The latest entrant to the Contracts for Difference (CFD) arena is the Australian Stock Exchange (ASX) who have now introduced ASX CFDs. ASX CFDs are available on currencies, commodities, stocks and indices. While the mechanics of the CFDs are the same as CFDs issued by other CFD providers there are some differences when it comes time to trade them.

Trading ASX CFDs

To trade ASX CFDs you have to open an account with a broker that has been approved to trade ASX CFDs. CFDs are then traded like shares with orders placed into a central order book and executed on a price and time basis. The first order placed at a set price is always traded first.

The ASX CFDs can be bought and sold through different brokers, because the ASX uses standardised contracts that are all traded on the ASX CFD exchange. Usually when you open a position with one CFD provider you have to close the contract with the same CFD provider.

ASX Guarantees Their CFDs

ASX CFDs are guaranteed by the ASX which means that if a broker was to default the ASX will guarantee the CFD position. With other CFD providers there is no guarantee that you will receive a payment if your CFD provider was to default. ASIC does however require that your money is held in a separate account to provide some protection to the traders.

The ASX CFDs offer a unique feature which allows a trader to swap the CFD position for a physical position in the underlying stock. This can be achieved at the exact same price and is conducted by the broker as an off market transfer. This is not available if you are trading with other CFD providers.

Disadvantages of ASX CFDs

ASX CFDs suffer from a lack of liquidity as they rely on other traders to take the other side of the trade. When trading with OTC (over the counter) CFD providers the CFD provider always takes the other side. Liquidity is equivalent to the underlying instrument in the OTC CFD market.

Trading ASX CFDs is very similar to trading OTC CFDs in all other aspects other than the key differences noted here.