Contracts for Difference (CFDs) are derivative products that allow investors to speculate on price movements of underlying assets (shares, indices, commodities, forex) without owning the asset. CFDs are available through several ASIC-regulated brokers in Australia. However, ASIC data consistently shows that the majority of retail CFD investors lose money, and CFDs are not suitable for most investors.
ASIC Risk Warning
ASIC’s MoneySmart website states that studies in Australia and overseas have found that between 70–80% of retail CFD clients lose money. ASIC introduced significant product intervention rules in 2021 limiting leverage available to retail clients and banning certain incentive structures for CFD providers. These rules apply to all ASIC-licensed CFD providers.
ASIC CFD Rules for Retail Investors
Under ASIC’s product intervention order (effective 2021), Australian retail clients face the following leverage limits:
| Underlying asset | Maximum leverage |
|---|---|
| Major forex pairs | 30:1 |
| Non-major forex / gold | 20:1 |
| Equity indices | 20:1 |
| Commodities (ex gold) | 10:1 |
| Individual shares | 5:1 |
| Cryptocurrencies | 2:1 |
These limits apply to all ASIC-licensed retail CFD accounts. Wholesale clients (meeting higher financial criteria) may access higher leverage.
How CFDs Work
A CFD allows you to open a position on an asset’s price movement without owning the asset:
- Long (buy) CFD: Profit if the asset price rises; loss if it falls
- Short (sell) CFD: Profit if the asset price falls; loss if it rises
- Leverage: You post a fraction of the trade value as margin — amplifying both gains and losses
- No ownership: CFDs do not confer share ownership, voting rights, or franking credits
Major ASIC-Regulated CFD Brokers in Australia
| Broker | Speciality | ASIC Licence |
|---|---|---|
| IG Markets | Share CFDs, indices, forex, commodities | Yes |
| CMC Markets (CFD platform) | Share CFDs, indices, forex | Yes |
| Saxo | Multi-asset CFDs | Yes |
| Plus500 | Simple CFD platform | Yes |
| Pepperstone | Forex-focused | Yes |
| City Index | Forex, CFDs | Yes |
Note: CMC Markets’ CFD platform is separate from CMC Markets Invest (which is a standard share investing platform). These are different products for different purposes.
CFDs vs Shares — Key Differences
| Feature | CFDs | Shares |
|---|---|---|
| Asset ownership | No | Yes (direct or CHESS) |
| Dividends | CFD dividend adjustments (no franking credits) | Full dividends + franking |
| Leverage | Yes (amplified risk) | No (unless margin loan) |
| Shorting | Yes (easily) | Complex via securities lending |
| Overnight financing | Yes (holding cost for long CFDs) | No |
| Loss limit | Potentially greater than initial capital (short positions) | Limited to capital invested |
Who Are CFDs For?
CFDs are designed for experienced, risk-tolerant traders who understand derivatives, leverage, and active risk management. They are used by:
- Traders wanting to short-sell (profit from falling prices)
- Hedgers wanting to temporarily offset portfolio exposure
- Traders who want leverage and accept the amplified risk
CFDs are not appropriate for:
- Beginner investors
- Long-term buy-and-hold investors
- Investors unfamiliar with leverage and margin calls
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Frequently Asked Questions
Are CFDs legal in Australia? Yes. CFDs are legal and regulated by ASIC. They are available from ASIC-licensed providers subject to retail leverage limits introduced in 2021.
Can I lose more than I invest with CFDs? For long CFD positions, your maximum loss is limited to your margin/account balance (ASIC’s negative balance protection rules require licensed brokers to implement this for retail clients). For short CFD positions, losses can theoretically be unlimited if the asset price rises sharply.
Do CFDs pay dividends or franking credits? No. CFDs do not confer ownership of the underlying shares and therefore do not provide access to franking credits. CFD providers make “dividend adjustments” for long positions on ex-dividend dates, but these are cash adjustments — not actual dividends from the company.
This article provides general financial information only. CFD trading involves significant risk and is not suitable for all investors. The majority of retail CFD traders lose money. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.