowest margin rates, you need to
remember that regardless of how little margin you pay, you are
always responsible for the full face value of the trades you make.
Paying less margin upfront means that small price fluctuations can
have a bigger impact on your trades.
For example, if you have a trade open and the market moves
against you, the CFD provider may demand that you pay an additional
margin to keep the trade open. If you have cash in your trading
account, this additional amount will be automatically debited.
However, if you don't have enough money in your CFD trading
account, the provider may make a margin call demanding extra
Margin calls and
A CFD provider will make a margin call when you have a CFD trade
or trades open which have lost money, and there is not enough cash
in your CFD trading account to cover this loss.
The CFD provider may contact you, either by telephone or by
email, to alert you to your margin call requirements and to ask you
to put extra money in. However, they are not obliged to do so. Many
providers expect you to monitor your account regularly and so may
not notify you of a margin call.
If you get a margin call, you will usually have to pay in
extra money that same day, or face automatic closing (called
'liquidation') of one or all of your trades.
CFD providers will also usually set a 'liquidation' level on
your CFD trading account. This is the level at which any open CFD
trades will be closed if you do not have enough money in your
account to cover adverse movements on your trades. CFD providers
may express this level as a percentage, say 10-20%, of your margin
For example, you might be required to keep $1,000 in margin. If
the balance in your account goes down to $100 (at 10% liquidation
level), the CFD provider may liquidate your open trades, as well as
charging you a fee (penalty) for the liquidation.
The PDS and the terms and conditions of the client agreement
should clearly set out margin call procedures and your rights and
obligations. It should also set out the circumstances in which the
CFD provider will liquidate your trades.
For details about ASIC's disclosure benchmark on margin calls
for OTC CFD providers.
A stop loss is a trading strategy that may mitigate some of the
risks involved in trading CFDs. Most CFD trading platforms will
allow you to set a stop-loss price at which you will be
automatically closed out of an open trade. This means that if the
underlying asset on which you are trading reaches a certain price,
your trade will be closed out.
Relying on a stop-loss strategy can be risky. Even if you have
set a stop-loss price, the CFD provider may not always execute your
stop-loss at the price you have set.
This will only be the case if you have a 'guaranteed stop loss'.
When you set a guaranteed stop-loss price, the stop-loss will
always be executed when the underlying asset reaches your set
price. This is a premium service for which CFD providers charge a
You need to read the PDS and the terms and conditions of the
client agreement to understand the stop-loss options for a
particular CFD and what you might risk if stop-loss orders aren't
If you buy shares in a company, you normally receive dividends
on those shares. If you trade CFDs over an underlying asset, you
are not buying that asset itself. However, CFDs are designed in
such a way so that you still receive some of the benefits of
When you buy a CFD over an underlying asset, your CFD trading
account will be credited with a certain amount of money that
mirrors what the owner of that asset (for example, a shareholder)
would receive as a dividend payment.
On the other hand, when you sell a CFD over an underlying asset,
your CFD trading account will be debited with a similar amount,
which is paid to the counterparty.
Make sure you read the PDS and the terms and conditions of the
client agreement so you understand how and when dividend payments
are made to you and when you must pay them.
What's at stake for you?
The way a CFD provider operates - and the terms and
conditions of a particular client agreement - can have
- For example, people who trade CFDs have reported problems with
some trading platforms that are currently available, including
delays in the execution of buy and sell orders. This means market
conditions might change and you could lose out.
- Even if you're thinking of accessing a trading platform via
mobile phone, remember that mobile phone connections to the
internet are notoriously slow and prone to connectivity issues.
Don't be fooled into thinking that trading on your mobile phone
will make trading easier.
- Check what the CFD provider will do in the event of a margin
call. Margin calls can be very stressful events and often you are
only given a short amount of time to transfer extra money to cover
the margin call. If you can't quickly transfer extra funds, the CFD
provider may automatically close ('liquidate') your open CFD trades
to prevent losses escalating, although you will still be liable for
any losses incurred.
- CFD providers often reserve discretion to liquidate your trades
without warning if your CFD trading account is in deficit. If the
CFD provider keeps your trades open, even when they have run into
losses that cannot be met by your margin, you will lose more money
than if the trades had been liquidated.
Before you sign any agreement, ask the CFD provider to clarify
their policy and procedures on these important points.
For details about ASIC's disclosure benchmark on margin calls
for OTC CFD providers in Part 3.
Trading CFDs is time consuming and requires significant
research, diligence and patience.
Regardless of how you trade CFDs, it's important to understand
the features and risks of the product before you trade. A good
place to start is the Product Disclosure Statement (PDS). But make
sure that the PDS is up-to-date:
- For ASX exchange-traded CFDs, check with the broker that the
ASX has authorised them to deal in these CFDs, or contact the ASX
- For OTC CFDs, check with the CFD provider that the PDS is
current and ask if they have issued any supplementary disclosure
information. Also check if the provider meets ASIC's 7 disclosure benchmarks and if they do not
meet a benchmark, the explanation of why not.
You should also read closely the terms and conditions of any
client agreement to trade CFDs and any other relevant information
on the CFD provider's website.
Some CFD providers issue many documents, including the mandatory
PDS and a Financial Services Guide (FSG). Certain providers will
take some or all of these documents as forming part of the terms
and conditions of their agreement with you. This might mean that
the rights and obligations set out in some or all the disclosure
documents will determine your rights and obligations when dealing
with the CFD provider.
What information is
available through the CFD provider's website?
All CFD providers put information about CFDs on their websites.
The PDS and any other disclosure information on the CFDs should
also be available on the website, although this information can be
difficult to locate. If you cannot easily find the information you
need, contact the CFD provider.
Information about ASX exchange-traded CFDs can be found on the
websites of brokers that the ASX has authorised to trade these
CFDs, and on the ASX website.
What information is provided at seminars?
CFD providers often hold free seminars to promote their
products. You might see advertisements for these seminars on a
provider's website or on television or in the financial press. CFD
providers promote these seminars as 'information' or 'education'
The information provided at these seminars does not always give
you a complete picture about how difficult and time consuming
trading CFDs can be. This information is also unlikely to fully
reflect the risks involved in trading CFDs, including margin calls,
counterparty risks (especially for OTC CFDs) and technical issues
with trading platforms.
As part of your research strategy, carefully assess the
information you receive from CFD providers and ask them for more
information and clarification if necessary. Avoid being drawn in by
any promotional deals offered to attract clients, such as mobile
phones or other benefits given for signing up on the spot (see 'Tips and traps' for more about promotions).
Above all, never rely solely on the information provided at a
seminar to make a decision about trading CFDs. The presenters at a
seminar do not know anything about your financial situation or
goals. They are not in a position to recommend CFDs to you. It is
up to you to check the PDS and do your own research before deciding
to trade CFDs.
What about recommendations from family or friends?
If you are thinking about trading CFDs, don't rely on
word-of-mouth from family or friends. Just because a family member
or a friend has successfully traded CFDs does not mean that you
will have the same experience.
CFDs are not an investment like shares. You do
not buy and sell a CFD in the same way that you would a share.
While it might be tempting to trust your family, friends or
colleagues, it is always preferable to do your own research about
Why is the PDS important?
The PDS from the CFD provider contains important information
that you must read and understand before deciding to trade CFDs,
either over-the-counter or through an exchange.
The PDS tells you how the particular CFDs work. It should tell
you everything you need to know about the CFD provider and the
trading platform they use. It should also tell you about the risks
of trading CFDs and the terms and conditions of the client
The PDS should explain the key features and risks of trading
CFDs and, for OTC CFDs, give you information about certain
indicators or disclosure 'benchmarks',
which can help you assess the risks of OTC CFDs.
