CFDs provide an alternative by allowing you to trade on live market price movements without owning the underlying instrument on which your contract is based. Retail traders and investors now have the opportunity to benefit from institutional instruments at a global level.
LeverageUnlike traditional shares, CFDs are traded on leverage. Leverage lets you trade the markets using a small fraction of the total trade value. For a smaller initial investment you can take the opportunity to profit from market movements and diversify your trading strategy and portfolio. Potential gains can be magnified, as you only deposit a small fraction of the total trade value, but access full market exposure. However, as with all financial trading, there is the potential to lose all or part of your investment. The key risk with leverage is that it can magnify your losses in exactly the same way as your gains. City Index offers a range of risk management tools to help mitigate your risk.
CFD Trading Leverage Example: WoolworthsIn conventional dealing, you would have to pay your broker the total value of the shares you wish to purchase plus any commissions that may be applicable i.e. 0.1% in some cases. Say you wish to purchase 10,000 Woolworths shares and the current share value is $25. You would have to pay the total value of the shares purchased, i.e. $250,000 (10,000 x $25) plus $250 commission.
With City Index CFD trading however, you only need to deposit a small percentage of the total trade value for the same level of market exposure. We require a margin deposit of 5% of the total value of the Woolworths trade, i.e. an initial $12,500 (10,000 x $25 x 5%) plus commission (0.08%) to access the same $250,000 exposure to the underlying market.
Typical City Index share CFD margins range from 5% to 25% on our most popular shares, with margins for indices such as Australia 200 and Wall Street starting at just 0.5%. Our margins for major currency pairs start from just 0.5% and for commodity CFDs from 3%. Learn more about our financing and charges
OpportunityWaiting to set aside the capital to buy a share portfolio can mean missing valuable trading opportunities. CFDs let you get involved in the market now. And with only a proportion of the capital that you would have used for physical shares invested in CFDs, you have the freedom to use the difference for other investment opportunities – making your money work smarter.
Ability to go long or shortThe flexibility of CFDs lets you take advantage of the markets whether they are rising or falling. CFDs let you go long (buy) if you believe market prices will rise, or go short (sell) if you think prices will fall - so if you believe that a company or market will experience a loss in value in the short term, you can use CFDs to sell it today, and your profits will rise in line with any fall in that price – an opportunity not available with physical shares (however, if the market moves against you, your losses will also increase). Furthermore, depending on the instrument and current interest rate, you may be paid financing fees on positions held overnight.
HedgingCFDs can be used to offset risk. They can work as a shorter-term strategy to protect your longer-term investments. If you fear a fall in the value of your physical investments, but selling has tax implications, an exact hedge with CFDs can ensure that any loss on your physical share holdings is counter-balanced by the profit from your CFDs.
Global marketsAccess to global markets lets you trade shares, indices, commodities, bonds, sectors and FX CFDs 24 hours a day. Global markets offer more varied trading opportunities and the ability to diversify your portfolio. You can trade FX, indices, commodities and all non-share CFDs commission-free, without the management fees of margin loans.
24-Hour DealingWe recognise the importance of being able to trade whenever you want, wherever you are, particularly when market prices are moving quickly. City Index gives you unrestricted account access 24 hours day, seven days a week. What's more, we run a number of our markets 24 hours a day, including major indices such as the Australia 200, UK 100 and Wall Street - meaning you can trade CFDs even if the underlying markets are closed.
CFDs vs other forms of financial trading
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The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. City Index recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. City Index Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.