Once the domain of professional investors looking to hedge their portfolios, contracts for difference (CFDs) are increasingly being traded by retail investors. But are they worth the risk?
CFDs are over-the-counter (OTC) derivatives, so the underlying security is never physically owned.
They are essentially a two-way bet between a provider and a trader that security, such as stock or currency pair, will either increase or decrease in value. Traders can bet that security will go up, known as going long, or that it will go down, known as going short.
But perhaps the most significant aspect of CFDs is that they allow traders to leverage their position. And this is where the bodies are buried.
Leverage amplifies the position such that the gains or losses are based on the levered trading amount, not the initial investment.
“If you had $100 and you had the leverage of 300:1, you’re taking a $30,000 position with your $100,” says Peter Campbell, a financial adviser at Meridian Wealth Strategies.
This story is from the {{IssueName}} edition of {{MagazineName}}.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the {{IssueName}} edition of {{MagazineName}}.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
An outrageous, beautiful monopoly
Telstra's mobile business is a cash machine with few competitors, giving it the highest returns in the world.
Drop the anchor to judge value
Buying and selling decisions should be based on where a stock price is going, not where it has been.
Powering the AI boom
Beyond the software and chipmakers, where will the energy come from?
Get into life
Tucked inside super are products that can protect you from life's inevitable uncertainties.
Paths to home ownership
Taking the road less travelled can sometimes deliver unexpected benefits.
Sold! Quick ways to add value
Small, strategic changes can have a big impact on the look and feel of your home. And get you a better price on auction day.
Money lessons the kids need to know
Your children can learn a lot from your past money mishaps. Here are eight financial conversations I have had with mine.
Property-investing rules: are they likely to change?
The pressure for the government to curb the tax benefits of tax concessions, such as negative gearing and the capital gains tax discount, is unrelenting. Most recently, independent senators David Pocock and Jacqui Lambie proposed five options for paring back investment property tax concessions, with savings to the Federal budget of up to $60 billion over the next decade.
What's love got to do with it?
A rollercoaster of emotions could be driving poor crypto behaviour.
Are we ready to be cash-free?
Saying goodbye to our piggy banks too soon could leave small businesses in the dark when problems arise.