Some people find the PDS hard to read and understand. It is very
important that you carefully read all the sections of the PDS that
- the CFD provider's business model and trading platform
- for OTC CFD providers, whether they meet ASIC's 7 disclosure
benchmarks, and if they do not, an explanation of why not
- the underlying assets you can trade
- fees and charges (including interest)
- how the CFD provider handles counterparty risk
- trading strategies such as gapping and stop losses
- the CFD provider's policy on margin calls and liquidation
- dividend payments
- how the CFD provider handles client money, and
- complaint and dispute procedures.
You should check that you can find all of this information
prominently displayed in the PDS.
A 'PDS in-use' notice must be lodged with ASIC before a PDS can
be used by the CFD provider. However, this does not mean that ASIC
has checked or endorsed the product or the CFD provider in any
How to read a PDS and other
Highlighted below are the most important issues to check in a
PDS or other disclosure document, with an explanation of what to
look for and some things you should consider.
PDSs and other disclosure documents for CFDs vary widely
depending on the CFD provider. This is only an indication of the
important information to look for.
||What to look for
||Things to consider
The PDS should state clearly who the provider is-that is, the
company providing (or 'issuing') the CFDs. A company will sometimes
offer CFDs created by another company (known as
- Which company is actually providing the CFDs?
- Is there enough information about the history, performance and
financial strength of the provider?
Key product features
The PDS should explain how CFDs work, what CFD products the
provider offers, and how they operate. It should also summarise key
product features such as minimum account balance, minimum trade
size, trading hours and so on. The provider may also discuss what
they see as the key benefits of trading their products.
- Does the provider offer CFDs as a market maker or by direct
market access, or do they offer ASX exchange-traded CFDs?
- What discretions does the CFD provider have (for example, in
accepting trades or quoting prices)?
- Do the potential benefits of trading CFDs outweigh the risks
OTC CFD providers should address the benchmarks on an 'if not,
why not' basis to help you understand the risks.
- Does the provider meet each benchmark?
- If not, do they explain why and say how they deal with this
risk in another way?
- Are you satisfied with how the provider deals with this
The PDS should clearly explain the risks involved in trading
CFDs. It should also explain any specific risks that apply to the
particular type of CFDs the provider offers. These risks include
the risk of losing all of (or more than) the money you put in, the
risk of margin calls, liquidity risk and counterparty risk.
- Do you understand all the risks that are discussed?
- Are there any strategies that can be put into place to manage
- If a worst-case scenario happened, could you cope with losing
much more money than you invested?
Fees and charges
All CFD providers charge you to trade CFDs on their trading
platform. Fees and charges may include:
- commissions on trades
- interest and financing charges
- rollover charges
- interest charges applied to debit balances in your account
- exchange fees
- guaranteed stop-loss premiums
- data and software fees
- account keeping fees
- administrative charges.
- Do you know which fees are compulsory and which can be
- Do you have to pay data and software costs even if no trades
- Are there any account inactivity fees?
- Are there any fees for transferring money in or out of your CFD
Types of accounts
You must open an account with a CFD provider if you want to
trade CFDs. The PDS should explain the different types of accounts
offered and the process for opening an account.
|Does the CFD offer an account type that suits
CFD providers allow you to execute trades on their trading
platforms, usually by placing orders over the phone or online using
the provider's trading platform software. The PDS should explain
how you can make trades.
- Do you understand any discretions the CFD provider has?
- Do you know how to track trades and open CFD positions?
- Are there are any circumstances where the provider will close
their CFD market?
Types of orders
The PDS should outline the different types of orders the CFD
provider offers. These may include 'market orders', 'limit orders',
'contingent orders', and stop-loss orders. The PDS should also
explain whether the CFD provider offers both long and short orders
and in what circumstances.
- Do you understand the different types of orders?
- What are the costs for different orders?
- Is it possible to change or cancel orders after they have been
placed? What are the costs?
- If the CFD provider offers stop-loss orders, are they
- Do you understand how to close out your position on a CFD?
How the CFD provider can and cannot deal with your money is
regulated by law. The PDS should make it clear how the CFD provider
complies with these requirements.
- Does the CFD provider clearly explain what they will and won't
do with your money?
