Australia CFDs

OTC trades most of CFDs via DMA (direct market access). From 2007 the ASX (Australian Securities Exchange) made possible to trade CFDs via their exchange traded CFDs service.

There are both disadvantages and advantages of trading CFD, as in any other financial transaction.

Advantages

Transparency: ASX makes reports on all CFD transactions, reports that include: bid, open position, volume and offers. Also, CFDs are traded as any other ASX contract, but they have a specific market and book. When you as a trader want to trade ASX CFDs, you will be entered on the Central Market Order Book, and everyone will be able to see this transaction. Also, all transactions are made based on their price/time priority.

Market Independence: All exchanges must be orderly, fair and most important transparent. ASX is independent, thus has nothing in common with any company that offers customer advice. This way all customers have the same standard contract specification if they want to trade ASX CFDs, but in the same time have the freedom to choose any broker they want.

Counterparty risk: SFECC (SFE Clearing Corporation) guarantees and clears all settlement obligations. RBA (Reserve Bank of Australia) and ASIC (Australian Securities and Investments Commission) monitors everything in order to be sure that everything is done fair and efficient. This way the risks are lower and the seller will definitely get its payment. All CFD providers must hold, by law, an AFC License, license that can be issued only by ASIC. This license forces the company to keep the client funds in a special segregated account, so that if the company goes down, its clients won’t lose their money.

Disadvantages

Price: The primary disadvantage of separation of order book based on the exchange of CFDs is that all spreads and prices are based only of CFDs orders. This can lead to strange situations where the price of a certain ASX CFD will be higher than its underlying instruments. In some situations, where the instrument is heavily traded and thus liquid, the ASX CFD may have no liquidity at all, or very little, at best. The trade will become viable only if it can attract enough participants in order to create a more liquid market.

Limited products: ASX offers few CFDs on the exchange market and they exchange only CFD from Australia and not from other countries. Also they only exchange some currencies and provide few global indices. By comparison, private CFD providers have a wider variety of CFDs, major indices, currencies, commodities, treasuries and underlying products from the entire world. These CFD providers are more flexible than ASX CFDS and are not limited to Australian CFDs.

Higher costs: since the clearing house and the exchange must have a profit, and all transactions are made via a broker, who has a fee, the costs are quite high. The broker has high administration costs, costs that will add to the total cost of your CFDs.

ASX has some major disadvantages since they only trade Australian CFDs, and because of this reason most traders choose to work with other CFD providers.