Contract for Difference, commonly known as CFD trading, has become popular in Australia in the recent past. This form of trading allows traders to speculate on the price speculation of various financial assets, such as oil, gas, stock, etc., without necessarily owning the assets. The best CFD trading platforms in Australia are fully licensed and regulated by the ASIC – Australian Securities and Investments Commission.
This detailed guide covers everything you need to learn about regulated CFDs in Australia. You will learn about the requirements for opening a CFD account, leverage limits, fees, choosing the best CFD broker, and more.
Is It Legal to for CFD Brokers to Operate in Australia?
Yes. Contract for Difference or CFD trading is a legal activity in Australia. However, traders must open accounts with only regulated brokers in the market. Currently, all CFD brokers must have a license from the Australian Securities and Investments Commission (ASIC) to operate.
There are two ways you can trade CFDs. You can choose the short way or opt for the lengthy process. Both options are legal, and they provide an incredible experience for beginners and expert traders.
Though trading is legal, it is heavily regulated. Also, traders are not allowed to open CFD accounts if they don’t meet the criteria. The process of qualification includes assessment, tests, or telephone interviews.
Do Taxes Apply on CFD Trading in Australia?
Like other businesses, Australians must pay Goods and Services Tax (GST) on all selected commodities. Also, all traders must understand that commodity derivatives contracts may be categorized under the Taxation of Financial Agreements (TOFA) guidelines.
All trading activities are reported by the ASIC to the Australian Treasury. These activities vary as they may cover underlying commodities like CFDs, physical trades, and futures.
What Types of CFD Trading Platforms are Available?
There are different CFD platforms you can join in Australia. The best platforms are fast-loading, providing real-time charts, as well as quotes featuring an extensive selection of analysis tools.
The exciting part is that the best platforms are optimized for mobile devices and personal computers. It is essential to understand that some CFD trading platforms include copy-trading, economic calendars, financial news feeds, drawing tools, and more.
The following are the two main forms of trading available for Australians:
Mobile Trading Platforms
Mobile phones, especially smartphones, have made many things accessible from anywhere in Australia. Though CFD trading is a relatively new venture, you can access the commodities you want on the go or from the comfort of your home. The critical factor to consider when choosing a quality and reliable trading mobile platform is security. Also, you must consider compatibility with many devices, including Android, iOS, and Windows.
When sourcing for the best mobile platforms, you must ask yourself the following questions:
- Does the mobile trading app allow you to execute orders remotely?
- Does the app support all the main features of the original website or desktop version?
- How fast is the mobile app?
- What operating systems does the mobile app support – Android, iOS, or Windows?
- Does the broker update the mobile app regularly?
- What security features does the trading mobile app use?
Proprietary Trading Platforms
Many online CFD brokers have proprietary trading platforms that are safe for Australians. Additionally, the leading brokers have their own stand-alone apps in addition to MetaTrader platforms. The good thing is that these platforms work instantly through standard browsers like Chrome, Firefox, and Safari. They also have downloadable apps for desktop computers.
MetaTrader 4 Platform
MetaTrader 4 is a popular platform for forex and futures trading. The platform enables traders to monitor and analyze financial markets, advanced trading operations, copy deals, and expert advisors.
- The advantages of the MT4 platform are:
- Supports three trade execution modes.
- Allow traders to implement different strategies.
- Utilize the latest security technologies, including 256-bit SSL protocol.
- Has 30 indicators and 24 graphical features for technical analysis.
- Provides real-time market quotes.
- Traders have access to the history of trading operations.
- A free chat feature for communication.
MetaTrader 5 Platform
As the name suggests, MT5 is an upgraded version of the MT4 platform. The advantage of this new version is that it offers more functions for modern forex exchange. MetaTrader 5 app is compatible with iOS, Android, and Windows devices.
The advantages of using this platform for CFD trading are:
- Allows trading currencies ad stocks from wherever you are.
- The app has multiple in-built market analysis tools, including 30 indicators.
- Features three chart types and 9 timeframes.
- Provides financial alerts, news, and push notifications.
The best part is that all these features are accessible 24 hours, seven days a week.
Main Requirements to Create a CFD Trading Account in Australia
Like any trading platform, there are requirements you must meet to open a CFD account. Of course, the terms and conditions may vary depending on the broker you are using. The different types of accounts are standard, demo, Islamic, and professional.
The following are essential requirements to open a CFD account in Australia:
- Proof of Identity: Every CFD trading platform requires users to prove their identity before transacting. The accepted documents include a government-issued identity card, military ID, passport, or driver’s license.
- Proof of Address: The different documents you can use as proof of address in Australia include bank statements, utility bills, and other documents that prove you reside in Australia.
- Trading Money: The minimum amount to start CFD trading varies depending on the broker you are using. A standard platform requires a minimum of 0.1, and the maximum amount can go up to $500. However, Islamic CFD brokers require a larger amount of money to trade.
How Does Leverage Limits Work on CFD Trading
It is essential to understand that some CFD regulators set leverage limits for traders in Australia. All brokers under the ASIC umbrella have a maximum leverage of 30 to 1 for retail traders.
However, the amount is not the same across all brokers. You may find some regulators with lower or higher leverage limits. That’s why ASIC made a move to set limits for all brokers in Australia. These restrictions were implemented in March 2021, and they are still applicable today.
The following are maximum leverage limits for all brokers:
- 30:1 for a major currency pair
- 20:1 for minor currency pair, including gold or major stock indices.
- 10:1 for other commodities than gold or minor stock indices.
- 2:1 for all crypto assets.
- 5:1 for all shares or assets.
Does CFD Trading Involve Any Fees and Commissions?
The fee you are charged when using a CFD broker will determine the cost of trading. If you plan to invest in share trading CFDs, you may be charged a higher amount for stock research. Note that the fee varies from one broker to another. Therefore, you must study the charges of the leading brokers in Australia before choosing.
Factors to Consider When Choosing CFD Trading Broker
Australian traders must consider several factors when it comes to choosing a reputable and reliable CFD broker. Here are the key elements to remember:
- Regulatory Authority: The first thing you must consider is whether the broker is licensed by a recognized authority like ASIC. This a proof that the services offered by the broker are regulated.
- Trading Fee & Commission: There is a fixed fee and commission that brokers charge when you trade. The amount will vary from one platform to another. You must pick brokers with reasonable charges that meet your budget.
- Security and Safety: The best trading platforms utilize the latest security technologies like 256-bit Secure Socket Layer (SSL) protocol to encrypt your financial information and data.
- Supported Platforms: Some brokers use third-party platforms to execute trades. The recommended and reliable platforms are MT4 and MT5. The platform in use will affect the instruments you are trading on. Additionally, the choice of the platform determines the amount you are charged.
- Availability of Customer Support Service: The availability of customer support service is very crucial. The best platforms provide 24/7 customer support service through email, live chat, and telephone. Also, the platform should offer support in multiple languages to cover players in Australia and globally.
- Spreads: Make sure you choose a broker with the lowest spreads in the market. Platforms with low spreads are essential because they accommodate players of all budgets and experiences. Also, the platform should have special features that help in executing orders without any difficulty.