Introduction to CFDs

Contracts for Difference (CFDs)

Since their introduction into Australia in 2002, CFDs have become one of the fastest growing financial products to enter the Australian market place. The popularity of CFDs amongst both investors and traders is most likely due to their flexibility and simplicity when compared to other equity derivatives.

In simple terms, CFDs are an agreement between two parties to exchange the difference between the entry and exit price of a financial instrument or security.

The MFGA CFD trading model is different to most CFD providers in that we do not take proprietary positions. Instead we hedge our customers CFD transactions in the underlying "cash" market. The term "cash" market is often used to describe the everyday stock market (eg. Australian Stock Exchange). MFGA were the first in Australia to offer this type of CFD known as Direct Market Access (DMA).

Although share CFDs are traded on the price of the underlying shares, they convey no right or obligation to acquire or deliver the physical shares. CFDs provide an alternative approach to trading the share market. Potentially they offer better returns as well as the opportunity to profit* from short to medium term price rises (or falls), or to hedge against adverse movements in the market place.

Profit from MF Global CFDs

Maximising profits with limited resources can often be a problem for investors. CFDs offer the experienced trader a valuable solution. CFDs are a simple and flexible margined product. For a fraction of the outlay, CFDs provide individual traders the ability to mirror the trading strategies used by global institutions and hedge funds, making CFDs one of the most exciting trading advances in years.

CFDs give you the economic benefits of trading shares without having to actually buy or sell the shares. The initial outlay for CFD trading starts from as little as 5% of the value of the shares for the ASX Top 20**.

Benefit from Rising and Falling Markets

You can take either a long or short CFD position with equal ease. If you consider a stock to be undervalued, you can go long with a CFD on leverage and benefit from a rise in its share price (or possibly lose if the underlying share price falls). Conversely, if you consider a stock to be overvalued, you can go short with a CFD on leverage and benefit from a fall in its share price (or possibly lose if the underlying share price rises). MFGA advises all customers via the trading platform margin table on a daily basis if any CFDs in the quoted list (ie. S&P/ASX500) cannot be short sold on that particular day.

By doubling your opportunities you are able to profit* from both bull and bear markets and unlike most other equity derivatives, CFDs do not have an expiry date.

*Trading derivatives has the potential for both profit and loss and is not suitable for all investors. The loss can be greater than the deposit.

**Margin rates are subject to change.