Advantages of CFDs

Increased Leverage

By using CFDs you may be able to control up to 20 times the securities face value compared with an outright purchase. This higher gearing creates greater profits if you correctly anticipate movements in the share price. However the risk of loss also increases proportionately if the securities price moves against you.

Margins

You do not pay the full underlying value of a CFD trade. However, before you trade, you are required to deposit a cash collateral, known as “initial margin”. Initial margin rates vary from share to share. These are calculated as a percentage of the overall value of the trade, starting from as low as 5% in Australia

If all your trades were eligible for a 5% margin, then you could hold positions worth a total of A$100,000 having deposited only A$5,000. You would therefore gain twenty times leverage on collateral provided. The full value of any running losses must be met daily. This may result in being called for additional funds to support a position. This is known as “variation margin”.

Daily Profit or Loss

Every CFD in your account is revalued at the close of each business day. Any profits resulting from the revaluations are credited to your account. Losses are debited and any resulting margin calls are made.

Corporate Actions

Like the share market, you can participate in corporate actions and dividends on share CFDs. Holders of bought CFD positions receive the benefit of cash dividends. Conversely, holders of sold CFD positions must pay an amount equal to the value of any cash dividend.

Costs

You pay commission on each CFD trade. Commissions start from as low as 0.10%* ($10 per $10,000 worth of face value of CFDs). In addition you pay interest on the value of a long CFD position. When you hold a CFD position overnight, interest is charged**. For example - if the face value of the CFD is $10,000 the funding charge is less than $2.50*** for that day (10,000 x .09 = $900 divided by 365 = $2.46). This amount is debited from your CFD account.

If you hold a short CFD position, MFGA pay you interest on the value of the sale the share would have generated. Typically this is paid at the MBR less 3% per annum. All costs are negotiable depending on volumes and frequency of trading.

* Frequent Traders Club (FTC) Commission Rate.

** Interest is calculated at a spread over or under the MFGA Base (MBR). The MBRtracks, but does not necessarily mirror, the Reserve Bank of Australia Interbank Overnight Cash (RBAIOCR).

*** Based on the face value ($10,000) of the open position with an MBR of 9.00%.