CFD and Futures Trading in Australia

Contracts for difference (CFDs) and futures contracts let you profit from price movements without buying the underlying asset. A CFD on BHP shares lets you gain or lose based on BHP's price change without owning the shares. A futures contract on the ASX 200 index lets you bet on the direction of the Australian sharemarket over a set period.

Both instruments use leverage, meaning you put down a fraction of the total position value as margin. Leverage amplifies gains and losses. ASIC, the Australian Securities and Investments Commission, regulates both products and has imposed strict rules to protect retail traders. This article covers how each product works, the regulatory framework, costs, and broker options for Australian residents.

A CFD is a contract between you and your broker. You agree to exchange the difference in an asset's price between when you open the trade and when you close it. If you go long (buy) on a CFD for Commonwealth Bank shares at $120 and sell at $125, you profit $5 per CFD unit. If the price drops to $115, you lose $5 per unit.

CFDs cover thousands of markets: Australian and international shares, indices (ASX 200, S&P 500, NASDAQ), forex pairs (AUD/USD, EUR/AUD), commodities (gold, oil, iron ore), and cryptocurrencies. Your broker determines which markets are available. Most Australian CFD brokers offer 5,000 to 10,000 instruments. For commodity-focused strategies, our guide on investing in commodities covers the alternatives.

You can go long (profit from rising prices) or short (profit from falling prices) with equal ease. Shorting is one of CFDs' main attractions. If you believe BHP will fall after a poor earnings report, you open a short CFD position. When the price drops, you close the trade and keep the difference. Shorting traditional shares requires borrowing stock through your broker, which is more complex and expensive. If you prefer equity derivatives with defined risk, our options trading guide covers the mechanics.

CFDs have no expiry date. You hold the position as long as you want (and as long as you maintain sufficient margin). Overnight positions incur a financing charge because the broker lends you the leveraged portion. This charge is the interbank rate (the RBA cash rate or an equivalent benchmark) plus a broker markup, applied daily. For intraday approaches that avoid overnight costs, see our guide on day trading in Australia.

A futures contract is a standardised agreement to buy or sell an asset at a predetermined price on a specific future date. The ASX trades futures on the S&P/ASX 200 index, Australian government bonds, and the AUD/USD exchange rate. CME Group (the world's largest futures exchange) offers contracts on US indices, commodities, forex, and interest rates.

Futures contracts have set expiry dates. The SPI 200 futures contract (the ASX's main index future) expires quarterly in March, June, September, and December. You must close your position before expiry or the contract settles in cash (for index futures) or physical delivery (for commodity futures). Most traders roll their positions to the next contract period before expiry.

Futures trade on regulated exchanges, not between you and your broker. This means prices are transparent and standardised. The ASX and CME act as central counterparties, guaranteeing both sides of every trade. This structure removes the broker conflict of interest that exists in CFD trading, where the broker is your counterparty.

SPI 200 futures contracts are sized at $25 per index point. If the ASX 200 is at 8,000 points, one contract has a notional value of $200,000. The initial margin (the deposit you need) is approximately $10,000 to $12,000, giving you leverage of about 17:1 to 20:1.

ASIC introduced product intervention orders for CFDs in March 2021. These rules cap leverage, ban incentives, and require risk warnings. The rules remain in force and apply to all brokers offering CFDs to Australian retail clients.

Leverage caps limit how much exposure you can take relative to your margin deposit. Major forex pairs (AUD/USD, EUR/USD) are capped at 30:1. Minor forex pairs and gold are capped at 20:1. Major stock indices are capped at 20:1. Individual shares are capped at 5:1. Crypto CFDs are capped at 2:1. Before these rules, some brokers offered leverage up to 500:1, which wiped out accounts in minutes during volatile markets.

Negative balance protection prevents retail traders from losing more than their account balance. If a position moves against you so fast that your losses exceed your deposit, the broker absorbs the difference. Before this rule, traders could owe money beyond their account, as happened during the 2015 Swiss franc crisis when several Australian brokers issued margin calls for tens of thousands of dollars.

CFD brokers must display a standardised risk warning stating the percentage of retail client accounts that lose money. Most Australian brokers report loss rates between 60% and 80%. IG Markets, for example, reports that 70% of retail client accounts lose money when trading CFDs. This figure reflects the reality that most retail traders lose.

Professional clients can apply for higher leverage and fewer protections. To qualify, you need two of three criteria: $2.5 million in net assets, $250,000 in gross income for each of the last two financial years, or verifiable experience working in financial services for at least 20 days. Professional classification removes negative balance protection and leverage caps.

CFD brokers charge through spreads, commissions, or both. The spread is the difference between the buy and sell price. IG Markets charges a 1-point spread on the ASX 200 index CFD. CMC Markets charges a 0.7-point spread. For share CFDs, most brokers charge a commission of 0.05% to 0.10% per side plus a minimum ticket fee of $5 to $10.

Overnight financing is the hidden cost that erodes returns on longer-term CFD positions. The rate is the benchmark interest rate plus a broker markup of 2% to 3%. On a $50,000 long CFD position with a 7% annualised financing rate, you pay about $9.60 per night. Over a month, that adds up to $288. Short positions receive financing credit in some cases, but brokers often charge for shorts too.

Futures commissions are transparent. Interactive Brokers charges AUD $5 per contract for SPI 200 futures. CME E-mini S&P 500 futures cost USD $2.25 per contract per side through most brokers. There are no overnight financing charges on futures because the cost of carry is built into the futures price itself.

Currency conversion fees apply when you trade instruments denominated in foreign currencies. Trading US index futures from an AUD account incurs a conversion fee of 0.3% to 1.0% on profits and losses. Some brokers let you hold a USD sub-account to avoid repeated conversions.

IG Markets is Australia's largest CFD broker by client numbers. IG holds an ASIC Australian Financial Services Licence (AFSL 220440) and offers over 17,000 instruments. The platform suits beginners and experienced traders. Minimum deposit is $0, but you need sufficient margin to open positions.

CMC Markets (AFSL 238054) is another established Australian broker with competitive spreads and a strong charting platform. Pepperstone (AFSL 414530) focuses on forex and offers tight spreads on major pairs. Plus500 (AFSL 417727) provides a stripped-back platform for traders who want simplicity.

For futures, Interactive Brokers (AFSL 453554) offers access to ASX, CME, EUREX, and other global exchanges. CommSec also offers ASX futures trading. The minimum capital for futures trading is higher because contract sizes are larger. Most futures traders start with $10,000 to $20,000.

The ATO treats CFD and futures profits differently depending on whether you are a trader or an investor. Most retail participants fall into the investor category. Investors report net CFD profits as capital gains. If you hold a position for more than 12 months (rare for CFDs but possible), you receive the 50% CGT discount. Short-term positions (under 12 months) are taxed at your full marginal rate.

If you trade frequently enough that the ATO considers you a "share trader" (a business activity), your profits and losses are ordinary income, not capital gains. The benefit of trader status is that losses offset other income in the same year. The downside is no 50% CGT discount. The ATO looks at trading frequency, capital deployed, record-keeping, and whether trading is a primary income source.

Losses from CFDs and futures can offset capital gains from other investments (shares, property) in the same financial year. Excess capital losses carry forward to future years. Keep detailed records of every trade: date, instrument, position size, entry price, exit price, and fees. Your broker provides an annual trade history report, but reconcile it against your own logs.

GST does not apply to financial supply transactions including CFDs and futures. You will not pay or claim GST on your trading activity. Foreign income from international futures positions must be converted to AUD at the exchange rate on the date of the transaction for tax reporting purposes.