Learn what bid prices mean and what they do in CFD trading

Best Binary Options Brokers 2021:
  • EvoTrade

    The Best Broker! Try it and get a 10 000 $ bonus!

  • NS Broker
    NS Broker

    5000$ bonus to each trader!


    Best Options Broker 2020!
    Great Choice For Beginners!
    Free Trading Education!
    Free Demo Account 1000$!
    Get Your Sign-Up Bonus Now!


    Only For Experienced Traders!


Compare CFD trading platforms in Australia

Compare fees and trading software to find the best CFD broker for you.

Last updated: 19 March 2020

  • AvaTrade
  • City Index
  • easyMarkets
  • eToro
  • FP Markets
  • FXCM
  • GO Markets
  • IC Markets
  • IG
  • InstaForex
  • Pepperstone
  • Plus500
  • Saxo Capital Markets
  • TradeDirect365
  • Vantage FX

Get exclusive money‑saving offers and guides

Straight to your inbox

If you’re an experienced trader or just curious about the industry, chances are you would have heard of contracts for difference (CFD) trading. CFDs are derivative investment products where a trader can speculate on the price movements of stocks, commodities or market indices.

Because you’re trading a contract, rather than owning the underlying asset, CFD traders can profit regardless of whether prices are going up or down. For that reason, CFD trading often becomes more popular during times of market volatility, as traders seek to profit by ‘shorting’ the market when it falls.

Plus500 CFD Trading Offer

Finder exclusive offer: Open a new trading account with Plus500 and receive a welcome bonus of AU$110 when you deposit your first $370 and enter the code “Special200”. T&C’s apply.

Access more than 2000 financial instruments with a Plus500 trading account including share market CFDs, forex, indices and commodities. Pay no sign up fees, no ongoing subscription fees and no commission on trades.

Compare CFD trading accounts

What is a CFD?

A contract for difference (CFD) is an agreement based on an underlying asset or financial instrument such as a share, commodity or currency pair. In the contract, you can decide if you believe the underlying asset will increase or decrease in value between the time the contract was initially opened and when it is closed.

It’s important to understand clearly from the outset that at no point do you own the underlying asset itself, nor are you trading the underlying asset either. You own the CFD, or contract, which is provided to you by the CFD provider.

Why trade CFDs?

  • CFDs allow you to speculate on thousands of financial products and global markets which you may otherwise be unable to access.
  • You can go long or short, hence you can benefit in both rising and falling markets.
  • You can usually access free demo accounts, plus charts and trading tools through your broker.
  • Unlike other types of derivatives, CFD contracts don’t have a fixed expiry date, meaning you can close out your position (in other words, end the contract to realise a profit or loss), when you decide.

How to select the best CFD trading platform

The CFD broker you chose will very much depend on your trading style and what instruments or assets you prefer to use. If you’re looking for the best online platform or app for you, consider the following:

  • Available markets. Does the broker offer forex, gold, silver, cryptocurrency, stock market indices, global stock CFDs, ASX200 CFDs
  • Direct share CFDs. Not all brokers offer CFD trading on shares, and some that do charge an additional subscription fee to access them
  • Currencies. If you’re looking to trade forex, check whether your preferred pairings are being offered
  • Commission fees. There’s often a brokerage fee charged when trading stock and stock index CFDs, check it’s not too high
  • ASX live data. Does it charge a fee to access live stock market data from the ASX and other stock market indices?
  • Minimum opening balance. Some brokers require a high minimum opening balance before you start trading – consider trialling the demo version first if it has one
  • Platforms and software. Which trading platforms do they offer and can you add-on software or analytics tools such as PsyQuation?
  • Other types of trading. Do you also want to invest directly in shares, ETFs, forex or managed funds?

What can you trade with CFDs?

Some of the most common markets you can access with CFDs are shares, indices, commodities like oil or gold, metals like copper and forex in the form of currency pairs.

However, you’re not limited to these. CFDs allow you speculate on many more markets like bitcoin and other cryptocurrencies, government bonds and even big events such as national elections. If you want to trade CFDs, you need to fully understand how the CFD itself works as well as the underlying asset. If you have no experience trading shares, for example, it may not be a good idea to buy a shares CFD.

What are the risks?

CFDs are extremely risky, complex products and are ideally only suited to very experienced financial traders. Here are some of the potential risks that you should know about before deciding if CFD trading is right for you.

Best Binary Options Brokers 2021:
  • EvoTrade

    The Best Broker! Try it and get a 10 000 $ bonus!

  • NS Broker
    NS Broker

    5000$ bonus to each trader!


    Best Options Broker 2020!
    Great Choice For Beginners!
    Free Trading Education!
    Free Demo Account 1000$!
    Get Your Sign-Up Bonus Now!


    Only For Experienced Traders!

  • CFDs are complex. CFDs are very intricate and confusing products. Even if you have a general understanding of what a CFD is, this doesn’t mean you’re ready to start trading CFDs.
  • You can lose more than your initial capital. If you gamble on the pokies, the most money you can lose is the amount you put into the pokie machine. This is not the case with CFDs. If you lose a CFD trade you can lose much more money than you started with, meaning you actually owe the CFD provider money, sometimes hundreds of thousands of dollars.
  • You don’t own the underlying asset. When trading CFDs all you own is the contract between you and the CFD provider. Therefore you can’t benefit from the capital growth of the underlying asset over the long term.
  • CFDs depend on how the market performs. Even though you don’t own the underlying asset, CFDs are still affected by market conditions. This can increase risks even more in a volatile market.

