When it comes to trading, there are several different products and instruments that you can use. Two of the most popular products amongst traders are options and CFDs. Both of these products offer several advantages and can be used in various ways. In Australia, both options and CFDs are regulated by the Australian Securities and Investments Commission (ASIC).
Options are a derivative, meaning their value is derived from an underlying asset. The most common underlying assets for options are stocks, ETFs, currencies and commodities. CFDs are also a derivative, but their value is derived from the difference between underlying assets’ opening and closing prices. You can use CFDs to trade various markets, including indices, Forex, commodities, and shares.
Both are derivatives
Both options and CFDs are derivatives, meaning their value is derived from an underlying asset. The most common underlying assets for options are stocks, ETFs, currencies and commodities. You can use CFDs to trade various markets, including indices, Forex, commodities and shares.
You can use both to trade a variety of assets
You can use options to trade a variety of underlying assets, including stocks, ETFs, currencies and commodities. You can also use CFDs to trade various markets, including indices, Forex, commodities and shares.
Both products offer leverage
Leverage is when you trade with money that isn’t yours. You can magnify both your profits and your losses when you use leverage. Both options and CFDs offer traders the ability to use leverage.
Both products have margins
Margin is how much money you need to open a position. For example, if you wanted to buy $10,000 worth of shares with a margin of 10%, you would only need to put down $1,000. Both options and CFDs are traded on margin.
Both products enable you to go long or short
When you go long on an asset, you expect the price of the asset to increase so that you can sell it at a higher price and make a profit. When you go short on an asset, you expect the asset’s price to decrease so that you can reclaim it at a lower price and make a profit. You can take either a long or short position with both options and CFDs.
There’s no delivery with either product
There is no tangible delivery of the underlying asset with options and CFDs. So, there is no need for storage and no transportation costs involved.
Both products have expiry dates
An option contract has an expiry date, which is when the contract expires and the option is no longer valid. A CFD also has an expiry date, which is when the contract expires and the position is closed.
You can hedge with both products
Hedging is when you take a position in one asset to offset the risk of loss in another asset. For example, if you owned shares in a company that was about to release its earnings report, you might buy a put option to hedge against the possibility that the share price will fall after the earnings report is released. You can use both options and CFDs for hedging purposes.
You can trade both products online
In the past, trading options and CFDs required calling a broker on the phone and placing your order manually. With the development of online trading platforms, you can trade both options and CFDs online.
ASIC regulates both products
Options and CFDs are both regulated by the Australian Securities and Investments Commission (ASIC). Therefore, they are subject to the same laws and regulations.
You will pay brokerage with both products
When you trade options or CFDs, you will have to pay brokerage. The brokerage is a fee charged by the broker for their services. The amount of brokerage you pay will depend on your broker and the type of account.
Both products are risky
Options and CFDs are both risky investments. They are derivative products, which means that their value is derived from an underlying asset. The underlying asset price can go up or down, which will affect the value of the option or CFD. Before trading either product, you should understand the risks involved.
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