In order to better understand our products and to be as excited by the prospects as we are, you're going to have to learn some new words and terms. What you learn here will enable you to far better understand the world of investment and trading.

What are CFDs?

The term CFD stands for Contracts For Difference.

CFDs allow you to trade in financial products and markets including domestic and global shares, indices, foreign exchange (forex or FX) and commodities such as gold and oil using a single trading account. As Australians broaden their investment horizons, CFD trading in Australia has grown rapidly and is now not just restricted to professional investors.

In essence, a CFD is an agreement or contract between two parties (for example, you and MarketsPlus) to exchange the difference in value between the opening and closing price of a particular financial product, such as a share. Used with prudence a CFD can be a wonderful tool for investors to maximise returns from a small initial outlay.

For example, if you have an account with us and you think BHP shares are about to go up, you instruct us to buy BHP CFDs on your behalf and if they go up you profit from the difference.

You don't need a large outlay.

As well as providing global reach, CFDs offer you a level of flexibility along with potential cost benefits, since there is no requirement to make a large initial outlay to get started. That's because rather than buying the shares outright, you simply put a deposit on them.

For example, working through MarketsPlus, if you were to purchase a CFD over 500 BHP shares the deposit required would be 5% of the value of the trade. This deposit is called the initial margin in financial markets terms.

So if BHP is priced at $40.00 a share it works out like this: $40.00 x 500 x 5% = $1000. So only $1000 is needed for the initial margin rather than $20,000 to purchase the BHP shares outright. See our example cfd trades section for more information.

You still enjoy the possible gains in BHP shares as if you owned them outright.

Leverage.
Every investor could use a bit.

You may have heard the word 'leverage' used in financial speak. What does it mean? Well, the way we invest for you gives your money leverage. More power. Through MarketsPlus and CFDs, leverage allows an investor to outlay a smaller amount than is normally required to invest in world markets.

Shorting.
Don't sell yourself short.

Another trading strategy to discover is shorting. It gives you the potential to profit from falling markets.

Shorting means to sell something that you don’t currently own, knowing that sometime in the future you will have to buy the same quantity back. If you sell something at a high price and manage to buy it back at a lower price then the difference is your profit. It is a strategy often used by more sophisticated investors that either believe the market is going down or as part of a hedging strategy.

The risk of shorting is that the price of the market you’re trading rises, meaning a loss that could even exceed your initial investment.

It is important therefore to always set a conservative stop-loss limit when shorting or indeed with any trade. More about this is available in the Product Disclosure Document, on the website and in the platform help.

However, every investment has risks.

With CFDs, the benefit is even relatively small gains in the shares or commodities you trade in can result in much larger returns than you'd get from other investment products.

The risk is even small losses will also be magnified, resulting in much larger losses than other investment products, including the risk of you losing more than your initial investment.

If you are starting out we recommend you begin using our Lower Leverage Series of products. Your leverage is capped out at a lower level than our normal levels but you will have to contribute a higher deposit.

Counterparty risk.
We've minimised it for you.

Perhaps counterparty risk is another term new to you. It refers to the financial soundness of MarketsPlus and our ability to fulfil our obligations.

MarketsPlus is licensed by the Australian Securities and Investments Commission and operates its Trust account in accordance with the Australian client money provisions of the Corporations Act. However there is a possibility that if we become insolvent and we are holding your money, you may become an unsecured creditor.

For your peace of mind, MarketsPlus gives you the option of opening a separate MarketsPlus Cash Account with BankWest. This way, your account is held in your name with a leading Australian Bank and is used to deposit and withdraw funds when you transact with us. It is your account, totally separate from MarketsPlus and earns a competitive interest rate between trading opportunities.

Hedging.

Hedging is simply a way of protecting an investment against loss by making balancing or opposing contracts or transactions with another investment. In other words you try to minimize unexpected movements against your position.

How do I start?

With all this in mind, we offer you the one trading account that gives you access to the Australian Equity Market with a margin requirements as low as 5%.

Take a free trial or see some trading examples to learn more.