How to decide if CFDs are right for you

Due to the complexity and high level of risk involved, CFDs will not be suitable for the vast majority of traders. CFDs could be right for you if you:

  • Are an experienced trader
  • Have a strong understanding of not only CFDs but many financial products and markets
  • Possess a high tolerance to risk, and are not at all risk-averse
  • Can afford to lose quite a bit of money (it’s not guaranteed that you will, but you need to be comfortable you can afford to lose if you did)
  • Have some level of legal expertise to understand the complexity of CFDs
  • Are not interested in owning the underlying assets
  • Understand the measures available to minimise your risk and are experienced using these tools, for example stop-loss orders
  • Have conducted plenty of research – trading CFDs is not a decision that should be taken lightly

Ready? Compare CFD trading accounts now.

Wait, I still have more questions!

What’s the difference between investing in shares and trading in CFDs?

When you trade CFDs, you never own the actual underlying asset; instead, you bet on its price movements. In short, what you actually purchase is a contract. When you invest in shares, however, you buy and sell the shares themselves.

What underlying assets can I buy or sell CFDs on?
  1. Some of the underlying assets that you can trade CFDs on include Australian and international shares, indices, commodities, foreign exchange and treasuries.
I’m a casual investor – should I start trading CFDs?

Trading CFDs is not recommended for casual investors. Because of the specialised knowledge required and high level of risk involved, this type of trading is best left to expert investors.

But I can only lose the money I invest, right?

Wrong. Because you are trading with leverage, it’s possible to end up losing significantly more than your initial investment amount.

How do I know which CFD trading platform is right for me?

The best way to find a good trading platform is to do plenty of research. As well as right here at finder.com.au, you can find plenty of useful information on blogs, forums and the websites of individual providers. Examine the features and benefits each trading platform offers and open a demo account if possible to try before you buy.

Will a CFD education seminar teach me everything I need to know?

While you can certainly learn useful information at a training seminar run by a reputable financial or training organisation, attending a course is by no means all you need to fully prepare you to trade CFDs.

I’m looking for a steady investment – is this something trading CFDs offers?

No, CFD trading is risky and far from a steady investment option. If you’re looking for safe and secure returns on your money, consider other investment opportunities.

I’ve read about ASX exchange-traded CFDs – what are they?

ASX exchange-traded CFDs are CFDs that are listed on the Australian Stock Exchange (ASX). With terms and conditions set by the ASX, these are slightly less risky to trade than other CFDs and can be traded through brokers that have been authorised by the ASX. Note that these are no longer offered by the ASX, as of 2 June 2020.

Will I receive dividends?

When you buy shares in a company you are usually entitled to dividends, and although trading CFDs means you never actually purchase shares, you can still take advantage of some of the benefits of ownership. When you buy a CFD, your trading account will be credited with a certain amount of money that reflects the dividend amount an ordinary shareholder would receive. When you sell a CFD, your account will be debited a similar amount which will be paid to the counterparty.

Is there a minimum investment amount?

No, there is no real minimum limit when you trade CFDs.

How do I trade?

The exact process for buying and selling CFDs will vary depending on the trading platform you choose. Contact your trading platform operator for detailed information and instructions.

Is there a minimum deposit amount to open an account?

Yes there is, but this differs between trading platforms. A commonly quoted minimum limit is $5,000.

CFD Trading:
What is it
and how does it work?

Understand the mechanics and advantages of trading CFDs

Trading is risky. Your capital is at risk.

What are CFDs?

CFDs are popular financial instruments which are key components of a trader’s portfolio. However – and particularly for traders at the start of their trading journey – it can be difficult to fully understand the advantages and disadvantages of investing in and trading CFDs.

For that reason, FXTM has created a guide to CFDs, answering the big question, ‘what is CFD trading?’ In this guide, we will be taking a balanced look at trading CFDs, giving you access to all the information you need to decide whether it’s the right instrument for you, and how these assets can be tailored to suit your trading style.

Contracts for Difference

The term CFD stands for contract for difference which are a type of trading instrument and a popular gateway for investors to enter the financial markets. They are offered by brokers alongside other types of common assets like forex, commodities and spot metals. Unlike these however, CFDs are a form of derivative trading. This means that they derive their value from the movement of an underlying asset.

Engaging in a Contract

When traders choose to trade CFDs, it means that they are engaging in a contract between themselves and the broker. The trader – the “buyer” – and the broker – the “seller” – agree to a contract which speculates on the price of an asset in market conditions. While the trader speculates on financial instruments, it is important to note the main distinction between CFDs and traditional trading:

CFDs allow traders to trade price movements without actually owning the underlying asset. By not owning the underlying asset, CFD traders can avoid some of the disadvantages and costs of traditional trading.

What is CFD Trading?

So, how exactly does this contract work? Essentially, profit and loss are calculated by looking at the difference in price between when a contract is entered and when it is exited. That means that the broker – or ‘seller’ – who enters into this contract with you will pay you the difference between the price at the beginning of the contract and the price at the end. If a loss is made, the trader – “buyer” – will pay the broker the difference.

The key calculation to work out your profit or loss is: the difference between the price at which you enter and the price when you exit, multiplied by your number of CFD units. CFDs are available across a huge range of markets. With FXTM for example, CFD traders can choose from CFDs on shares, indices, commodities and cryptocurrencies, and enjoy several advantages over trading these instruments directly. To find out more about the individual CFDs on offer, you can visit FXTM’s detailed contract specifications page.

Find out about the advantages of trading CFDs in our video:

Trading is risky. Your capital is at risk.

How to Trade CFDs

Trading CFDs with an experienced broker is a simple process. Once you have opened your trading account, you’re just a few steps away from selecting your instrument and starting to trade. Don’t forget – you can always try out your CFD trading preferences using a Demo account to ensure you’re comfortable with your chosen instrument before you enter the live markets.

Choose your instrument

Between share CFDs, cryptocurrency CFDs, index CFDs and commodity CFDs, choosing your underlying asset is an important choice. Not sure which to choose? Check out our beginner’s guides to forex and forex trading for a broad overview of the underlying assets you can choose from. Alternatively, discover which markets are hitting the headlines by following the latest market analysis reports and videos.

You can discover the particular specifics of each CFD by visiting a broker’s contract specifications page, where you can find out about instrument leverage specifics and competitive trading costs.

Choose your position

Once you’ve decided what kind of CFD you’re going to trade, it’s time to decide on your position. Put simply, if you think the price of your asset will go up you can open a long position (buy), or if you think the price will fall you could open a short position (sell).

To decide what kind of trade you want to open, you can use a broad range of indicators, charts and signals. To find out more about popular strategies and indicators, you can visit our forex strategies guide.

Next, choose the size of the position you want to open. The value of a unit of the CFD you’re trading will depend upon the instrument, so you should calculate the number of CFD units that can work best with your trading strategy.

Choose your platform

CFDs can be traded on the industry’s most popular trading platforms, including MetaTrader 4 (MT4) and MetaTrader 5 (MT5). These platforms are equipped with all the tools you need to trade CFDs, including over 50 technical indicators and charting tools. You can also trade on mobile apps, allowing you to keep track of your profits and losses in real-time, on-the-go.

CFD Trading Examples

Having established the key, basic calculation of working out your profit or loss with CFDs (the difference between the price at which you enter and the price which you exit, multiplied by your number of CFD units), let’s take a look at how this calculation can be applied in practise.

How Does CFD Trading Work?

If you think the price of General Electric stock will increase over time, you could buy CFDs on #GE with FXTM. The opening price is 31.36 and you buy one lot at this price, meaning that the notional value of your contract is $3,136.

To work out how your position has fared, you simply need to calculate the difference between the opening price and the closing price. If the closing price of General Electric stock is 31.94, for example, the difference is 0.58. This difference, multiplied by your number of CFD units, is how you calculate the profit or loss made on that particular trade.

CFD Margin and Leverage

Margin and leverage are important considerations when trading CFDs. One of the key advantages of CFD trading is that you only need to deposit a small percentage of the total trade value. FXTM CFD traders only require a margin starting from 3 percent. FXTM’s margin calculator is a useful tool to help you to manage your margin on the FXTM Standard account.

Leverage is higher with CFDs than with traditional trading. Traders use a smaller portion of their own capital when opening a position, which allows for potentially bigger returns. That said, it’s important to remember that leverage carries the same potential to increase losses as it does to boost profits. Traders can use the FXTM leverage and margin calculator to work out the specific requirements for every type of FXTM account.

CFD Markets

Enter the markets with FXTM to trade CFDs on a range of instruments. With FXTM you can trade:

Commodity CFDs

  • UK Brent oil (spot)
  • US crude oil (spot)
  • US natural gas (spot)

Indices CFDs

  • GDAX (Dax 30)
  • AUS200 (Australia 200)
  • ND100m (US Tech 100 – Mini)
  • UK100 (UK100)
  • SP500m (US SPX 500 – Mini)

Share CFDs

  • Amazon
  • Alibaba
  • Apple
  • Microsoft
  • American Express

Cryptocurrency CFDs

  • Bitcoin
  • Ethereum
  • Litecoin
  • Ripple

CFD Trading Accounts

FXTM have a range of trading accounts on offer for CFD trading. These are suitable for both beginner and advanced traders alike, and come with an array of competitive leverage and margin requirements. Discover more about each main account type below:

Standard Account

  • Tight floating spreads
  • Instant execution
  • Hedging allowed

Cent Account

  • Tight floating spreads
  • Instant execution
  • Fixed leverage 1:1000

Shares Account

  • 180+ US Shares
  • Fixed leverage 1:10
  • No commissions

ECN Zero Account

  • Tight floating spreads
  • No commissions
  • Floating leverage up to 1:1000

FXTM Pro Account

  • No commissions
  • Floating leverage up to 1:200
  • No last-look pricing

FXTM Demo Account

  • Trade with virtual money
  • Practise under real market conditions
  • Risk-free environment

Trading is risky. Your capital is at risk.

CFD Trading Platforms

MT4 and MT5 are complete with the latest charts and tools to help you advance your CFD trading strategy. With FXTM, you can use the industry’s most popular platforms to trade CFDs across shares, indices, commodities and cryptocurrencies.

MetaTrader is complete with updated tools to give you a smooth, user-friendly CFD trading experience. Discover how the latest features can improve your market understanding and analysis.

You can also trade from your mobile with FXTM Trader. This revolutionary investment app enables you to access the markets from the palm of your hand, wherever you go. Download today to manage your trades in seconds, view your trading accounts and access live currency rates.

Trading Tools

Expert Advisors

Expert Advisors are programmes which use algorithms to trade the markets. They respond to parameters you set to send out trading instructions on your behalf. This saves you time – you don’t have to manually open, modify or close your position on an asset. It’s another way that the MetaTrader platform makes it possible to fit online trading into a busy schedule.

