By Equity derivatives are financial contracts that derive value from an underlying asset, typically stocks or shares. In Australia, you can trade equity derivatives through several platforms, including the Australian Securities Exchange (ASX).
One popular way to trade equity derivatives is through Contracts for Difference (CFDs), which are derivative products allowing investors to speculate on the price movement of an underlying asset without actually owning the asset itself.
You can use CFDs to trade a wide range of assets, including shares, indices, commodities and even currencies. One advantage of trading CFDs is that they offer leveraged exposure to the underlying asset. Investors can control a more prominent position than they would if they were buying the asset outright.
Another benefit of CFDs is that they can be traded on a wide range of platforms, including online brokerages and dedicated CFD trading platforms. Therefore, you can trade equity derivatives from the comfort of your own home or office. You can use this link to trade CFDs online.
Research the markets
Before you start trading equity derivatives, it’s crucial to understand the underlying asset and the market conditions. It will help you decide when to enter and exit trades. You can find information on the ASX website and other financial news websites. It’s also a good idea to read analyses from respected market commentators.
Choose a platform
Once you’ve decided which asset you want to trade, you must choose a platform. Many platforms offer equity derivative trading, including online brokerages and dedicated CFD trading platforms. It’s essential to compare the features and fees of each platform before deciding which one is right for you.
Open an account
Once you’ve chosen a platform, you’ll need to open an account. It typically involves completing an online application form and providing personal details, such as your name and address.
You may also need to provide documents to verify your identity and address. Once your account is opened, you’ll need to deposit funds into it before you can start trading.
Place a trade
When you’re ready to open a trade, you’ll need to choose the type of order and how much money you want to invest.
You can place two types of orders: market orders and limit orders. Market orders are executed at the current market price, while limit orders allow you to set a specified price at which you want your trade to be executed. There are also several other order types, including stop-loss and take-profit orders.
Monitor your trade
Once your trade is placed, it’s essential to monitor it closely to see how the market moves. It will help you decide when to close your position. You can use various tools to monitor your trade, including charts and technical indicators.
Close your trade
When you’re ready to close your trade, you’ll need to place an order to sell your position. Depending on the platform you’re using, this may be done online or over the phone. It’s important to remember that equity derivatives are volatile products, and prices can move quickly. Therefore, you could lose money if you don’t close your trade on time.
Withdraw your funds
Once you’ve closed your trade, you can withdraw your profits from your account. Most platforms will allow you to do this via bank transfer or cheque.
It’s important to remember that equity derivatives are a high-risk investment, and you could lose all of your capital if the market moves against you. If you’re not sure about trading equity derivatives, it’s a good idea to speak to a financial advisor.
What are the risks of trading equity derivatives?
Volatility
Equity derivatives are volatile products, and prices can move quickly. You could lose money if you don’t close your trade on time.
Leverage
CFDs offer leveraged exposure to the underlying asset, which means that investors can control a more significant position than they would if they were buying the asset outright. It can lead to losses if the market moves against you.
Counterparty risk
When you trade equity derivatives, you’re entering into a contract with another party. There’s a risk that the other party will not fulfil their obligations under the contract, resulting in you losing money or being unable to close your trade.
