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As Australia’s largest bank with an eye-popping market value of A$239.24 billion (market capitalisation), the Commonwealth Bank of Australia (ASX; ticker: CBA) employs over 50,000 staff, has over 830,000 shareholders and serves approximately 18 million customers.
Founded in 1911, the bank has a long history of providing banking services in Australia and New Zealand. The bank’s core operations include retail and business banking services, provided through four key divisions: Retail and Business, Institutional Banking, and ASB New Zealand.
The launch of CFDs (Contracts for Differences) in the UK during the 1990s opened the door to the global financial markets for many traders and investors. CFDs are now available across several markets, including individual Stocks, like CBA, Stock Indices, Commodities, Bonds, Digital Currencies, and Exchange-Traded Funds (ETFs).
CFDs are legally binding contracts formed by two parties, the buyer and the seller. Importantly, CFD contracts are derivative instruments, allowing market participants to trade the price movement of an underlying asset without taking ownership (all CFD trades are cash-settled). Both parties in the CFD contract are obligated to exchange the difference in price between the open and close of a trading position. So, if the underlying asset appreciates (depreciates), the party with a buy position (sell position) will benefit.
CFD contracts are leveraged instruments and are one of the key attributes of this market. Unlike physical shares, which commonly involve the total notional investment amount, Share CFDs with FP Markets can be traded on margin. This allows investors to control larger position sizes with smaller initial investment amounts. To help demonstrate the effects of leverage, CBA is currently trading at A$142.95 per share. Unleveraged, investing in only ten shares would set you back A$1,429.50 plus commissions, while with FP Markets, you would only need to ‘put up’ 20% of the notional amount: A$285.90 (1,429.50 * 0.2) to trade an equivalent position size of ten shares.
1. Open an FP Markets Forex and CFD Trading Account
To trade Share CFDs with FP Markets, the first step involves opening a Forex and CFD trading account. The process is quick and straightforward. Click the ‘OPEN LIVE’ tab from the FP Markets webpage and complete the Account Application page, as shown below.
2. Download your Trading Platform
Once your trading account has been approved and you have received your login details, you must choose the trading platform to trade with. This can be done through the FP Markets Client Portal using the login details sent to your registered email address. The MetaTrader 5 (MT5) platform is popular for trading Share CFDs.
In addition to selecting your trading platform, the Client Portal allows users to deposit funds into their accounts, update their personal information, as well as explore trading tools and our dedicated Social Trading platform.
3. Find the CBA Ticker
Finding and adding the CBA ticker to your MT5 trading platform can be performed through the Market Watch tab (Ctrl+M). Within your Market Watch, you can access all available trading instruments with FP Markets.
Type ‘CBA’ in the lower part of the Market Watch and select the Commonwealth Bank of Australia. The stock will then appear alongside other bid and ask prices. You can then drag and drop the stock to the primary chart interface and alter the chart’s properties to suit your trading preferences.
4. Place the Buy or Sell Order
With a trading account and platform in place, and assuming your research has identified whether CBA is undervalued or overvalued, the next step is to place a buy or sell order.
Open MT5’s order window (F9) for CBA and enter your trading parameters according to your analysis and risk management (left image below). This includes setting the order type, trading volume, in addition to stop-loss and take-profit values.
Shorter-term traders may also use MT5’s One-Click Trading (right image below), which only requires entering trading volume. One of the downsides of One-Click Trading is that it lacks immediate access to stop-loss and take-profit orders (this can be accessed in the trading terminal); it can only execute market orders, not pending orders.
Compared to the ASX 200, which has increased +5% year to date, shares of CBA are up +26% year to date and recently clocked an all-time high of A$145.2. It goes without saying, 2024 has been a good year to own ASX bank stocks.
According to the bank’s latest FY24 financial update, nearly A$40 billion was lent to businesses, and more than 120,000 home loans were approved. The lending growth marks a notable increase in the year and is also one of the key factors underpinning the share price.
Despite its eye-watering run higher this year and relatively upbeat FY24 update, some analysts are concerned that CBA may not be able to sustain its current momentum. As of writing, analysts are currently forecasting a median price of A$97 and a mean value of A$98. This means analysts expect over a -30% decline in the stock price. However, it is worth noting that the price target’s high estimate is currently at A$121, with a low as far south as A$80.
According to the monthly chart’s Relative Strength Index (RSI), the stock is overbought in the long term and could be due for a correction. This is further supported by the possibility of negative divergence (red line). However, it must be emphasised that an overbought signal does not always imply a trend reversal. It could mean the stock may take a breather before resuming its run north. Regarding price action, the current monthly candle shows signs of ending in the shape of a bearish shooting star pattern, with support not expected until as low as A$109.99.
On the daily timeframe, recent trading closed in the form of a bearish evening star candle pattern. You may also note that leading up to the aforesaid pattern, upside momentum slowed considerably since late August. Should the stock print a correction, support at A$134.21 calls for attention, coupled with trendline support from the low of A$109.94.
Investing in physical shares of a company, like CBA, involves purchasing shares on a regulated stock exchange. By doing so, investors become partial owners of the company. In addition to the possibility of capital gains, assuming a company’s share price rises, investors can also receive dividend distributions and voting rights.
As its name implies, an ETF is a fund traded on an exchange that pools investor funds and invests in various asset classes. Like regular stocks, shares of the ETF can be bought and sold during the stock exchange's hours.
ETFs typically track the performance of an underlying equity index, such as the FTSE 100 in the UK. Therefore, although a particular equity ETF may track an Index with CBA listed, the performance of the ETF and the share price of CBA will not mirror each other precisely. Investors primarily invest in ETFs for portfolio diversification.
1. Does CBA pay a dividend?
Yes, CBA pays dividends; the company currently provides an annual dividend yield of 4.62%.
2. What are the major differences between CFDs and physical shares?
While there are several differences between CFDs and physical shares, the most prominent distinctions between these two investment options are ownership and leverage.
CFDs are derivative products; clients trade on price movement without taking ownership, while share dealing involves taking ownership. In terms of leverage, CFDs afford investors greater leverage than can be obtained in physical share dealing. For example, the margin requirements with FP Markets are between 5 and 20%.
3. Can I trade CBA on MT4 or MT5?
CBA can be traded on the FP Markets MT5 platform, as well as cTrader.
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