Options, CFDs and Futures in Australia: How Derivatives Trading Works

Options, contracts for difference and futures all let you take a position on a price without buying the asset. That is where the similarity ends. An option you buy caps your loss at the premium. A CFD is a private contract with your broker and runs until you close it. A futures contract trades on an exchange, settles on a date set in advance, and asks for the largest deposit of the three.

Australian brokers sell all three to retail clients under ASIC rules that cap leverage and stop you owing more than your balance. This guide covers what each instrument does, which platforms carry it, what it costs, and how the ATO treats the profit.

The counterparty row is the one worth reading twice. With a CFD your broker sits on the other side of your trade, which is a conflict the exchange-traded products do not carry. It does not make CFDs unusable, and it does mean the price you see is the broker's price rather than a public order book.

The ASX lists equity options on around 60 of the most traded Australian stocks, including BHP, CBA, CSL, NAB and Woolworths, plus index options on the S&P/ASX 200. Each equity contract covers 100 shares and all of them are American style, so you can exercise before expiry.

US markets list thousands of contracts across every sector with far deeper liquidity, tighter spreads and weekly expiries that the ASX rarely offers. US equity options are American style and US index options such as SPX settle in cash on European-style terms.

Most active Australian traders use both: the ASX for domestic exposure and the US for spreads that need tight pricing and frequent expiries. If you have not bought a share yet, start with our guide on how to buy stocks in Australia before going near derivatives, because every strategy below assumes you already understand what the underlying does.

Plenty of Australian brokers sell shares and no options at all, Stake, Superhero and Raiz among them. The list below covers the ones that do.

Interactive Brokers wins on cost and reach, with both markets, the lowest commissions and professional analytics. The interface is steep and new traders lose time to it.

The bank brokers charge $29.95 to $34.95 per ASX options trade, which prices multi-leg strategies out of reach: an iron condor has four legs and four commissions. Those platforms suit an investor writing covered calls against shares they already own, not anyone trading spreads. tastytrade is built for options and shows probability of profit and the Greeks natively, with no ASX access.

Brokers make you apply. The questionnaire covers your experience, finances and understanding of the risk, and the bank brokers assign levels: level one for covered calls and cash-secured puts, level two for buying calls and puts, level three for spreads and beyond.

Interactive Brokers grants permissions in tiers against your experience and net worth. Writing naked options needs a margin account, a higher net worth and a track record you can show.

ASIC requires the broker to give you a product disclosure statement for exchange-traded options and to have you acknowledge the ASX's own options booklet. Treat that as the substance rather than the paperwork: an option can lose 100% of its value, and writing an uncovered one exposes you to more than you put in.

Covered calls are where most Australian options traders begin. You hold 100 BHP shares and sell a call above the current price. BHP stays below the strike and you keep the shares and the premium. BHP runs past the strike and your shares get called away at that price, so you took the premium and gave up everything above it.

Cash-secured puts work the other way. You sell a put on CBA below the current price and hold enough cash to buy. CBA falls and you buy at the strike, which was the price you wanted. CBA holds and you keep the premium.

Buying calls is a directional bet where time works against you: the option decays faster as expiry approaches if the stock has not moved, and you can be right about direction and still lose the lot. Vertical spreads cap both ends by pairing a bought call with a sold call at a higher strike, which costs less than the outright call and blunts the decay. Anyone drawn to faster turnover should read our guide to day trading in Australia first, since the risk management there applies to every instrument on this page.

A CFD is a contract between you and your broker to exchange the difference in an asset's price between opening and closing. Go long on Commonwealth Bank at $120 and close at $125 and you make $5 a unit. Close at $115 and you lose $5. ASIC's Moneysmart warning on CFDs states the position plainly: they are high risk, complex and costly, and most people lose money on them.

The range is the attraction. Most Australian CFD brokers list 5,000 to 10,000 instruments across shares, indices, forex, commodities and crypto, and going short is as simple as going long. Shorting real shares means borrowing stock through a broker, which is slower and dearer.

The cost is the catch. CFDs never expire, so you hold as long as your margin lasts, and every night you hold one you pay financing on the leveraged portion at a benchmark rate plus a broker markup of 2% to 3%. On a $50,000 long position at 7% annualised, that is about $9.60 a night and $288 across a month, taken out of a position that has not moved.

A futures contract is a standardised agreement to buy or sell at a set price on a set date, traded on an exchange rather than against your broker. The ASX runs futures on the S&P/ASX 200, government bonds and AUD/USD. CME Group carries US indices, commodities, forex and rates.