Economic Calendar

The economic calendar is an indispensable tool for fundamental analysis. The tool displays over 500 indices and economic events clearly on the price chart. Macroeconomic indicators are updated in real time, meaning that you can keep your finger on the pulse of the markets at all times.

Strategy Tester

The Strategy Tester allows traders to evaluate their trading strategy and optimise the platform’s Expert Advisors. The tool can test over 40 characteristics and issue a comprehensive report.

Analytical Tools

Traders can choose from an expanded selection of 46 objects including Gann, Fibonacci and Elliott Wave tools.

History of CFD Providers

CFD providers give traders access to the online markets with varying margin requirements, account types and trading platforms. CFD providers are a fairly modern invention – the instrument has only been available to retail clients since the late 1990s. However they quickly picked up momentum. Online CFD providers opened the door to a host of new possibilities for traders, including adding derivatives to their portfolio. Today the London School of Economics estimates that CFD trading accounts for more than a third of all stock market trades in the UK.

Choosing a CFD Broker

When it comes to choosing a broker to trade CFDs with, it’s important to make the right choice. Traders should look for brokers who are regulated, secure and experienced, including award-winning brokers like FXTM. There are certain attributes which set FXTM apart from the crowd:

Advantages of Trading CFDs

CFDs are chosen by investors due to the wide range of advantages associated with the contracts. By not owning the underlying asset, traders can avoid several of the costs associated with traditional trading.

Higher leverage

Brokers typically offer CFDs with higher leverage than other traditional financial instruments. FXTM offers a leverage up to 1:1000* which can boost traders’ potential profits. The lower margin requirements of CFDs mean that potential returns of greater overall – however, traders should bear in mind that leverage can, of course, boost losses as well as profits.

Go long and short

CFDs grant traders the ability to go both long and short on instruments. Since the underlying asset isn’t actually owned, traders have greater flexibility and can shorten CFD trading instruments without worrying about additional costs.

Range of trading opportunities

Most brokers offer CFDs on a wide range of markets. Trading CFDs, you can enter the commodity, indices and cryptocurrency markets with FXTM – and enjoy the opportunities and advantages associated with each.

Disadvantages of Trading CFDs

While there are many benefits of CFDs, there are drawbacks that traders should bear in mind when deciding on their trading instrument.

Spread payments

Although CFDs spare traders from many of the costs of traditional trading, CFD traders are required to pay the costs of spreads. CFD traders have to pay the spread on entry and exit positions, meaning that it’s potentially harder to make small profits. The spread cost must be factored in to the calculated profits and losses resulting from CFD trading.


CFDs do not come without risks. Trading these instruments can be risky and fast-paced, and traders should be careful to have a thorough risk-management strategy in place. Placing stop-loss orders can potentially help to minimise potential losses, but do not eliminate the risks altogether.

How Are CFDs Taxed?

With regards to tax, there is no stamp duty to pay on CFDs since the underlying asset isn’t owned. However, capital gains tax still applies. Overall, tax represents one of the areas that CFDs save traders costs compared to traditional trading.

What makes a CFD trader successful?

What makes a CFD trader successful? At FXTM, we believe that a successful trader is an educated trader. Traders who gain a solid understanding of the markets and create a thoroughly researched trading strategy are likely to be more prepared to take on the live markets. That’s why it’s important for traders to make the most out of educational resources to help them build their own personalised trading strategy. It’s particularly important to create a strategy in order to minimise the impact emotions have on important trading decisions.

Take a look at FXTM’s free educational resources here.

CFD Trading Strategies

There are several popular strategies to bear in mind when trading CFDs.

Swing trading strategy

With swing trading you’re looking at assets that will likely have short-term price moves you can exploit. Leaving your position overnight attracts more risk because of the potential for unexpected events to affect the market while your attention is elsewhere. Find out more.

Day trading strategy

As the name suggests, day traders open and close trades over the course of the day, usually holding positions for only a few hours. Day trading removes the risk that occurs when you leave a position open overnight. Find out more.

Scalping trading strategy

Scalp traders target intraday price movements and aim to make very small, very frequent profits. They typically only hold positions for a few seconds or minutes and exploit small opportunities while they trade with the prevailing trend. Find out more.

Trade CFDs with a global, award-winning broker. Open your account today.

Trading is risky. Your capital is at risk.

*Leverage is offered based on client’s knowledge and experience

More about FXTM
FXTM Promotions & Contest
Media Corner
Policies & Regulation
FXTM Sponsorships

FXTM brand is authorized and regulated in various jurisdictions.

ForexTime Limited (www.forextime.com/eu) is regulated by the Cyprus Securities and Exchange Commission with CIF license number 185/12, licensed by the Financial Sector Conduct Authority (FSCA) of South Africa, with FSP No. 46614. The company is also registered with the Financial Conduct Authority of the UK with number 600475.

ForexTime UK Limited (www.forextime.com/uk) is authorised and regulated by the Financial Conduct Authority with license number 777911.

Exinity Limited (www.forextime.com) is regulated by the Financial Services Commission of the Republic of Mauritius with an Investment Dealer License bearing license number C113012295.

Card transactions are processed via FT Global Services Ltd, Reg No. HE 335426 and registered address at Tassou Papadopoulou 6, Flat /office 22, Ag. Dometios, 2373, Nicosia, Cyprus. Address for cardholder correspondence: [email protected]

Exinity Limited is a member of Financial Commission, an international organization engaged in a resolution of disputes within the financial services industry in the Forex market.

