Put simply a CFD or Contract for Difference is a cutting edge trading product in Australia that some people choose to trade instead of shares. CFDs have only been in Australia for a few years but they are growing in popularity.

Whether you choose to trade them is up to you however we recommend that you seek education before you open an account and start trading CFDs. A CFD is not a share, but it is like one in many ways and traders choose them for many great reasons:

• Low Brokerage - CFDs let you gain exposure to a share price with only a fraction of the brokerage you would usually pay.
• Trading with as little as 1% of the value of what is being traded - CFDs allow you to use leverage which means you can magnify your profits in some cases up to 100 times. You can also magnify your losses*. That means $1,000 can get you $100,000 exposure to the market!

Make sure you get some education before trading to understand this.

• Profit from rising and falling markets - You can profit from CFDs in all market conditions both long (rising or bull markets) and short (falling or bear markets).
• A huge range of products - CFDs allow you to trade Australian and global share, index, sector, treasury and commodity CFDs. If you have a view on a market sector (mining, energy or banking), Oil, Wheat, US TBonds or an entire index (US30, UK100, ASX200)
• Mirror the price of shares and other products - CFDs allow you to gain exposure to a share price without actually buying the share.

The full explanation is that a CFD is a contract between two parties (possibly, you and your CFD provider) to exchange the difference between the purchase price and the sale price of a share.

Although a CFD is not a share, it gives you access to the performance of the share price without taking delivery of the physical share because it mirrors the price of the share.

When you buy a CFD you own a contract over the movement in the share price that is re-valued in real time.

For example, if you buy a CFD at $1.00 and the price rises to $1.10, then your contract is for the difference between the purchase price and the current price, which is a 10 cent profit. If the CFD had decreased in value, thenyou are obligated to pay the difference.

To trade CFDs you will need to open an account with a CFD provider. CFDs differ from shares because you don't own shares when you buy a CFD. As a result you are not entitled to vote at shareholder meetings, although many CFD providers allow you to participate in corporate actions (dividend payments, share splits, rights issues etc).

Remember that CFDs are geared and can results in losses that exceed your initial deposit. They may not be suitable for everyone, so please make sure that you fully understand the risks involved.

Past performace is not a guarantee of future performance.