- What are the implications of their policies for you?
- Will you be affected if other clients suffer losses they cannot
CFD providers may require different levels of margin depending
on the CFD or account type.
- What are the margin requirements for the CFDs
to be traded?
- Can the margin requirements change after a trade is
The PDS should explain what the CFD provider's processes are for
making a margin call, including whether they will contact you
directly about the margin call, how long you will have to meet the
margin call, and any other discretion they have to close out your
trades if a margin call occurs.
- Do the CFD provider's policies on margin calls suit you?
- Will you have extra money available if you need to cover a
- What might you risk if you can't find the money (for example,
would you be putting other assets, such as your house, at
The PDS should explain how the CFD provider handles client complaints and disputes.
|Are the CFD provider's processes for dealing with
client complaints fair and clearly explained?
The PDS should explain the tax implications of trading CFDs
|Have you sought professional advice about the
specific tax implications for you of trading CFDs?
ASIC's 7 disclosure benchmarks for OTC
ASIC has developed 7 benchmarks to help you assess the risks of
trading over-the-counter (OTC) CFDs. Each provider of OTC CFDs
should state in their PDS whether or not they meet each benchmark.
If a provider does not meet a benchmark, they should explain why
not, allowing you to decide whether you're comfortable with the
explanation. OTC CFD providers should disclose the additional risks
to you and describe any alternative strategies they have in place
to deal with these risks. You should find this information in the
first few pages of a PDS. An OTC CFD provider should also update
you about any significant changes to this information over time
(through ongoing disclosure). Ask your provider whether they will
provide regular updates about their disclosure against benchmarks,
and where you can find this information.
Here's how you can use ASIC's benchmarks to assess the risks in
- Look for information about each benchmark in the PDS.
- Check if the provider meets the benchmark.
- If a benchmark is not met, does the provider explain why and
say how they deal with this risk in another way?
- Are you satisfied with how the provider deals with the
- If not, are you willing to risk your money trading these
ASIC's 7 disclosure benchmarks for over-the-counter CFDs
These benchmarks are designed to help you:
- understand the risks of OTC CFDs, and
- decide whether to trade OTC CFDs.
Quick links to benchmarks:
Remember: Even if an OTC CFD provider meets all
the benchmarks, you could still lose some or all of your money if
things go wrong. The benchmarks are simply designed to help you
understand the risks and make a decision about whether to trade OTC
Take your time and think things over before you trade OTC CFDs.
Get professional financial advice if you're unsure what to do.
1. Client qualification
To meet this benchmark, an OTC CFD provider should have a
written policy explaining the minimum criteria you need to meet
before you can open a CFD account. They should outline how and why
you will be stopped from opening an account if you don't meet the
criteria. Providers should also keep written records of client
Qualification assessments may include online tests, face-to-face
meetings or telephone interviews. You should also be offered a
'practice account' so you can try trading OTC CFDs without using
real money. A provider's PDS should clearly explain their
qualification policy and that, because of the risks, CFD trading is
not suitable for all investors.
What's at stake for you?
Qualification assessments can help you decide whether OTC CFD
trading is right for you, and whether you understand the features
Even if you meet the criteria, CFDs remain complex and risky
products that are unlikely to meet the investment needs and
objectives of most retail investors. The qualification assessment,
meeting or interview is not personal financial advice, and you
should not solely rely on it when making your decision.
If you are assessed and do not meet the qualification criteria,
you should not trade CFDs.
2. Opening collateral
To meet this benchmark, an OTC CFD provider must only accept
cash or cash equivalents, or credit card payments under $1000, from
individuals opening CFD accounts.
A provider's PDS should explain the forms of money they accept
as opening collateral. If non-cash assets (such as property or
shares), or credit card payments above $1000, are accepted, the PDS
should say why and explain the additional risks to you.
What's at stake for you?
If you open a CFD account using money other than cash, your
risks may be higher. For example, using borrowed money (including
credit card debt) to trade CFDs which are already 'leveraged'
products, may increase your risks and potential debts.