Risk Warning: Trading Forex and Leveraged Financial Instruments involves significant risk and can result in the loss of your invested capital. You should not invest more than you can afford to lose and should ensure that you fully understand the risks involved. Trading leveraged products may not be suitable for all investors. Before trading, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary. It is the responsibility of the Client to ascertain whether he/she is permitted to use the services of the FXTM brand based on the legal requirements in his/her country of residence. Please read FXTM’s full Risk Disclosure.

Regional restrictions: FXTM brand does not provide services to residents of the USA, Mauritius, Japan, Canada, Haiti, Suriname, the Democratic Republic of Korea, Puerto Rico, the Occupied Area of Cyprus. Find out more in the Regulations section of our FAQs.

What is CFD Trading? How to Trade CFDs in 2020

The trading of Contract for Difference (CFD) assets is now a popular feature on many forex trading platforms. A CFD is a derivative contract which is based on the differences in the price of the underlying asset over time.

The buyer of the CFD hopes to profit if the price at which the contract ends is higher than the price at which he/she bought the contract.

The seller of the CFD hopes to gain if the price at which the CFD asset is sold is higher than the price at which the contract ends. In all CFD transactions, no physical exchange of the asset is carried out between the dealer and the trader.

On this Page:

What are the pros and cons of CFD trading?


    Can be used as a hedge against your holdings in the money, share stocks, and commodity markets CFD Trading makes it possible for a trader to benefit from rising and falling markets by going long or short selling Order execution on most technologically advanced CFD trading platforms is instantaneous whereas it may take traditional stockbrokers days to settle Most CFD platforms maintain the lowest trading fees and commissions Make it possible to own fractional shares and stock for some of the most valuable companies and commodities


    Improper use of leverages may see you lose more than the invested amounts in the case of huge market drawdowns Most CFD trading platforms charge overnight fees for every leveraged position that remains open overnight You never get to own the physical shares or commodities underlying the CFDs.

What are some of the CFD Trading Assets?

Today, CFDs are traded on various classes of assets. These assets classes include:

  • Commodities (metals, energy assets and agricultural assets)
  • Exchange Traded Funds (ETFs)
  • Bonds among others

Indeed, tens of thousands of CFDs exist, as these asset categories feature assets that are found all over the world. The section below discusses the various asset types, which are distinguished on the basis of their individual characteristics and the underlying markets in which they are traded. Each asset class has its own special characteristics which set it apart from the others. These CFD trading assets are described briefly below.

Shares of companies can be traded as CFDs. This means that the trader can buy a contract which aims to predict that the price of a stock will either rise or fall without actually owning the stock in question. Stocks constitute the largest CFD class because of the sheer numbers of listed stocks on national exchanges across the world.

An index is a weighted measurement of the daily performances of a national stock market. The name of the index gives an idea as to the number of stocks that are used in performing the weighting measurement. Popular stock indices are the S&P500, Dow Jones (DJ30), Nasdaq (NDX100), Xetra DAX and FTSE100. The changing values of the stocks used in performing the weighting will impact the value of the index, causing it to rise or fall. Index traders are required to monitor the performance of the heavy movers as far as the listed stocks are concerned, as these will have a stronger impact on market performance of the index in question.

Bonds are debt instruments issued by governments or companies in exchange for borrowed funds. They are also known as Treasury Bills or Treasuries. Bond prices have an inverse relationship with long-term interest rates (bond yields) and also have an inverse relationship with stock market indices. The popular bond CFDs in the market are those which feature the US Treasuries as well as the German government bonds.

Exchange-traded funds (ETFs) are composite baskets of financial assets drawn from several asset classes. They are traded like stocks and provide exposure to several markets at once. A few brokers offer ETFs as CFDs, so that traders can trade contracts based on their prices and not have to buy the ETFs themselves.

Various brokers will determine what kinds of CFD trading assets their clients will be offered. Usually, trading experience of clients will be accessed by brokers before they are allowed to trade certain CFD trading assets.

Commodities can be classified as hard or soft commodities. On many trading platforms, a distinction is now being made as follows:

  • Energy assets: crude oil, natural gas, heating oil
  • Agricultural commodities: corn, coffee, cotton, cocoa, sugar, wheat, etc.
  • Metals: gold, silver, copper, platinum, palladium, etc.

Commodities are usually used as raw materials in many industries around the world and they tend to have very wide price variations. They can also be very volatile.

Crypto trading is an emerging class of CFDs which features some of the world’s top cryptocurrencies such as Bitcoin, Litecoin, Ethereum, Stellar Lumens, NEO, Monero, Bitcoin Cash and Dash. Cryptocurrencies are extremely volatile and to be able to trade them as CFDs, the CFD trader will require a well-capitalized account. The BTC/USD pair has the highest spreads and the largest margin requirement of all crypto CFDs. Other cryptocurrency pairs come with spreads that are not very high and do not require much margin to trade.

What are the trading characteristics of CFDs?

  • A CFD is a contract between a dealer and a trader to exchange the difference in value of a financial instrument between the time of trade entry and the time of contract expiration.
  • If the closing price is higher than the opening price, then the seller will pay the buyer the difference, and if the exit price is lower than the entry price, the buyer pays the seller the difference.
  • There are various asset classes of CFDS such as stocks, commodities, indices, ETFs, bonds and cryptocurrencies.
  • FD trading is highly leveraged. In Europe and the UK, leverage on CFD is restricted to no more than 1:10 for non-volatile CFDs, and 1:5 for volatile CFDs (e.g. stocks). In Australia, brokers still offer CFD trading using leverages as high as 1:100.
  • The prices of CFD instruments quoted on the broker platforms reflect the actual prices of the underlying assets.

