Trading CFDs began in Australia in 2003. Currently, about one-third of the Australian Securities Exchange (ASX) trades are born from CFD goods. But before you start trading CFD in Australia, read our analysis of the best platforms and CFD brokers. We will also consider any tax implications as well as legal ones.
What is Trading CFDs?
Trading under the Contract for difference (CFD) is about seeking to benefit from the fluctuations in the price of an underlying commodity. But crucially, traders never own the assets underlying it. And where derivatives usually have an expiry set, CFDs do not. So Aussie traders have the freedom to decide whether a profit or loss should be taken.
Traditionally many derivatives were available only to Australian institutions. With a simple instrument that reduces uncertainty and trading costs, individuals too will benefit from entering these markets.
In Australia CFD trading gives you access to a variety of asset types:
The online share market, currency pairs, and commodities such as gold are most common. But Australia’s demand is mounting. CFDs on cryptocurrencies, such as Bitcoin, are also available, plus major events like national elections.
How to Trade CFD’s
Getting started in CFD trading in Australia:
- Choose a market
Want Forex or stock market exposure, or maybe cryptocurrencies? You may have spotted an opening in such a major global market as the US or the UK?
- Buy or sell
Buy if you think the price is on the rise, and sell if you think it will decline. Pick up the trading ticket to display rates on your platform.
- Choose a size of trade
One CFD is the same as one physical share, although it varies with other instruments. Please make sure you think about how much you can afford.
- Using stop and limit orders
A vital part of your risk management plan, a stop-loss order will secure your position if the price goes against you by exiting the trade automatically. If they hit a certain point, a limit order will lock in earnings.
- Close the trade
Keep an eye on your computer for any profit or loss adjustments. If you can gain a profit or realize a loss, leave the trade. Your account balance will reflect any returns or losses.
- PC, smartphone
Australia’s best CFD trading sites will vary according to who you ask. Many websites use MetaTrader (MT4) or MetaTrader 5 (MT5) systems common in the industry. But those can be challenging for beginners. In Australia, even some brokers are pushing their own websites. IG, for instance, has its proprietary software, which enables customization. Very great for beginners, it is also simple to pick up. Mobile traders will test to have the platform accessible through an iOS or Android app.
Open a demo account if you’re unsure about what platform to go for. They are perfect for fine-tuning techniques and developing platform-checking signals, charts, and other available analytical resources.
It’ll depend on individual needs to find the best CFD broker in Australia. But, there are a variety of variables that Aussie traders will need to bear in mind. Secondly, try small spreads and clear fees. Generous criteria for the leverage and margin would also help you optimize your position size. Check that you, too, can open an AUD account as your base currency.
The range of open markets is important. So does the broker have free access to live ASX data, or is there a surcharge? Another factor is the obligatory minimum deposit for the account. A significant initial investment will discourage beginners. Additionally, Australia’s best CFD trading brokers can process trades easily and efficiently every day. It is worth searching for assurance from user feedback that deposits and withdrawals are handled quickly too. One final aspect is that of maintaining the negative balance. It will mean that you will never lose more than the initial deposit you made.
Some of Australia’s greatest names include IG Markets, CMC Markets, AU Online Capital Markets, and Xtrade. In consumer ratings, they always rank to the top, offering affordable pricing and intuitive platforms.
Is CFD Trading In Australia Legal?
CFD is legally traded in Australia. The other good news for traders is that brokers are subject to the Australian Securities Investment Commission (ASIC) – one of the strictest regulators. This means better security for consumer investments.
So, in Australia, ensure the platform is controlled before you open an account. The provider should have a license number from Australian Financial Services (AFS) listed on their website. Restricted brokers are also expected to issue a Product Disclosure Statement (PDS) to Aussie traders. This will list key details, including features of the product, prices, threats, and complaints.
Is CFD Trading Subject To Tax In Australia?
In Australia, the tax consequences of CFD trading are based on how you work as a company. The trading product is less relevant. The tax consequences of trading on CFDs, for example, are the same as if you were dealing in stocks, forex, or futures.
The Australian Tax Office (ATO) notes that you need to report profits minus expenses, whether working as a sole trader or small business. A loss can be balanced against your total tax bill and carried forward when taxable gains are made. The amount of the benefit will depend on the owed amount of tax. Also worth flagging is that you don’t need to go through every trade in depth. Rather it is the overall benefit and loss, which must be reported to the ATO.
Trading with CFDs and taxes can feel complicated. This page aims at simplifying the tax landscape by identifying the main areas that need to be addressed. Having said that, it is still important to look for qualified tax guidance.
A host of online resources can help Aussie traders develop their CFD investment capabilities. Top brokers may offer virtual training courses, for example. Demo accounts are a perfect platform for testing techniques, too. Economic calendars and expert perspectives can also help refine business insights.
In Australia, CFD trading is prevalent among both novices and experienced traders. The ASIC controls the best brokers, and they have strong customer feedback. Once you have established your risk parameters, and developed a plan, open an account with a provider with which you are at ease.
- What's Trading in CFD?
A Contract for Differential (CFD) is a financial instrument allowing traders to bet on an underlying asset's price shift. Trading of CFDs is available across various forms of assets, including stocks, forex, and commodities.
- Is it legal to deal with CFD in Australia?
Yes – CFD trading in Australia is legal. Make sure you open an account with a licensed broker by looking for a license number for the Australian Financial Services (AFS). Not only will your funds be better secured, but you will also provide accurate product details and related risks.
- Is Australian CFD trading taxable?
If you are producing income from Australia's CFD trading, you may owe tax. The Australian Tax Office (ATO) will have to have the net income minus expenses reported. The good news is that Australia's taxes on CFD trading operate in the same way as taxes on other instruments, such as stocks and forex.
- Can you make a living trading Contracts for Difference in Australia?
Some people in Australia do make a living trading CFDs. As with all financial-market instruments, however, there is a chance of losing money.
You will earn or lose more money if you trade in leverage than you initially invested. Be mindful of the risks involved and not exchange CFDs with capital that you cannot afford to lose.