CFDs
What is a CFD?
A Contract for Difference, or 'CFD', is one of the most popular trading instruments in Australia and globally, due to their simplicity, ease of trade, leverage, ability to short sell and cost effectiveness.
A 'Contract for Difference', is a contract between two parties to exchange the difference in the price of a security from the open and close of a contract. CFDs are a leveraged product and require a trader to deposit a fraction of the total value of the position (known as margin) to open a position.
Margin
Initial Margin – The initial deposit needed to open the CFD position.
Variation Margin – As the price and value of the open position changes throughout a day so does the margin requirement. The margin is expressed as a percentage of the full notional value of the open position. The CFD trader will need to maintain this margin real-time as the CFDs position value increases and/or decreases.
Margin Calculation – For example, you wish to buy 100 BHP at $35.00 and BHP has a margin of 5%:
| Stock | Margin | Volume | Price | Full Notional Value | Initial Margin |
|---|---|---|---|---|---|
| BHP | 5% | 100 | $35 | $3,500 | $175 |
| Initial Equity | Margin | Free Equity |
|---|---|---|
| $5,000 | $175 | $4,825 |
The profit or loss of the trade is based on the total notional value of the position, allowing you to gain increased exposure to the market, with a lower capital outlay. The underlying financial instrument can range from Equities, Foreign Exchange, Indices, and Commodities, across global exchanges.
Direct Market Access
There are two business models which over-the-counter (OTC) CFD providers will offer clients; Direct Market Access (DMA) and Market Maker models. The key difference between the two is price feeds received by clients and the providers hedging methods. FP Markets offers a pure DMA CFD service. This means clients receive direct price feeds without interruption from the underlying market and market depth.
All FP Markets client trades are 100% hedged, meaning profits and losses come from the underlying market. FP Markets do not profit from any client losses which enables FP Markets' interests to be aligned with the trader.
A Market Maker who does not hedge will profit from a client loss. The Market Maker’s interests are not in line with that of the clients.
Learn more about FP Markets DMA CFDs
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DMA CFDs Explained
Learn about the advantages of trading DMA CFDs as well as types of CFDs, applications of CFDs and examples of CFDs.
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Why FP Markets DMA CFDs
FP Markets is rapidly becoming one of the globes leading DMA CFD providers as a result of our low costs, superior platform and phone support.
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DMA Margin Rates
FP Markets offer you access to competitive Direct Market Access (DMA) margin rates giving you a trading edge, with powerful leverage enabling you to take advantage of more trading opportunities.