Derivatives over ETFs

Whilst the use of derivatives over ETFs are a very common form of trade in the USA, many of these products are still in the development stages within Australia.

Contracts for Difference (CFDs)

You will find that most CFD platforms can give you a leveraged exposure to some of the ETFs available through the ASX. Margin rates vary from 5% with some providers all the way up to 50%. At the time of writing, the ability to short CFDs with Exchange Traded Funds ETFs as the underlying is not readily available from any of the major CFD providers, more than likely due to the inability of providers to borrow the underlying shares.

As CFDs become more popular locally, traders will most likely have the ability to short-trade the underlying ETFs. Some professionals have better access and can facilitate short selling in various forms whether it be via a CFD or other derivative products. Of course, there are risks associated with these products so please consult a professional if you are considering this route.

Exchange Traded Options (ETOs)

Whilst not extremely liquid, there are several professional market making institutions that will price the options at the same volatility as the underlying index cash or derivative options on the same index. Any good broker can access these price makers. ETO’s are available to be traded over the SSgA STW 200 Tracker. ETO’s over other ETFs are not yet available in Australia however quite a few have options available on foreign exchanges. As demand grows for ETF options more are likely to be available on the ASX. Market makers are not required to provide continuous quotes on the STW ETOs so make sure you consult an ASX derivatives accredited advisor to talk about dealing in ETOs

Warrants

Warrants over ETFs are available new products are constantly being structured. These products are issued by banks that use the ETF as the underlying to create a packaged solution. Warrants can have some very attractive benefits depending on your risk profile and taxable income level.