ASX Contracts for Difference (CFDs)

Account balances

A CFD account consists of cash margins held for CFD trades account combined with excess cash. There are 3 amounts of cash that you need to monitor:

Margins

Margins are designed to protect the financial security of the market by ensuring that you can meet your obligations. If you trade an ASX Listed CFD, you have a potential obligation to the market because the position may move against you.

Each day, the Clearing House calculates the margin necessary to ensure you can meet your trading obligations on that day.

The total margin for ASX Listed CFDs is made up of two components, Initial Margins and Variation Margins:

1. Initial Margin

   Traders in ASX CFDs are required to put up an Initial Margin for each contract traded, paid from free equity. This applies to both buyers and sellers.

   Initial Margins protect the Clearing House from risk resulting from a negative movement in the value of a position as a result of a change in overnight market prices. The Initial Margin is typically set at a level designed to cover reasonably foreseeable losses on a position between the close of business on one day and the next.

   The amount of Initial Margin for each contract varies according to the price volatility of the underlying. Please refer to the Initial Margin rates for current ASX minimums. Initial Margin rates are expressed in dollars by the ASX. CommSec also requires an additional buffer of 10% of the ASX margin.

   Examples
   
   
   • ASX Equity CFDs
     
     ASX BHP Billiton CFDs have an Initial Margin of $2.49 per contract. If you trade1,000 BHP CFDs then the Initial Margin would be $2490.
   • ASX Index CFDs
     
     ASX S&P/ASX 200 CFDs have an Initial Margin of $329.00 per contract. If you trade 10 ASX S&P/ASX 200 CFDs then the Initial Margin would be $3290.

1. Variation Margins

   In addition to the Initial Margins required to open contracts, any adverse price movements in the market must be covered by further payments, known as Variation Margins. The Variation Margin is based on the end of day marked to market revaluation of an ASX Listed CFD position and is paid to or from your Free Equity.

   For example, if you have a long position and the price falls then you are required to pay a Variation Margin large enough to cover the adverse movement in the value of the position. The variation margin will come from your free equity.

   On the other hand, if you have a short position and the price falls, you would receive a Variation Margin equal to the positive movement in the value of the position.

   Failure to meet (pay) a Variation Margin call can lead to the position being compulsorily closed out. The position holder is obligated to pay for any shortfall in funds if Variation and Initial Margins are insufficient to cover the shortfall.

   Further information on Variation Margin Calls can be found in the CommSec ASX CFD PDS.

   Cashflows

   Unlike other forms of derivatives (i.e. options and futures) cashflows such as carry costs and dividends are not reflected in the price of an ASX Listed CFD. Instead cashflows are paid whilst the position is open, allowing ASX Listed CFD prices to track the underlying security rather than trade at a discount or premium, as can be the case with other types of derivatives.

   ASX Listed CFDs have four distinct cashflows that impact on holders of an open position:

   1. Contract Interest
   2. Open Interest Charge (OIC)
   3. Dividend Cashflow
   4. Franking Credit Cashflow (ASX Equity CFDs only)
   
   
   The table below indicates which cashflow is paid or received depending on the position held.

   Holders of long positions	Holders of short positions
   Contract Interest	Pay	Receive
   Open Interest Charge	Pay	Pay
   Dividend Cashflow	Receive	Pay
   Franking Credit Cashflow	Receive	Pay

   Contract iInterest (CI)

   Contract Interest is paid daily by holders of long positions and received daily by holders of short positions. Contract Interest payable on positions held on Friday night will also include Saturday and Sunday (e.g. 3 days interest).

   The Contract Interest Rate is fixed to a benchmark rate (Contract Interest Rate) in the contract currency of the ASX Listed CFD. The Contract Interest Rate is varied whenever the relevant benchmark rate is varied.

   ASX Listed CFD	Contract denomination and contract currency	Benchmark contract interest rate
   Equity S&P/ASX 200	AUD	Target overnight cash rate as published daily by the Reserve Bank of Australia
   Gold DJIA	USD	Federal Funds Rate as published daily by the Federal Reserve Bank of New York

   Open Interest Charge (OIC)

   The Open Interest Charge (OIC) is the daily cost charged by the ASX for holding an open position in an ASX Listed CFD. The OIC rate is set by the ASX and is paid daily by both long and short positions. The OIC can be changed by ASX in response to market circumstances. The rate can move up and down but is expected to be adjusted only infrequently.

   A list of OIC Rates applicable for ASX Listed CFDs is available.

   The below diagrams illustrates the payment process for OIC long and OIC short positions.
   
   

   OIC long position OIC short position

   

   Dividend Cashflow

   ASX Listed CFDs replicate the dividends or earning rate paid by the underlying instrument. Long ASX Equity CFD and ASX Index CFD positions receive the Dividend Cashflow and short positions pay the Dividend Cashflow.

   ASX Equity CFDs - Long ASX Equity CFD positions receive the Dividend Cashflow and short positions pay the Dividend Cashflow. Positions are calculated at the close of trading on the last day cum dividend. The Dividend Cashflow is payable and received the following day (the first day ex dividend). Note: The timing for payment/receipt of the Dividend Cashflow is different to that of the underlying shares. In shares, dividend payments occur some weeks after the ex-date. In ASX Listed CFDs the dividend cashflow is paid or received on the ex-date.

   ASX Index CFDs - When a share in an index goes ex-dividend, the ASX Index CFD recognises the dividend and generates a Dividend Cashflow. This cashflow mirrors what would have been paid or received had someone held the physical share as part of the overall index. As with ASX Equity CFDs, longs receive and shorts pay the Dividend Cashflow.

   Franking Credit Cashflow
   
   The Franking Credit Cashflow (FCC) applies only to ASX Equity CFDs. With equities, dividends may have a franking credit associated with them of a value which, for ASX Equity CFDs, is described as the FCC. The FCC represents the monetary equivalent of the declared franking credit. Unlike a franking credit though, it doesn’t entitle you to a potential tax offset. Similar to the Dividend Cashflow, holders of short positions pay the FCC whilst holders of long positions receive the FCC.

   Note: The FCC paid by holders of short positions and the FCC received by holders of long positions may differ depending on the percentage of net short open positions (NSOP) held by Designated Price Makers (DPMs) at the close of trading on the last cum date. The NSOP is determined by the Exchange calculating the net open position of DPMs and expressing it as a percentage of the market's total short open position. If the net DPM position is long, holders of long positions receive 100% of the FCC. If the DPM net position is short, the FCC is discounted by the NSOP percentage. For example, if the net DPM short open position is 30% then holders of long positions receive the FCC (short) discounted by 30%. The current DPM NSOP for each ASX Equity CFD is published each day in the DPM Short Position % report . You can also download the report as a CSV file (CSV 9KB).

   

   
   
   The information on this site has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information on this site, consider the appropriateness of the information, having regards to the individual’s objectives, financial situation and needs, and, if necessary, seek appropriate professional advice. A Product Disclosure Statement for ASX CFD issued by Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 is available from www.commsec.com.au and should be considered before making any decision about the product. Fees and charges apply.