Some Key Points About CFD Trading

To trade CFDs, the trader must have a knowledge of technical and fundamental analysis. Access to news feeds and market research tools is critical to success. CFDs can be traded intraday, or can be traded on a swing trading basis. Due to the fact that CFD contracts expire, position trading (i.e. keeping positions open for months or even years) is not advised. Here is an explanation of the factors that a trader must consider to trade CFDs?

1. Fundamental analysis

Each category of CFDs has its own specific fundamentals. Therefore, the news that will move the prices of crude oil for instance, is not the same news that will move a stock like Baidu or Apple. Therefore, an understanding of the fundamentals for each CFD category is required.

News that tend to cause movements in stock prices include the following: earnings reports, new product release, favourable news such as approval of medications, treatments and clinical trials (biotech stocks), negative news such as product recalls, appointment/exit/death of a major player in the company’s management, etc. It must also be pointed out that some systemic news that affect entire sectors or exchanges can affect prices of stock CFDs listed in an entire sector.

For commodity CFDs that are agriculture based, factors of supply and demand are the key drivers of price. Any factor that causes an increase or reduction in supply or demand will affect prices. Factors such as extreme weather patterns (hurricanes, cyclones, etc), drought, natural disasters (e.g. flooding), disease outbreak or civil war, have the potential to reduce supply of agricultural commodities and therefore cause an increase in global prices. Ivory Coast is the world’s largest cocoa producer. When there was post-election strife in that country in 2020, supply of cocoa was affected and prices of cocoa skyrocketed in the international market.

Prices of metal CFDs are also affected by forces of demand and supply. Factors such as reduced manufacturing and reduced economic growth will cause a reduction in demand for raw materials such as copper, silver and platinum, used for industrial production processes. A slowdown in Chinese growth some years ago caused a collapse in copper prices as a result of reduced demand. We also saw prices of gold and platinum spike in the international market when a prolonged miner’s strike in South Africa struck the major metal miners.

Energy assets such as crude oil and natural gas are also subject to environmental factors, political and economic situations in the countries where production is highest (e.g. Middle East) and the US Crude Inventory report. The annual meetings of oil ministers from the Organization of Petroleum Exporting Countries (OPEC) and the proclamations from this body on production quotas for member states are two major movers of oil prices.

2. Technical Analysis

CFD assets lend themselves to technical analysis. Technical analysis is the use of information on the price charts to predict future behavior and price movement of financial assets. Due to the fact that every asset classified as a CFD can be plotted on a chart which shows price on the y-axis and time on the x-axis, various methods of technical analysis can be used.

Technical analysis involves the use of various tools such as retracement tools, line tools, chart patterns, candlesticks and indicators (trend, momentum and volume). Also critical to the use of technical analysis is information as to what traders are buying or selling particular CFDs, and the volumes in which they are buying those CFDs. This information is derived from the Commitment of Traders (COT) Reports, and also found in the Depth of Market tool found on some trading platforms such as the latest version of the MT4 and the MT5 platforms.

We will describe the use of some of these tools in the CFD trading examples that will be described later in this article.

3. Leverage/Margin Requirements

CFDs are leveraged products. This means that the traders can borrow trading capital from the brokers in specified amounts. In the UK and EU, regulators have pegged the leverage that can be provided to retail traders at the following levels:

1:2 for cryptocurrency CFDs
1:5 for stocks CFDs
1:10 for commodities CFDs other than gold and non-major equity indices
1:20 for non-major currency pairs, gold and major indices.

Professional traders on EU and UK platforms do not have leverage restrictions, and it is not unusual to see leverage of up to 1:300 being provided for CFD trading.

In Australia, leverage of up to 1:500 is allowed for CFD trading. However, leverage will oscillate between 1:50 and 1:500 for various CFD categories. For instance, AvaTrade has a branch in Australia which offers the following leverages:

It must be pointed out that several EU and UK brokers have international branches, which are used to provide higher leverage conditions for international clients. Depending on which part of the world you operate from, these brokers can offer you more flexible leverages for your CFD trading purposes.

4. Contract Specifications

Every broker provides the contract specifications and it varies from broker to broker. It usually contains the list of CFDs available for trading, minimum and maximum volumes that can be traded, leverage, stop out level, spread charges, commissions, etc.

It is very important for a trader to study the contract specifications before trading CFDs with the broker. This is because it contains all the trading conditions, trading costs and other fees charged by the broker.

Best online CFD trading platforms

XTB, an online brokerage house that specializes in Forex and CFD trades is one of the few online brokerages listed companies on the Warsaw stock exchange. The broker further maintains a global presence with offices in different parts of the world in addition to ensuring that it is licensed and regulated in these jurisdictions. In the UK, for instance, XTB is licensed and regulated by the FCA.

Traders on the platform are exposed to the different types of CFDs including shares and stock CFDs, Crypto CFDs, and ETF/Index CFDs. The broker is also keen on technology and has even come up with an in-house proprietary trading system, xStation 5, which combines the benefits of both the MT4 and MT5 platforms before fusing it with such additional features as real access to the markets, comprehensive charting, commentaries from experienced traders and a wide range of analytical tools.

How to start trading with XTB:

Step 1: Register a trading account on the CFD broker’s official website

Step 2: Fill in your personal and trading details like the name, email address, and your level of trading experience

Step 3: Complete the user verification process by furnishing the broker with a copy of an official identification document indicating your name and physical address

Step 4: Fund your active XTB account with a minimum $250 or its equivalent

Step 5: Start trading your preferred CFDs


    Highly regulated and reputable CFD broker Has one of the most technologically advanced trading platform Low trading fees and fast deposit processing speeds Relatively straightforward account opening process and user-friendly interfaces


    The broker maintains a limited number of products on their portfolio Doesn’t provide 24/7 customer support

Factors to Consider When Trading CFDs

Before engaging in CFD trading, you must consider certain factors. These are stated below.

