Trading CFDs on Penny Stocks

On the whole CFD providers in Australia offer CFDs over the stocks making up the ASX top 300, the rationale behind this is straightforward, shares with a bigger market capitalisation are often far more liquid. Several CFD brokers forget that we live in Australia, a nation rich in resources and of course also rich in resource shares. A good number of shares listed on the ASX are resource based, this is actually the largest sector of the Australian share market.

CFD trading over junior resource shares can be extremely rewarding if you choose your stocks intelligently. When buying and selling CFDs over speculative stocks you must always perform some research on the company. Prior to selecting your shares you should make sure that the company has first-class management and a solid project. Needless to say if the copper price has gone up and you are in search of exposure to shares in this sector logically you wouldn’t select a CFD over a share with gold assets, this is why picking stocks within the relevant sector is also critical. It’s always vital that you keep in mind trading CFDs over speculative stocks also has risks as these kinds of stocks can go up in price as fast as they can come down.

So why a trade CFD rather than buying the Stock outright?
The answer to this question is simple and can be summed up in a few words, unrealised profits and losses. Unlike shares CFDs are marked to market each day meaning that the profits or losses are credited or deducted to and from your trading account each trading day. The profits and losses from trading shares are treated very differently in that they're only realised once the equity is sold. Realising profits and losses every day means that you can draw on your unrealised to profits to buy new positions without needing to deposit added money into your account, not surprisingly the same goes for losses in that you'll have to deposit cash into your account if the position moves against you.

It’s vital that you note a good number of speculative stocks may have a larger margin requirement than stocks in the ASX top 300, their margin requirement can easily be as high as 100% however the bulk are obtainable on a margin of 75%. One essential factor to consider here is whether or not your CFD broker will charge you financing on the full notional worth of the trade, this could of course be quite large if the position was on a 100% margin, there are on the other hand a number of CFD brokers that will only charge financing on the borrowed amount. It would be far more economical to pick a CFD company that will only charge you on the borrowed amount, if the CFD is on 100% margin it will deliver a major cost saving.

You will find hardly any CFD providers in Australia which will permit you to trade CFDs on all ASX listed stocks, certainly one of the most popular CFD brokers is IC Markets. Among the many major benefits of trading with IC Markets is that they don’t have any CFDs on 100% margin and only charge financing on the borrowed total meaning that you won’t pay any financing charges for CFDs bought on 100% margin.