Expiry is fixed. The SPI 200, the ASX's main index future, expires quarterly in March, June, September and December, and you either close before then or the contract settles in cash. Most traders roll into the next quarter ahead of expiry rather than letting it run.

Size explains the higher minimum. The SPI 200 is $25 per index point, so with the ASX 200 near 8,000 one contract carries a notional value of $200,000 against an initial margin around $10,000 to $12,000. That is leverage of roughly 17:1 to 20:1 before you have done anything clever.

ASIC's product intervention order for CFDs took effect in March 2021 and still binds every broker serving Australian retail clients. Before it, some offered leverage up to 500:1, which emptied accounts inside minutes when a market gapped.

Negative balance protection sits alongside the caps and stops a retail trader losing more than the account holds. When the Swiss franc broke its peg in 2015, Australian traders received margin calls for tens of thousands beyond their deposits. That cannot happen to a retail client now, and the broker absorbs the difference.

Brokers must also publish the share of retail accounts that lose money, which lands between 60% and 80% across the market. Professional classification lifts the caps and removes the protections, and qualifying takes two of three tests: $2.5 million in net assets, $250,000 of gross income in each of the last two years, or 20 days of relevant financial services experience.

Futures commissions are the clearest of the three products. Interactive Brokers charges about A$5 a contract on SPI 200 futures and about US$2.25 a side on CME E-mini S&P 500 contracts, with no overnight financing because the carry sits inside the futures price.

Currency conversion is the fee people forget. Trading US futures from an Australian dollar account attracts 0.3% to 1.0% on the way in and out, and holding a US dollar sub-account avoids paying it twice on every round trip.

The classification that matters is investor against business, and it applies across all three instruments. Trade occasionally and hold for weeks or months and the ATO treats gains as capital gains, with the 50% discount on anything held beyond twelve months. Trade frequently with real capital and a systematic method and you are carrying on a business, taxed as ordinary income at your marginal rate with no discount, and able to deduct platform fees, data subscriptions and part of a home office.

Options carry one rule of their own. A premium you receive for writing an option is assessable in the year you receive it if the option expires unexercised. If it is exercised, the premium adjusts the cost base of the shares instead.

Foreign positions add a currency layer. Convert every US trade to Australian dollars at the rate on the date of the transaction, and the movement between trade date and settlement can create a gain or loss of its own. Start from the broker's annual statement and check the conversions rather than trusting them.

Losses on CFDs and futures offset capital gains elsewhere in the same year, with the excess carried forward. GST does not apply to any of this. Keep your own log of date, instrument, size, entry, exit and fees, and reconcile the broker report against it, because the ATO expects detail from derivatives traders that it does not ask of a buy-and-hold investor.

Buying an option risks the premium and nothing more, and 70% to 80% of options expire worthless. Writing an uncovered call risks an amount with no ceiling, since a stock that doubles leaves you owing the difference.

Liquidity does quiet damage on the ASX. Thin contracts carry wide spreads and you pay that spread twice, once entering and once leaving. Stay with high-volume underlyings, BHP, CBA, CSL and NAB locally, or SPY, QQQ and the largest US names offshore.

Start with defined-risk positions: bought calls, bought puts, vertical spreads and covered calls, all of which cap the loss at what you put in. Move to naked puts, strangles and iron condors after six months of live trading and only once delta, theta and vega mean something specific to you.

Paper trade first on Interactive Brokers or tastytrade for four to eight weeks, logging entry, exit, result and the reason for each trade. Fifty simulated trades in the red is the market telling you something before it costs anything.

Bought options and covered calls, on a small position size. The loss is capped at what you paid, the mechanics are visible, and nothing arrives overnight to erode the position. CFDs look easier because the minimum deposit is small, and the daily financing charge plus the broker sitting opposite you makes them the hardest of the three to hold for any length of time.

Not as a retail client on CFDs, because negative balance protection is mandatory and the broker absorbs any shortfall. Writing uncovered options is different: the loss on a naked call has no ceiling, and margin calls can force the position closed at the worst moment. Professional classification removes the protection along with the leverage caps, which is the trade people accept without reading.

Yes, every dollar, whatever the size. Brokers report to the ATO and the data matches against your return automatically. Record each trade as you go rather than reconstructing a year of activity in July, because the record-keeping standard for derivatives is higher than for shares and reconstructing it after the fact is where the errors appear.