I. Regulation and Security:

Is your CFD broker regulated? Regulation of CFD brokers is all about trader protection, security of traders’ funds and provisions of a transparent trading environment. If these are not provided by a regulated entity, you can file a complaint about such a broker to the regulators for intervention. Regulators across the world have been intervening in cases of broker infraction. Where regulation is absent, there is no place for the aggrieved trader to turn to.

II. Margin Requirements:

Margin requirements are a function of the leverage provided by the CFD broker. This will directly affect your ability to trade certain CFDs. For instance, CFD trading on a UK/EU brokerage platform comes with tighter leverage caps than you would find with an Australian broker. You may be able to trade a stock CFD with a leverage of 1:100 on AvaTrade AU, but trading such a CFD on the platform of Plus500 Europe for instance will attract a leverage of 1:5. What are the margin requirements in both cases? Let us assume you want to buy 2,000 units of a stock, and it will cost $10,000 to buy them. A leverage of 1:5 is a margin requirement of 20%, which means that you will need $2,000 to execute the trade in question. If you use a leverage of 1:100 on an AU brokerage such as AvaTrade, the margin requirement is 0.01%, which means that you will need $100 to execute the same trade. So you must understand what your margin requirements are in order to ensure your trading account is well capitalized for your leverage levels.

III. Trading tools:

It is important to have access to the right trading tools for CFD trading. You should for instance, have access to the COT report, access to great news feeds (such as from Reuters and Bloomberg), instant squawk news, Twitter feeds that provide up to the moment news and market research from sources such as Trading Central.

CFD Trading Examples

In this section, we shall be showcasing some CFD trading examples, drawn from various CFD asset classes. We shall also present some trading strategies that can be used for day trading and position trading.

CFDs are basically traded in two directions. For buyers, profits are made if the trade ends at a price that is higher than the entry price. For sellers, profits are made when the trade ends at a price that is lower than the entry price.

The basic tenets of CFD trading are as follows:

    Market research which looks at macro factors that are currently at play and what the news is saying about the CFD asset itself, the sector it is listed or the category that it belongs to in its market. Viewing the factors that show the commitment of traders (or lack of it) for any CFD assets you are interested in. Analyzing the charts for technical plays such as the current trend, and other setups that follow the trend. Performing the trade entry with the correct order type. Setting a trade exit point. Using appropriate protection stops. Risk management

We shall now demonstrate how a CFD trade works, using a chart pattern.

Day Trading Using the Pivot Range

Some of the CFD markets are not 24-hour markets. Stocks and indices are only traded for a few hours a day. So you can actually trade these on an intraday basis. US stocks are among the most popular stock CFD assets, and you will find these on many MT4 and MT5 platforms. Examples are shown in this chart below:

So what strategy can be used to trade stocks or index assets?

The daily pivot range strategy can be used to trade stock CFDs and index CFDs as well, and is best used when there is no earnings report around the corner which could possibly distort the trade parameters. How is this strategy traded?

This strategy depends on the use of a custom indicator known as the daily pivot range indicator. This indicator is used to feel the pulse of the market by detecting the “pivot range”; a concept that was described by Mark Fisher in the book “the Logical Trader”. The range is calculated as follows:

  1. Calculate the daily pivot number by adding the High, Low and Close prices of the previous day and divide the total by 3.
  2. Add the high price and low price, then divide the sum by 2.
  3. Subtract (b) from the daily pivot number, and that gives the pivot differential.
  4. The pivot range is the pivot number +/– the pivot differential.

Assuming the previous daily candle of a stock XYZ had a high of 50, a low of 40 and a close of 46, what is the pivot range?

  • The daily pivot number is (50 + 40 + 48)/3 = 46
  • (High + Low)/2 = (50 + 40)/2 = 45
  • The pivot differential is 46 – 45 = 1
  • The daily pivot range is 46 + 1, or 46 – 1. This leaves the range as starting from 45 to 47.

Using the daily pivot range, we can detect the buying or selling sentiment for the new day by comparing the previous day’s closing with the calculated pivot range. The pivot range indicator will draw lines that mark the borders of the pivot range on the charts.


The pivot range indicator is applied to the 1 hour chart only. If the previous day’s closing price is located above pivot range, this is considered a bullish sentiment. If the previous close is below the pivot range, this is considered a bearish sentiment. Having defined the borders of the pivot range using the indicator, the next step is to watch for the behavior of the price action with respect to the pivot range.

If there is existing bullish bias (i.e. previous day’s close is above the pivot range), wait for price to come down to meet the pivot range’s upper border. The pivot range is expected to act as a price support. If the price bounces on the upper border of the pivot range, go long at the open of the next candle. This scenario is displayed in this hourly chart for the S&P500 CFD asset (US500).

As we can see, the June 5 2020 price action closed above the pivot range for that day. This close was also higher than the pivot range for June 6, which gave the market a bullish bias. Price retreated and was rejected at the pivot range’s upper border, thus providing the basis for a long trade. The long trade is entered at the open of the next candle, with the stop loss being set below the pivot range and the profit target being set above the pivot range at a point which corresponds to at least 2 times the stop loss target, or a historical candle high.

