Most CFDs – or Contracts for Difference – are traded over-the-counter with either the market maker model or direct market access. However, in 2007, the Australian Securities Exchange – also known as the ASX – announced the concept of an exchange traded CFD. A small number of CFDs are traded through the ASX today, which works slightly differently to other traded CFDs, though they carry similar risks and returns.
Australian exchange traded CFDs come with their own advantages and disadvantages. Most of the advantages of trading on the ASX are related to the independence and security that the ASX provides. One of the biggest advantages of exchange traded CFDs is that the ASX is a market independent of the parties with whom you will be dealing. In other words, you as the customer will be able to choose who you wish to execute your business, and there will be a standard contract for all CFDs conducted through the Australian exchange.
CFDs transacted through the ASX also grant customers increased transparency. The ASX reports on all CFDs, open positions, volumes, offers, and bids. When CFDs are traded on the ASX, orders are entered into the ASX CFD order book, which is available for everybody to see. You will not get better transparency with CFDs traded outside of the Australian exchange.
However, CFDs traded through the ASX do not come without their drawbacks. It is more expensive to trade on the ASX because the exchange and the clearing house obviously need to make some money. The ASX will charge you fees on top of broker’s fees, which are also often a little higher in order to comply with the requirements of the exchange.
There is also less choice of products when trading on the ASX, because a smaller number of CFDs are available and they are not usually offered in all currencies. In this sense, exchange traded CFDs in Australia are not a brilliant option for investors looking to expand their portfolio, and many investors see the flexibility of CFDs as one of their strongest points.
There are definite advantages to trading CFDs on the Australian exchange, and these can explain why this option is popular with many investors. However, investors should think carefully about the CFDs they’re looking for and the costs they’re willing to pay in order to trade on the ASX, because these drawbacks can considerably affect the appeal of Australian exchange CFDs.