Applications of CFDs

Hedging

Hedging is a strategy that allows you to reduce the risk of negative price movements in your portfolio. Hedging refers to opening an equal but opposite position to offset any short term price movements in your physical shares. If you hold shares in your portfolio that you wish to protect from a potential falling share price you can open an equivalent short CFD position to protect their value. If the CFDs are bought back after a decline, then the profit achieved from the CFD trade should offset the loss incurred on your physical shares. CFDs are flexible and cost effectively way to protect the value of your physical shares while retaining your holdings and without incurring a CGT liability.

Diversification

Diversification is a risk management technique that involves allocating funds to a variety of shares to spread the risk across a number of companies. CFDs are an ideal diversification tool due to their lower capital requirement and lower transaction costs. A diversified portfolio allows you to gain exposure to a number of positions across multiple companies, sectors and even asset classes to limit your potential risk in any one position by spreading the risk across a number of positions to enable you to achieve more stable returns.

Self Managed Super Funds

Following the tax ruling by the ATO (ATO ID 2007/56) CFDs can be traded within your SMSF under certain circumstances. CFDs can be used within your SMSF to protect the value of the shares held in your SMSF by Short Selling CFDs to hedge your positions and make better use of your trading capital by trading on margin. 

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The information in this website has been prepared without taking into account your personal objectives, financial situation or needs. You should consider this information in light of your objectives, financial situation and needs before making any decision about whether to acquire or dispose of any financial product. A Product Disclosure Statement for each of the financial products available from First Prudential Markets can be obtained either from this website or on request from our offices and should be considered before entering into transactions with us. Derivatives can be risky; losses can exceed your initial deposit. First Prudential Markets recommends that you seek independent advice from an appropriately qualified person before deciding to invest in or dispose of a derivative.
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