Plus500 Australia Review: Suitable For Crypto?

How Does Plus500 Work?

Plus500 acts basically as a CFD brokerage firm, an intermediary between an investor or trader and the market.

To understand further how Plus500 works, we need to delve into some basic concepts to get the reader acquainted with the types of services that the platform provides.

What Is A CFD?

A contract for difference (CFD) is a contract by virtue of which a buyer and a seller speculate on the price movement of an asset over a determined span of time, with the goal of profiting from the differences in value after opening a position.

In a CFD, it must be stressed that you don’t actually own said asset or market. You’re simply taking advantage of price behaviour without having the underlying asset delivered to your door.

In the traditional stock market, you, as a trader, would go over to your broker to get the financial instruments (such as shares of a company) directly from NASDAQ or a similar market. The shares would be yours and you may be able to find them in your portfolio, as well as their value (in real-time on many occasions).

To illustrate, if you bought 1 share of a company at $90, and the price for each share reached $93 in a week, you would be earning $3, but you can decide to keep the asset and the value of your portfolio would still reflect that gain (which would be deemed as an unrealized gain until you decide to sell).

In the event that you need liquidity, you can sell your share of the company for cash, in which case you’ll possibly have to pay fees to your broker or lose some money due to market spreads (more on this later).

Now, Let’s Illustrate How It Works With CFDs.

If you decide to invest in a Google share via CFD, you are asking the broker (in this case, Plus500) to buy this share in a parallel market with the expectation that the price fluctuates in your favour.

Within this trading model, the share will not be credited as yours. You’ll only have an open position.

As Google increases its market value, you can instruct the broker to sell the share by closing your position, and that positive difference between the purchase and selling prices will be reflected in your account, This is traditionally called a “long position”,

To illustrate with another asset class, you can have the broker borrow oil and sell it at market price so that it can be bought back later at a lower rate for profit. This is called “short-selling” and it effectively involves betting against the market based on certain events, such as the discovery of alternative fuel or energy sources, the rise in popularity of electric cars, and geopolitical factors signalling a price drop.

In each case, you’d be essentially speculating on the price of the underlying asset, whether it be shares of a given company, commodities (gold, silver, crops, etc.), cryptocurrencies, among other asset classes.

Is CFD Trading Risky?

We would lie if we said that CFDs are easy instruments to manage and trade. These are complex products that should not be treated lightly. You could lose copious amounts of money if things go awry.

It may not look that way when considering how prices fluctuate in the traditional stock market (especially when compared with the high volatility you’ll find in modern cryptocurrency markets). But, in most instances, traders will use “leverage”, which basically means that they would borrow money to increase the size of the position for much more substantial gains. It’s very possible to have your funds liquidated if a leveraged CFD trade doesn’t go your way.