Make A Difference with CFDs Trading!

When you trade CFDs with AvaTrade you not only get to trade with a well-regulated broker using some of the world’s best trading platforms – you can also trade on markets whether they rise or fall!

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Trade the World with CFDs

Explore the thrilling world of CFDs or Contracts for Difference, a dynamic way to participate in the financial markets without the need to own the actual assets. CFD trading is about making bold predictions on price changes, offering a unique adventure into the world of finance that's accessible to everyone. Dive in and experience the thrill of the market at your fingertips!

Why Trade CFDs with AvaTrade?

AvaTrade is an internationally regulated broker with dedicated trading websites, multiple trading platforms and apps, over 1,250 tradeable assets and top-notch customer support.

  • 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:

  • Day trading strategy
    As you might have guessed from the name, day trading consists of opening and closing a trade on the same day. Day traders might hold a position for the whole session, or they might only hold a trade open for an hour. Day trading avoids the risks and costs of holding a CFD position open overnight.
  • Swing trading strategy
    Swing trading is similar to day trading because it looks to profit from short term changes or “swings” in price. The main difference is that a swing trading strategy is more flexible, and traders will sometimes hold their positions overnight despite the added costs and risks.
  • Scalping trading strategy
    A scalping strategy goes in the other direction from day trading. That is, scalpers open many extremely short term positions, some lasting as little as seconds. The scalper attempts to make many small profits throughout the day by capitalizing on the prevailing trend or momentum in an asset.
  • 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.

  • CFD Contract Rollover
  • 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 with CFDs
  • 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.

  • CFD Taxation
  • 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

    How long can I hold a CFD?

    CFDs do not have an actual expiry date and can remain open as long as possible. However, keeping the position open after the market close can incur fees known as a rollover in CFDs or swaps in Forex currency pairs. Therefore, it would be in your best interest to calculate possible swaps in advance and project it onto your expected return.

    Is CFD trading taxable?

    CFD trading, in general, is a taxable income and subject to capital gains tax within EEA. However, UK residents can take advantage of Spread Betting, which is exempt from both stamp duty and taxation.

    Does CFD expire?

    CFDs are not traded in a regular stock exchange, and therefore don’t have expiration dates that would require buying or selling the underlying asset at a certain price.

    What is the best way to analyse a stock market index?

    Each stock market index slightly differs from others, and the index details such as components, weighting, calculation and trading hours must be studied. Fundamentally, factors that can affect equity prices, like earnings reports, or represented sectors, like new regulations, have a strong impact on the index. Economic data, like GDP, can also affect the price by stirring the valuation currency. Technically, the relative stability of the trends makes support and resistance levels reliable indicators for price targets and reversal points.

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