The CFD Market In Australia

CFD stands for Contract for Difference, CFDs are a financial agreement made between a buyer and seller to make good the profit or loss incurred between the CFD was bought to when it was sold. CFDs are common in both Australia as well as the UK, they are mostly offered over indices, shares and foreign exchange.

In the early days in the UK where CFDs began they were commonly referred to as SWAP contracts. It wasn’t until around 2001 that CFDs became popular with retail investors. It was CMC Markets and IG Markets, two large spread betting businesses based in the UK that bought CFDs to the forefront in the retail trader’s arsenal. CFDs instantly grew to be popular in the United kingdom as they did not attract any stamp duty.

In 2002 both CMC Markets and IG Markets opened offices in Australia and began to actively market CFDs to Australian traders, the popularity of CFDs peaked in 2007. Because of their popularity amongst Australian traders and investors many foreign CFD providers saw the potential in Australia and opened up offices. At present are over 13 CFD companies operating in Australia and an estimated 35,000 retail CFD traders.

In recent times CFDs have received much negative media hype as a result of traders incurring losses caused by overexposing themselves to the market during volatility. This combined with the recent failure of CFD provider Sonray Capital Markets has led to increased scrutiny from the Australian financial Services Regulator ASIC relating to how CFD providers handle client money.

At present CFDs continue to be the most prevalent financial product for retail traders in Australia, although unconfirmed it is estimated that CFD volumes account for around 35% of ASX exchange turnover. As CFDs are an over the counter product it is difficult to confirm this figure.

CFDs in Australia are largely traded online through a range of proprietary CFD trading platforms offered by the major companies. A lot of of these platforms were initially developed for forex CFD trading however due to the similarities between share CFDs and forex CFDs the platforms have be adapted to suit share CFD traders.

As Australia has the largest proportion of share ownership in the world on a per capita basis it is not surprising that almost all CFD traders have experience buying and selling stocks online. The past growth of the Australian share market has made share and CFD trading a widespread pass-time for Australians.

Before you run out and join the 35,000 Contract for Difference traders in Australia you should ensure that you are completely aware of the risks involved in CFD trading. Like all geared financial product CFDs offer considerable benefits however these don’t come without risk. You must make certain that before you jump into CFD trading you read the Product Disclosure Statement (PDS) available from your CFD provider that outlines the risks and benefits of trading CFDs.