subject: Cfd Trading On Small Cap Stocks [print this page] Generally CFD companies in Australia offer CFDs over the shares making up the ASX top 300, the rationale behind this is straightforward, stocks with a bigger market capitalisation tend to be far more liquid. Many CFD brokers forget that we live in Australia, a country full of resources and of course also rich in resource shares. A large amount of shares listed on the ASX are resource based, this is in fact the largest sector of the Australian stock market.
CFD trading over speculative resource stocks can be enormously worthwhile if you select your shares intelligently. When buying and selling CFDs over speculative stocks you must always perform some research on the company. Prior to selecting your stocks you must make certain that the company has good management and an excellent project. Needless to say if the copper price has risen and you are looking for exposure to shares in this sector logically you would not pick a CFD over a share with gold assets, this is the reason selecting stocks within the relevant sector is also critical. It is always vital that you keep in mind trading CFDs over speculative stocks has risks as these types of stocks can go up in price as quick as they can come down.
So why a trade CFD rather than buying the Share outright?
The answer to this question is simple and can be summed up in a few words, unrealised profits and losses. Unlike shares CFDs are marked to market on a daily basis meaning that the profits or losses are credited or deducted to and from your account each trading day. The profits and losses from trading stocks are handled very differently in that they're only realised once the equity is sold. Realising profits and losses on a daily basis means that you can utilize your unrealised to profits to buy new positions without needing to deposit further funds into your account, of course the same goes for losses in that you'll have to deposit cash into your account if the trade moves against you.
Its vital that you note a large amount of speculative shares may have a larger margin obligation than stocks in the ASX top 300, their margin requirement can easily be as high as 100% allthough the majority are offered on a margin of 75%. One vital factor to think about here is whether your CFD company will charge you financing on the full notional worth of the position, this would of course be rather high if the position was on a 100% margin, there are however a number of CFD brokers that will only charge financing on the borrowed amount. It would be far more cost effective to select a CFD broker which will only charge you on the borrowed amount, if the CFD is on 100% margin this will deliver a large cost saving.
There are actually very few CFD companies in Australia that will permit you to buy and sell CFDs on all ASX listed shares, one of the most common CFD providers is IC Markets. Among the list of key benefits of trading with IC Markets is that they dont have any CFDs on 100% margin and only charge financing on the borrowed amount meaning that you wont pay any financing charges for CFDs bought on 100% margin.