If you don't have enough cash or money in your bank account to
start trading CFDs, and you use your credit card instead, you may
be less able to cover future CFD losses.
3. Counterparty risk −
To meet this benchmark, an OTC CFD provider should have a
written policy explaining how they manage (or 'hedge') their market
risk. The policy should explain how they select the companies they
deal with ('hedging counterparties'), and make their identities
available to you.
A provider's current hedging policy should be displayed on their
Providers should also give a clear explanation of the
counterparty risk associated with OTC CFDs.
What's at stake for you?
If a CFD provider does not hedge its risks, and bears too much
risk itself, your risks are increased.
It's important to understand the financial standing of both the
CFD provider and their hedging counterparties because this may
affect the safety of your investment.
If a provider owes you money but defaults on their obligations
and goes into liquidation, you will become an unsecured creditor in
the winding up of the provider. This means you may not get some or
all of your investment back.
For more information about counterparty risk, see Part 1.
risk − Financial resources
To meet this benchmark, an OTC CFD provider should have a clear
policy on maintaining adequate financial resources. It should tell
you how they monitor compliance with their financial licence
conditions and how they 'stress-test' their ability to withstand
significant adverse market movements.
A provider's PDS should explain this policy, and the latest
audited annual financial statements should be available to you
either online or as an attachment to the PDS.
What's at stake for you?
If a provider has insufficient financial resources, they risk
not being able to meet their obligations to you and other
investors, and may need to use client money to meet their
obligations. This increases risks for investors.
For more information about counterparty risk, see Part 1.
5. Client money
An OTC CFD provider should maintain and apply a clear policy on
the use of client money, including whether they use money deposited
by one investor to meet the margin or settlement requirements of
If a provider's policy allows them to use money deposited by one
client to cover money they are owed from another (including margin
or settlement requirements), this practice and its additional risks
should be clearly and prominently explained.
What's at stake for you?
Your risks are increased if all client money is pooled, and if
money owing to you can be used to cover another customer's margin
or settlement requirements. If a provider goes out of business
while the pooled account is in deficit, you may not receive all of
your money back.
For more information about client money risk, see Part 1.
6. Suspended or halted
To meet this benchmark, an OTC CFD provider should not allow you
to open new CFD positions when ordinary trading in the underlying
assets, such as shares, has been suspended or halted.
A provider should clearly explain their approach in the PDS. The
additional risks of opening new CFD positions when underlying
assets are suspended or halted should also be explained.
What's at stake for you?
If you are able to open new CFD positions when underlying assets
are suspended or halted, your risks are increased. These risks
include the possibility that you will make trades without having
all the information you need, or that you may trade CFDs at a price
that doesn't reflect the value of the underlying asset.
7. Margin calls
To meet this benchmark, an OTC CFD provider should maintain and
apply a clear, written policy about its margining practices, and
how they will monitor your account to ensure you receive early
notice of when you are likely to enter into a margin call. They
should explain the rights they have in relation to your account,
and the factors they will take into account before making a margin
call or closing out your position.
A provider should notify you through a pre-agreed method (for
example, phone message, email or SMS) before closing out your CFD
A provider's PDS should clearly state that trading CFDs involves
the risk of losing substantially more than your initial
What's at stake for you?
You should read and understand the provider's policy on margin
calls. There is a reasonably high chance that CFD trading will
result in a margin call, because small movements in the price of
underlying assets may lead to large changes in the value of your
CFD position. When this happens, the provider is likely to make a
margin call, or close out your position, to limit their exposure
and your potential losses. You need to understand the impact on
your investment position and your obligations if the provider makes
a margin call.
For more about margin calls, see Part 2.
CFD providers are increasingly promoting their products to
Australian investors on websites, in the financial press, on
television and in free information or education seminars.
If you are interested in trading CFDs, you need to evaluate any
promotional material very carefully, especially advertisements and
information provided at free seminars.
Here are some tips and common traps.
Trial the CFD provider's trading platform before signing
There are many CFD providers operating in Australia and they
each have a unique CFD trading platform.