If there is existing bearish bias (i.e. previous day’s close is below the pivot range), wait for price to move up to meet the pivot range’s lower border. The pivot range is expected to act as a price resistance in this instance. If the price is rejected at the pivot range’s lower border, short the asset at the open of the next candle. Another scenario may also play out. If the previous close is above the pivot range (bullish bias), but the price is able to go through the pivot range and ends up below it, this invalidates the bullish bias and converts to a bearish one. This is akin to a situation where price breaks a support, converting that level to a new resistance. Allow price to pull back to the broken pivot range, and short the asset when the price touches the pivot range’s lower border. See the chart below for this setup.

Trader Benjie intends to carry out a day trade on the WTI crude oil CFD contract. Using the setup described above for the short trade, he decides to initiate a short trade at 58.58, which is the price at which a pull back to the pivot range is completed. He decides to short 1000 CFD contracts at this price. Using a leverage of 1:100 on an Australian CFD broker, he will only need to commit a margin of 1% of the total contract cost to the trade. Cost of the crude oil contract is 1,000 X 58.58, which is $58,580. 1% of this sum is $585.80.

Stop Loss: The pivot range is the critical barrier used in setting the stop loss. Once price crosses to the other side of the pivot range, it changes market sentiment. Therefore, the stop loss for this trade is set above the pivot range, which is at a price level of $59.30. This price is above the highest high of the candles on the upper side of the pivot range.

Take Profit: Profit targets should be at least 2 or 3 times the set stop loss. However, it is essential to use a previous low in setting the profit target for a short trade. A previous low was seen at 55.90 on 19 th June, and this is the area that will be used as the profit target for the trade.

Risk-reward ratio: From the trade settings (entry and exit prices, including protection stops), what is the risk-reward ratio for this trade?

  • Entry price is 58.58
  • Stop loss is set at 59.30. This is equivalent to 72 pips (59.30 – 58.58)
  • Take Profit is set at 55.90. This is equivalent to 268 pips (58.58 – 55.90)
  • Risk-reward ratio is 1:3.7, which is a healthy risk-reward ratio setting.

The bottom line

The CFD trading popularity has surged in recent few years largely due to the establishment of more technologically advanced trading platforms. This, plus the flexibility, lower fees, leverages, and convenience offered by these platforms like the ability to benefit from both rising and falling markets by going long or short on a particular share stock or commodity. However, most of these benefits – especially the high leverages and ease of accessing the markets – are also its biggest downfall as they are the leading causes of overtrading. Every CFD trader must, therefore, keep in mind that succeeding here takes more than just the mastery of the different analysis techniques or best trade entry and exit points. It must also involve the mastery of your trading limits with regards to the use of leverage and number of positions you can effectively execute at a go.


What is a Contract for difference (CFD)?

A contract for difference (CFD) is an agreement that enables the trader to speculate on rising and falling prices of fast moving global financial instruments like shares, indices, commodities, cryptos and bonds.

Is CFD trading the same as forex?

CFD trading involves different types of contracts which cover a set of markets like indices, energy, metals, cryptos and stock shares but forex trading offers only the trading of currencies.

How do CFD traders make money?

CFD trading allows a trader to profit on a bi-directional basis. Buyers can profit when they go long at lower prices and exit trades at higher prices. Sellers profit when they short CFD assets at higher prices and exit their trades at lower prices.

Do CFD contracts expire?

Cash based CFDs do not expire but futures-based CFDs have expiry dates which are stated on the contract specifications. So CFDs on shares, indices and ETFs do not have expiry dates but CFDs on commodities, bonds and futures have expiry dates.

How much do I need to trade 1 contract of a CFD on Plus500?

It depends on your country of residence and on the CFD asset group that you wish to trade. On the EU platform of Plus500, you need 5% margin to trade gold, 10% on commodities, 20% on major equities and 50% on cryptocurrencies. So if a Gold position costs $3000 to setup, you would need at least $150 to initiate the trade. But, if you are not from ESMA jurisdiction and on the global site of Plus500, you will only need a margin of 0.667%.

How do I trade CFDs?

Open and fund an account with a broker such as Plus500 or AvaTrade. Decide which CFD asset to buy or sell. Go to the broker’s trading platform. Select your trade size, add a stop loss if you wish. If you think that the price will increase in value, click ‘buy’. But if you think that the price will fall, click ‘sell’. Monitor and close your trade at the right time.

How do I become a successful CFD trader?

The key to success with CFD trading is preparation, planning and discipline. Here are some tips: Take time to learn and acquire proper trader education. Find the right platform and reputable broker. Have a trading plan, strategy and focus. Be patient, take it slowly Diversify and be open to new knowledge.

What are the best CFD brokers for trading CFDs in 2020?

The top three picks for CFD brokers in 2020 are Plus500 and AvaTrade.

How much do CFD traders earn?

Earnings from CFD trading depend on account size, trade size, strategy, risk management, discipline and many other factors. To be realistic, it is possible to fund an account with $5,000 and make around $500 per month. Top CFD traders on plus500 have thousands of copiers and make additional money from commissions.

Can I trade CFDs in the United States?

No. CFD trading is not permitted in the United States.

Best Binary Options Brokers 2021:
  • EvoTrade

    The Best Broker! Try it and get a 10 000 $ bonus!

  • NS Broker
    NS Broker

    5000$ bonus to each trader!


    Best Options Broker 2020!
    Great Choice For Beginners!
    Free Trading Education!
    Free Demo Account 1000$!
    Get Your Sign-Up Bonus Now!


    Only For Experienced Traders!

Like this post? Please share to your friends:
Binary Trading Library
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: