A CFD (Contract for Difference) is an agreement between you and a broker to exchange the difference in an asset’s price from when you open a trade to when you close it — without ever owning the underlying asset. Most Australian CFD brokers offer these on shares, forex, commodities, indices, and crypto, all from a single platform.
How CFDs Work — A Practical Example
Suppose you believe the ASX 200 index is going to rise. You open a CFD buy (“long”) position on the ASX 200 at 7,800 points, with a contract value of A$10,000. Your broker requires a 1% margin, so you only need A$100 to open the trade — the rest is provided through leverage.
Three days later the ASX 200 has risen to 8,000 points — a 2.56% increase. Your position is now worth A$10,256, giving you a gross profit of A$256 on a A$100 deposit. But if the index had fallen to 7,600 instead, you would have lost A$256 — more than double your initial margin. This is the core risk of CFD trading.
Your broker may also charge a spread on entry and exit, plus an overnight funding fee if you hold the position past the daily close. These costs add up quickly on leveraged positions, so it pays to compare them carefully before choosing a broker.
Why CFDs Matter for Australian Traders
ASIC (the Australian Securities and Investments Commission) regulates CFD brokers operating in Australia. Any broker offering CFDs to Australian retail clients must hold an Australian Financial Services Licence (AFSL), which means they are subject to capital adequacy requirements, segregated client funds rules, and dispute resolution obligations.
In 2021, ASIC also introduced leverage limits for retail traders — capping leverage on major forex pairs at 30:1, indices at 20:1, commodities at 10:1, and crypto at 2:1. These limits are designed to reduce the risk of rapid losses, and they apply regardless of which ASIC-licensed broker you use. If a broker is offering higher leverage to Australian retail clients, that is a red flag worth investigating.
ASIC-licensed brokers are also required to offer negative balance protection, meaning your account cannot go below zero due to a losing trade. This is meaningful protection that is not guaranteed on offshore platforms operating without an AFSL. Always check a broker’s licence status on the ASIC Connect register before depositing funds.
CFD vs Share Trading
When you buy shares on the ASX through a standard share trading account, you become a legal owner of those shares and can receive dividends. With a CFD over the same stock, you never own the shares — you are simply speculating on the price movement. CFDs offer leverage and the ability to go short (profit from falling prices), which share accounts typically do not. However, CFD positions attract overnight financing charges and carry higher short-term risk due to leverage. For most Australian traders, the ability to use leverage and go short is the reason they choose CFDs over direct share ownership — but it is also the primary source of risk.
What to Check When Comparing Brokers
- ASIC licence status: Confirm the broker holds a current AFSL on the ASIC Connect register. Offshore brokers without an AFSL offer fewer legal protections if something goes wrong.
- Spreads and commissions: Compare the total cost per trade, including the spread and any per-lot commission. A tight spread on a platform like IC Markets can save Australian traders hundreds of dollars per month on active strategies.
- Overnight swap rates: If you plan to hold CFD positions overnight, check the broker’s swap or financing rates. These fees compound daily and can erode profits on medium-term trades.
- Margin requirements and margin call policy: Understand at what account equity level the broker will automatically close your positions. Some brokers give more warning than others.
- Platform and execution quality: Test order execution speed on a demo account. Slippage during volatile markets like the ASX open or major US data releases can significantly impact your results.
See our picks for the best CFD brokers in Australia — all ASIC-licensed, all live-tested by our team.
New to trading? Our CFD beginner guide walks through account setup, position sizing, and risk management in plain English.
Trading CFDs carries significant risk. 70–80% of retail accounts lose money. ASIC regulated. We may earn commission via links.