Key Features – Margin
CFDs are traded on margin and there are two different forms of margin that may be payable when trading CFDs – Initial and Variation Margin.
Key Features – Financing
Financing is the daily cost incurred for holding an open position overnight. The financing rate is applied to the full value of your position and paid or received daily on long and short positions. If you hold a long ‘buy’ position you will be required to pay a financing charge, if you hold a short ‘sell’ position you will receive financing income.
Financing rates are calculated by your CFD provider by adding or subtracting a margin percentage from the RBAIOCR (Reserve Bank of Australia Interbank Overnight Cash Rate) and dividing the resulting amount by 365, representing the number of days in a year. The resulting percentage is then multiplied by the full notional value of the position to give you a daily financing rate.
Key Features – Commission
CFD commission is calculated based on the full notional value of the position with a minimum charge. Commission rates will vary between CFD providers.
Key Features – Leverage
Leverage or gearing is like borrowing, it allows you to increase your potential return on a trade as you are able to increase your exposure whilst only contributing a fraction of the total value of the position.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The S&P/ASX 200 index is a market-capitalisation weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor’s. It was started on 31 March, 2000 with a value of 3133.3, equal to the value of the All Ordinaries at that date.
A company that specializes in index calculation. Although not part of a stock exchange, co-owners include the London Stock Exchange and the Financial Times.
The FTSE is similar to Standard & Poor’s in the United States. They are best known for the FTSE 100, an index of blue-chip stocks on the London Stock Exchange.
A computerized system that facilitates trading and provides price quotations on more than 5,000 of the more actively traded over the counter stocks. Created on February 5, 1971, the NASDAQ Composite Index was the world’s first electronic stock market and began with a base of 100.00.
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market.
Today the NASDAQ Composite includes over 3,000 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes.
The lowest seller in the market at that time. Also known as offer.
The highest buyer in the market at the time.
Contract for Difference (CFD)
An agreement between buyer and seller to exchange the difference in value of a particular instrument between when the contract is opened and when it is closed.
Pair of currency that are compared when trading Forex – e.g. a contract of Australian Dollars vs US Dollar would be expressed as AUDUSD.
A security with a price that is dependent upon or derived from one of more underlying assets.
Direct Market Access (DMA)
Model of pricing and execution where an order is placed directly, or virtually directly, into an Exchange without any broker intervention. In practice, there are many variations to the general model and brokers always retain the right to filter orders for regulatory or compliance reasons.
To execute an order in the market. The price is known as the entry or opening price.
To create an order that is the opposite of a position that is currently held
Financing is applicable on all CFD positions held overnight. The financial rate is applied to the full value of your position. If you hold a long ‘buy’ position you will be charged a financial interest, if you hold a short ‘sell’ position you may receive interest.
Contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed today.
An investment to reduce the risk of adverse price movement in another investment or an asset, normally consisting of taking an offsetting position in a related security.
Gross Liquidation Value (GLV)
Your GLV is the total value of your account if you closed out all positions at the current market price minus any transaction charges or adjustments. If your GLV goes below 0, you will be in debt.