Investors have used CFDs for over 20 years

A Contract For Difference (CFD) is an agreement to exchange the difference in value of a particular share between the time at which the contract is opened and the time at which it is closed.

CFD’s have been used by professional investors for over twenty years and emerged first in the over-the-counter (OTC) or equity SWAP market.

Equity swaps were used by institutions to cost effectively hedge their equity exposure. In recent times, CFDs have become one of the most popular derivative products in the Australian and European financial markets.

With CFDs you have access to a wide variety of Securities and Derivatives. CFDs can be used to trade an extremely wide range of financial products including shares and indices on Australian and International markets. For example if you have an interest in Australian shares or US indices, the price of oil or the direction of the FTSE 100, you can deal on all of these markets from the one account.Get more details from your financial advisor or from the numbers listed below.

CFD trading is very similar to normal share dealing in two respects. You deal at the cash price of the share, and pay a commission which is calculated as a percentage of the value of the transaction.

When you open a position you are entering into a contract and in effect buying, however, you do not have to pay for the full value of the shares. Instead you put up a deposit, from just 5% for Australian shares. This means you can trade up to 20 times your initial capital.

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When you close your position, you are in effect selling and the difference between your opening contract value and your closing contract value is realised. So just as with buying shares or trading futures, the degree to which you are correct in your CFD trading affects how much you make or lose.

Geared products like CFDs can help you make the most effective use of your investment capital, but it is important to appreciate that the amount you could lose relative to your initial investment is greater for geared products than for non-geared products. Gearing is similar to leveraging or negative gearing (such as borrowing money to buy and investment property) where you ‘borrow’ money – often secured against something else to give you maximum exposure.

MDS Financial maintains offices in Sydney, Melbourne and the Gold Coast and NISER can assist local businesses or individuals contact them. Sean Rothsey is Executive Chairman of the ASX listed diversified financial services company MDS Financial Group Ltd. (MWS: ASX).

If you would like to discuss these issues further please contact Sean Rothsey at niser@niser.org.au or 5442 5050 or your own financial advisor or visit www.mdsfinancial.com.au . ” To read the full story please go to www.niser.org.au ”

I collated this for your information from The Cube Financial Group PTY Ltd AFSL 232455 (“Cube Financial”) a subsidiary of MDS Financial Group Limited with the following disclaimer: This information is prepared for the general information of traders and investors. The information does not take into consideration the specific needs, investment objectives or financial situations of any person. Any individual reading this should discuss, with their financial planner or advisor, the merits of any recommendation or offer presented in this material for their own specific circumstances and realise that not all investments are appropriate for every individual.

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