CFD trading is a popular form of derivative trading in many countries around the world, but it is also a complex and high-risk type of investment. Therefore, it is important to fully understand how CFDs work if you are interested in starting to trade in this way.
If you are already trading other instruments, you will find that CFD trading has some similarities with other types of trading, but there are also some important differences. If you are new to trading, you can certainly start with CFDs, and many traders do. Just make sure you understand the potential risks and benefits involved.
Australian traders who are considering CFD trading may have various questions. Is CFD trading legal in Australia? Are there restrictions placed on it? Who regulates CFD trading in Australia? Which brokers are suitable for Australians who want to trade CFDs? Here are the answers to those questions so you can make sure you are fully prepared to start CFD trading as an Australian investor.
What are CFDs?
CFD is an acronym for Contract For Difference, and trading via CFDs means that a trader effectively enters into a contract whereby they are speculating on the price movement of a particular instrument in order to potentially profit from that movement but without ever actually owning the underlying asset. Trading via CFDs gives traders exposure to the asset’s price movements through the process of entering and exiting positions, without actually buying or selling the way you would with traditional trading.
CFD trading is a highly common form of trading for forex traders, but it is also possible to trade using CFDs in almost any asset class, including commodities, shares, indices, and even cryptocurrencies, as long as you can find a brokerage that you are happy with that offers these instruments as CFDs. As you research brokers, keep in mind that some will offer all asset categories as CFDs, while others will only offer selected categories, such as forex trading, via CFDs.
An important characteristic of CFD trading is that traders are able to use leverage, which allows them to trade with more capital than they actually have available. This is the aspect of CFD trading that makes it possible to earn bigger profits faster than you would with traditional trading. However, it is also what makes it a high-risk form of trading, so it is vital that you fully understand the risks of using leverage and learn to use it wisely if you are a new CFD trader.
Are CFDs legal in Australia?
The short answer is yes, CFDs are legal in Australia. They are also carefully regulated, which means there are some restrictions placed on the way you can trade CFDs in Australia. These restrictions are, however, in place to protect traders and limit their losses. With high-risk investments such as CFDs, the law tries to ensure that traders do not lose too much money, and they tend to do this in various ways, such as by limiting the amount of leverage that can be offered and ensuring that CFD brokers provide clients with adequate risk warnings when they sign up for a CFD trading account.
It is up to you, as a trader, to decide how much leverage to use within the restrictions set by the law and your broker. Most CFD traders in Australia, as in other countries, do use leverage when trading CFDs as this allows them to access more capital than they actually have. However, the legal regulations in the country impose some restrictions on the way CFDs are traded, specifically on how much leverage Australian brokers are allowed to legally offer their clients.
These restrictions include leverage being restricted to 30:1 on major currency pairs, 20:1 on minor currency pairs, 20:1 on major indices and gold, 10:1 on other commodities and minor indices, and 5:1 on shares and other assets. This means that if you are trading forex, for example, for every $10 you have on deposit, you will be able to place trades of up to $300 when trading major pairs and up to $200 when trading minor pairs. However, you do not have to use maximum leverage. How much you use will depend on your trading strategies and your appetite for risk.
Cryptocurrency traders in Australia will find that many brokers do not offer cryptocurrencies to trade as CFDs. In fact, many multi-asset brokers do not offer them at all. When you do find a broker offering crypto CFDs in Australia, you will find that the leverage they can offer is restricted to 2:1. Be wary if you find brokers offering higher levels of leverage. Since the levels are restricted by law and this is monitored by regulators within the country, anyone offering more is either operating illegally or is an offshore broker who is not regulated within Australia.
Who regulates CFD trading in Australia?
The regulating body for CFD trading and most other types of trading in Australia is the Australian Securities and Investments Commission (ASIC). ASIC is an independent commission of the Australian government, and its role is to act as the national corporate regulator for companies in the financial sector.
It is responsible for regulating registered companies, financial markets, and providers of financial services and credit services. This body also enforces laws to protect Australian consumers, investors, and creditors.
ASIC has the power to:
- Make rules aimed at ensuring the integrity of financial markets
- Issue financial licences and monitor businesses that provide financial services
- Investigate suspected breaches of the law by financial institutions
- Issue infringement notices in relation to alleged breaches of the law, in some cases
- Ban entities from engaging in credit activities or providing financial services
- Seek civil penalties in courts
- Commence prosecutions, in some cases
If you feel that a broker in Australia is acting illegally, you can make a complaint to ASIC. As already mentioned, there are offshore brokers who may target Australian CFD brokers, often offering incentives to sign up or high levels of leverage. These brokers are not regulated to operate in Australia. In fact, they may be completely unregulated, or they could be subject to local regulations that are not as strict or well-enforced as ASIC regulations. We strongly advise new CFD traders to avoid these brokers.
How to choose a safe CFD broker in Australia
Always ensure that the CFD brokers you are considering are fully regulated and licenced by ASIC. If you are not sure, you should check directly with ASIC; a fraudulent broker could easily set up a website and falsely claim to be ASIC-regulated. ASIC ensures that brokers operate safely by following all relevant laws, regulations, and best practices for the industry.
For example, brokers overseen by ASIC are not allowed to offer gifts, bonuses, or incentives to open a CFD account or deposit more money into an existing account. ASIC-regulated brokerages must also guarantee that if the funds left in your CFD trading account drop below 50% of the margin required to cover your open positions, one or more of those positions must be closed. As previously discussed, regulated brokers have restrictions on the amount of leverage they can offer. In short, regulated brokers in Australia have to operate in such a way that limits the total amount of loss any CFD trader can make.
While it is vital to choose a safe and regulated Australian CFD broker, you will also want to look at other aspects of the broker that are important to you, such as a user-friendly platform, a reasonable minimum deposit, and a demo account. Demo accounts can help you limit your losses because they allow you to practice with virtual funds, getting familiar with how the platform works, and practising trading strategies before investing any real money.
The safest CFD brokers in Australia
There are some excellent, safe CFD brokers in Australia, but there are also some scammers and some brokers who simply have a better reputation than others. We regularly review various CFD brokers to ensure that they are offering their clients an excellent level of service. Here is our list of the safest CFD brokers in Australia.
| Broker | Features | Min Deposit | EURUSD Spread | ||
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 Between 74-89 % of retail investor accounts lose money when trading CFDs
US Clients: No Regulated : Yes
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$200 | NDD 0.09 / Standard 0.69 |
Sign
Up
Between 74-89 % of retail investor accounts lose money when trading CFDs
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 Your capital is at risk
US Clients: No Regulated : Yes
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$200 | From 0.1 pips | ||
 Your capital is at risk
US Clients: No Regulated : Yes
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– 40% New Member Bonus
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$100 | Fixed |
Sign
Up
Europe* CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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 76% of CFD traders lose money
US Clients: No Regulated : Yes
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$50 (varying by Country) | from 1 |
Sign
Up
76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
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 Your capital is at risk
US Clients: No Regulated : Yes
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No minimum deposit | From 0.0 pips | ||
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Ultimately, CFD trading is legal and regulated in Australia, and there is no reason Aussie traders should not get involved in this popular and exciting form of trading. Make sure that the broker you choose is licensed and regulated by ASIC and that they follow all best practices, including compliance with the various laws and regulations that are in place to protect Australian CFD traders.
To be as safe as possible, take the time to make sure you fully understand how CFDs work, what the risks are, and how to use leverage wisely. Take a close look at both the benefits and drawbacks of CFD trading, and make sure you have good risk management strategies in place to ensure your CFD trading activities are safe – and hopefully profitable!