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Tuesday 23 November 2010

10-246MR New ASIC investor guide plugs knowledge gaps for retail investors considering trading contracts for difference

Retail investors who are contemplating the risks of trading in contracts for difference (CFDs) have a new resource that aims to provide clear, independent advice on CFDs and the risks they entail.

The guide – entitled ‘Thinking of trading contracts for difference?’ - has been published today and is available on the Australian Securities and Investments Commission’s (ASIC) website – and on

CFDs are highly-leveraged derivative products. CFDs offer retail investors the ability to take a leveraged position on future changes in the market price of a share or a commodity, or on the value of an index, or a currency exchange rate.

The majority of CFDs in Australia are issued and traded as over-the-counter products (OTC).

The ASIC guide published today provides retail investors with clear, independent information about how CFDs work, and also explains the significant risks that can be involved in CFD trading.

The guide says that - in ASIC’s view – retail investors should consider trading CFDs only if they:

  • have extensive trading experience;
  • are used to trading in volatile market conditions; and
  • can afford to lose all of – or more than – the money they put in.

ASIC Commissioner, Greg Medcraft, said: ‘Our research with CFD traders found that many traders don't know or don't appreciate key aspects of how CFDs work, despite the fact that they are actively trading them. This guide aims to fill some of these knowledge gaps, especially around the trading risks.’

‘Retail investors who use this guide will be able to make a more informed decision as to whether CFD trading is for them.’

Mr Medcraft said: ‘My advice is: if you are a retail investor contemplating CFD trading, read this guide first so you are better informed.’

The guide includes explanations of:

  • how CFDs work, including how trading CFDs differ from investing in shares;
  • the questions that a retail investor should ask a provider before they agree to trade in CFDs;
  • the main risks of trading, including investment, counterparty, client money and other trading risks;
  • different CFD-provider business models, including differences between OTC and exchange-traded CFDs; and
  • common traps to avoid.

The guide includes an example of a hypothetical CFD trade. The example illustrates the possible outcomes for the retail investor depending on shifts in the market price of the asset over which the CFD operates.

ASIC's investor guide on CFDs follows draft regulatory guidance that ASIC issued last week for product disclosure and advertising of over-the-counter (OTC) CFDs.

(See Consultation Paper 146 Over-the-counter contracts for difference: Improving disclosure for retail investors (CP 146).)

For further information:

ASIC Media Unit

Telephone: 1300 208 215




Last updated: 23/11/2010 12:00