CFD trading platforms are not perfect systems. People who trade
CFDs often experience technical problems that negatively affect
their trading (for example, delays in executing orders during which
time the market has moved).
Some CFD providers allow you to open a trial account for a
limited time. These trials should be cost-free and obligation-free.
This can be a good way of gaining an understanding of the general
logic and process of trading CFDs on an online trading
If you trial a platform, remember that you are not trading in
real-life conditions. You are likely to take greater risks because
you know you are playing a game and are not risking any real
However, if you take the game seriously, observe and study the
way the trading platform works or doesn't work and take note of
your own behaviour.
If you don't enjoy the trial experience, it is probably safe to
assume that you will not enjoy the real thing. If you consistently
fail to make any gains in the trial runs, think carefully about
whether you are likely to do better with the real thing.
Make sure you have the time and money to trade CFDs
Trading CFDs is not a passive activity.
People who trade CFDs say that trading takes a lot of time and
concentration and that they underestimated the amount of time that
was required to trade, monitor trades and maintain their
Given that you are potentially putting very high amounts of your
own money at stake when trading CFDs, you can't afford to be casual
Unlike betting, the potential for losses in trading CFDs is far
greater than your initial stake. When you place a bet on a horse,
you can only ever lose the amount of money you put on the bet. With
CFDs, you can lose much more than you put in because you have to
pay for any losses which exceed the margin you put up.
While most people can meet margin calls of $100, ask yourself if
you could meet a margin call of $1,000 or $10,000, or even $100,000
on bad trades.
Do your homework
CFDs are complex and high-risk products.
Even highly skilled and knowledgeable traders with extensive
experience (not just with CFDs but also with the underlying
assets of CFDs) usually only trade CFDs as one part of their
investment portfolio, often to hedge their bets across a range of
investment options. As well as understanding CFD trading
strategies, they also have the time and resources to keep close
watch over the market.
Unless you feel confident that you have the time and patience to
build your knowledge and skills over a long time before taking any
risks, CFDs may not be the best product for you.
Don't fall for pressure selling or promotional gimmicks
You should never sign up to trade CFDs unless you have read and
understood the PDS and other disclosure documents, and preferably
only after you have seriously trialled a CFD trading
Often CFD providers will promote their products with seductive
language at free seminars and on their websites. Some CFD providers
may focus only on the benefits of trading CFDs, and may even claim
that trading CFDs is easier and more rewarding than trading
You should never feel obliged to sign up to trade CFDs, no
matter how much time and effort the CFD provider has put into
explaining their product and trading platform to you. You have no
obligation to sign anything at any time.
As part of their marketing, CFD providers will often offer gifts
or limited deals to attract new clients. In the past, some CFD
providers have offered mobile phones or gadgets. Similarly, they
might offer you a discount on some fees and charges for a limited
period if you sign up with them immediately.
CFDs are complex products with high risks. They are a serious
business with potentially very high stakes. When confronted with
the opportunity to gain a free gadget or discounted fees and
charges for a limited time, think carefully about the real benefits
of such upfront offers. They may cost you more than you ever
Misleading advertising? Hard sell?
Have you come across an advertisement for a financial product
that you think is misleading?
Or have you been pressured by a sales person to make a decision
when you didn't have enough information, or weren't sure that the
product was right for you?
Go to MoneySmart for some strategies to help
you resist pressure selling. Make sure you don't end up investing
in a financial product that doesn't suit your needs.
Under the law, you have the right to complain if you are not
happy about any aspect of a financial product or service including
a bank, building society or credit union account, insurance policy,
superannuation, investments or any financial advice you
Go to MoneySmart to find out more. You can lodge a
formal complaint online or phone ASIC on 1300 200 630.
All CFD providers must also be a member of an ASIC-approved
external dispute resolution (EDR) scheme. The EDR scheme for
financial services complaints is:
- Australian Financial Complaints Authority (AFCA) - www.afca.org.au or phone 1800
Last updated: 21 Nov 2018