Instead of trading on the Futures exchanges, which sometimes requires the trading prohibitive lot sizes and high collateral requirements, investors can now access leveraged commodity trading with reduced collateral through Commodity CFD.
CFD on commodity assets are based on the underlying futures contracts.
The benefit of trading commodities CFD is that it offers a flexible alternative to trading large lot sizes that are stipulated by the exchanges. Clients will be able to trade fractional lot sizes of the corresponding futures, normally being a minimum of 10% of the contract sizes. Additionally, the margin requirements can be lower than those of futures, which enable greater leverage possibilities. However, the cost of trading these CFD is built into the price quoted, rather than having a separate commission charge, as with the corresponding futures contracts. This means that the price quoted for the CFD on the Dif Freedom trading platform may be slightly different, than the futures price for the stated commodity.
Furthermore the charges may not be exactly pro rata. Unlike equity-based CFD, Commodities CFD have an expiry date. The contract will be closed out on a cash-settled basis, on the expiry date of the underlying future with no automatic rollover. Currently we do not support the automatic rolling of positions from one settlement to the next. Any positions still open needs to be closed on the last trading day before Expiry Date. If not done it will be automatically closed at the closing price and cash settled.
Up to 14 Commodity CFD will be available online to trade. Each CFD is derived from an underlying futures contract but does not carry the same name or symbol as the future.
Commodity CFD are denominated in smaller lots than the underlying futures contract. For example, the US Crude CFD is for 25 barrels of oil, compared with 1000 barrels traded on Nymex. Each CFD is quoted as 1 unit of the underlying contract (1 barrel) but there will be a minimum trade size (25 barrels).
CFD margin requirements are lower than those of the underlying futures contract, because of the smaller minimum lot size.
A commission is not charged but there is a spread included in the price that Dif derives for each CFD. This derivation means that whilst the CFD prices track the underlying future, they are not exactly the same.
Like futures, our commodity CFD have an expiry date and will be cash settled on the expiry date of the underlying futures contract.
The specific expiry date and time for individual Commodity CFD can be found on the trading platforms located on either the Trade or Order tickets, and the Instrument Information pages.
Trading will cease at the specific time listed in the table above for each oil contract. Clients should pay attention to when the Last Trade Day will take place as it differs from contract to contract and month to month.
Currently we do not support the automatic rolling of positions from one month to the next. Any positions still open at the close of trading on the Expiry Date will be automatically closed at the closing price and cash settled.
Limit, Market, Stop, Stop Limit and Trailing Stop orders are supported. In addition, you are able to place If-Done and One-Cancels-The-Other (OCO) orders.
Whilst all Commodity CFD are priced in single units, often a minimum trade size will apply. However, clients are able to reduce an open position to below the minimum trade size. Should you left with such a position, then it should be closed via the Account Summary or by contacting your Account Manager.
In summary the trader took advantage of the leverage that comes with Commodity CFD. The opening trade was valued at US$5,990 but the trader had to only provide a margin of 10% or US$599. The closing trade generated a profit of US$2.30 per barrel and whilst that translated to a 3.8% rise in the price of oil, the client realized a profit of US$230, representing 38.9% of the original margin.
Clients should be reminded that while trading leverage products like Commodity CFD can bring increased profitability, they can also increase a trade’s potential loss should the market move against you. For example: