• Trade Commodities, Indices, ETFs, Stocks, Bonds, and Cryptocurrency CFDs
• Use powerful platforms like MT4/MT5, WebTrader, our AvaTradeGO app or automated trading platforms.
• Use leverage on various CFDs to amplify your exposure to the markets.
• Expand your horizons by making the most of our educational materials & daily updates.
• Multilingual live support with a dedicated account manager.

Short and Long CFD Trading

One of the advantages of CFD trading is the ability to speculate on price movements in either direction. This means you can match a traditional long trade in which an asset is purchased, and you can also match a short position that profits when the price of the underlying asset falls. As an example, if you believe the price of gold is going to fall you could sell a CFD based on gold. If the price of gold falls you will profit when you close the short position, but if gold rises you’ll suffer a loss when closing the short position. Regardless of whether your position is long or short the profit or loss is only realized when the position is closed.

Leverage in CFD Trading

When trading CFDs you are trading using leverage, which means it is possible to control a large position in an asset without offering up the full cost of that position. Let’s say you want to open a trade on 500 shares of Tesla. In a standard trade to purchase these shares you would have to pay the full cost for the shares. However if you are trading using a CFD you might only need to put up 5% of the full amount of the trade. This leverage allows you to spread your capital out and employ it more efficiently, but don’t forget that the total profits and losses are still calculated based on the full position size. In our example with Tesla shares that means your profit or loss is still 500 times the difference between the price when you open the trade and the price when you close the trade. This can magnify profits and losses substantially, and it is possible to suffer a loss that’s greater than your full deposits. This makes it crucial for traders to fully understand leverage and to keep a close eye on any trade using leverage to ensure it doesn’t get out of control.

Margin Explained

Another way trading with leverage is explained is by calling it “trading on margin”. This phrase is used because the small deposit needed to open the larger position is referred to as the margin. In CFD trading there are two kinds of margin. In order to open a position a deposit margin is necessary, and once the trade is open there is a maintenance margin amount that is required to ensure that the position never goes below what the funds in your account can cover. If your loss does get larger than your deposited amount you will receive a margin call from the broker asking you to make an additional deposit to cover the potential loss. If you fail to meet this margin call by depositing additional funds the broker can close your position and any losses will then be realized.

Hedging with CFDs

Hedging is a risk management strategy that involves opening opposite or offsetting trades designed to practically mute the risk exposure of open trade in the market. CFDs represent an ideal type of derivative to implement a hedging strategy effectively. To start with, they are low-cost and liquid. But they can also be customised (in terms of size and amount) to meet the specific hedging objectives any investor desires.

As an example, if you hold $10,000 worth of shares of Tesla in your portfolio, you could hedge the position by selling an equivalent or part amount of Tesla stock CFDs. In that way, if Tesla prices fall, the loss in value in your physical shares portfolio will be offset or cancelled by the profits gained by the CFD trade. You can then close out the CFD trade when the downward retracement comes to an end so as to lock in your profits and to give the value of your physical Tesla shares the chance to rise again.

CFD hedges are ideal when a market is moving against you (either due to sentiment or overall fundamental reasons) or when the market has moved so much in your favour that any extra gains are likely to be fractional. On the other hand, CFD hedges can be particularly riskier because of leverage; they are therefore not ideal when the underlying market is very volatile or when a retracement has been overextended.

CFD Trading Strategies

You can follow several kinds of trading strategies when you are trading CFDs. Consider some of the following:

How Much Will it Cost to Trade CFDs?

AvaTrade offers tight spreads on open positions. The spread is the difference between the BUY and SELL prices of a certain instrument. When calculating the cost for a position, you need to multiply the spread by the size of the position. For example, if the spread for crude oil trading is $0.03 USD, the cost for opening a 10 barrel-position is $0.03 X 10 barrels = $0.3 USD. Most of the CFD instruments are traded on market spreads, which means that the spreads are affected by the liquidity of the market. The more liquidity, the narrower the spread will get. You can review the levels of leverage and spreads for all CFD instruments on our Trading Conditions & Charges page.

Each index and commodity CFD is based on a contract defining its rates, charges, etc. Each of these specific CFD contracts has an expiry date, which is the date that the contract expires and automatically replaced by a new contract, just like the real market. In order not to disturb traders during market hours, the contract rollover takes place over the weekend. For more information, you are welcome to visit our CFD Rollover page.

Hedging is a risk management strategy that involves opening opposite or offsetting trades designed to practically mute the risk exposure of an open trade in the market. CFDs represent an ideal type of derivative to implement a hedging strategy effectively. To start with, they are low-cost and liquid. But they can also be customised (in terms of size and amount) to meet the specific hedging objectives any investor desires.

As an example, if you hold $10,000 worth of shares of Tesla in your portfolio, you could hedge the position by selling an equivalent or part amount of Tesla stock CFDs. In that way, if Tesla prices fall, the loss in value in your physical shares portfolio will be offset or cancelled by the profits gained by the CFD trade. You can then close out the CFD trade when the downward retracement comes to an end so as to lock in your profits and to give the value of your physical Tesla shares the chance to rise again.

CFD hedges are ideal when a market is moving against you (either due to sentiment or overall fundamental reasons) or when the market has moved so much in your favour that any extra gains are likely to be fractional. On the other hand, CFD hedges can be particularly riskier because of leverage; they are therefore not ideal when the underlying market is very volatile or when a retracement has been overextended.

CFDs are considered tax-efficient for many investors in different jurisdictions. They do not attract Stamp Duty because they are technically not assets. But CFD profits can be subject to Capital Gains tax in certain jurisdictions. While limited tax liability is rarely a major incentive to trade CFDs, it is important to consider the relevant laws that apply in your specific jurisdiction before you trade.

Start Trading CFDs with AvaTrade

If you think you know which way the markets will go and you want to start trading – it’s time to join AvaTrade and enjoy the best CFD trading experience! Still not sure? Take a look at the AvaTrade reviews by our clients!

Register for a trading account now to enter the markets,or try our risk-free demo account.

Main CFD FAQ for Australian Traders