CFD Investment

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CMC Markets

CMC Markets

Featured
CMC Markets
S$10
Min. Commission Fee
Minimum fee of $10 required for each trade
0%
Min. Trading Fee
Minimum 0.10% fee (of total trading volume) incurred for each trade on the SGX
S$0
Min. Deposit
No minimum deposit required
OANDA

OANDA

Popular
OANDA
S$0
Min. Commission Fee
No fees required for each trade
0%
Min. Trading Fee
No fees required for each trade
S$0
Min. Deposit
Start trading with no upfront deposit required
Saxo Markets

Saxo Markets

Popular
Saxo Markets
S$5
Min. Commission Fee
0.08%
Min. Trading Fee
Minimum 0.08% fee (of total trading volume) required for each trade on the SGX
S$0
Min. Deposit
Start trading with no upfront deposit required
IG

IG

Welcome Gift
IG
S$10
Min. Commission Fee
Minimum S$15 fee required for each trade
0.1%
Min. Trading Fee
Minimum 0.1% fee (of total trading volume) required for each trade made
S$0
Min. Deposit
Start trading with no upfront deposit required
Welcome Gift:
Get up to S$388 cash when you make a one-time deposit of S$10,000, one CFD trade and one Knock-out CFD trade. Valid till 30 Sep 2021. T&Cs apply.
City Index

City Index

Welcome Gift
City Index
S$10
Min. Commission Fee
Minimum fee of $10 required for each trade
0.08%
Min. Trading Fee
Minimum 0.08% fee (of total trading volume) incurred for each trade on the SGX
S$150
Min. Deposit
Start trading with a low minimum deposit of S$150
Welcome Gift:
Enjoy a one-year all-access membership to The Wall Street Journal (worth S$480) when you make a min. deposit of S$6,500 upon account opening. T&Cs apply.

SingSaver Explains: CFD

CFDs are an excellent way for advanced investors to hedge against losses and maximise profits. Here’s a full introduction to this unique investment type.

What is a CFD?

CFD refers to Contract For Difference. This is a financial instrument that allows investors to profit from increases or decreases in the prices of shares, commodities, currencies, and other assets without actually owning them. What you’re trading in this case would be a contract highlighting a specific asset’s current value and its value when said contract expires.

How do CFDs work?

At its core, CFDs are relatively simple financial instruments. After all, you’re just speculating the direction and degree to which an asset’s price will move. For every point that the price moves, you make a gain or loss multiplied by the number of units that you have purchased or sold.

CFDs also complement your existing investment portfolio by hedging against losses. For example, you can turn a profit by making a short CFD trade in Business X should you hold its shares, while believing that they will lose value soon and will take some time to recover.

Pros and cons of CFD trading

Pros:

  • CFDs allow for margin trading – meaning you put up a small amount of money that represents the contract’s full value
  • CFDs have good synergy with existing investment portfolios, allowing investors to profit even during market downturns
  • There is a variety of financial vehicles that allow for CFD trading, including currencies, commodities, stocks, ETFs, and others
  • There is no limit to how many trades you can make a day, unlike other markets that might require a certain level of capital or account type

Cons:

  • Spreads can be wide, especially when prices are highly volatile. This causes the trading cost incurred to be high as well.
  • CFD trading is poorly regulated, causing this investment to be banned in the USA.
  • There are usually two fees that you have to pay for trading CFDs:
    1. Spread: Akin to spreads in Forex trading
    2. Holding fee: Charged when you hold an open position past a certain time every day

CFD: Margin and Leverage

Margin refers to a percentage of a position’s full value, concurrently reflecting how much you need in order to open said position. The position’s size (in no. of units) dictates this percentage and it can range from 10% to 50%. Leverage refers to money borrowed from the broker making up the rest of that value and allowing the trade to be executed.


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Is CFD trading safe?

CFD trading bears a higher risk compared to other investments because you have to utilise margin trading for the most part.CFDs are also speculative in nature. Furthermore, since you have not actually purchased the contract’s underlying assets, you need to determine what rights you have.

On the other hand, CFD trading gives you the opportunity to diversify your portfolio and hedge against any potential losses. You’re given access to markets across the globe and aren’t just limited to Singaporean or even Asian financial instruments.

What are the costs of CFD trading?

Like Forex, you’ll need to pay the spread when trading CFDs. This refers to the difference between the bid and ask price of a CFD; it can vary from one asset to another depending on their volatility. Most brokers also charge a holding fee should you keep a position open overnight due to changing interest rates.

What are the risks of trading CFD?

Because margin trading is applied when you invest in CFDs, the potential for profits is greater. However, the risk of losing all your capital is equally large if your stop-loss limit is not set properly.

Furthermore, the market moves quickly, requiring you to keep a close eye frequently throughout the day. There are occasions where you might have to intervene and maintain your margins to prevent the broker from automatically closing your position. And due to the lack of industry regulation, searching for a credible broker requires greater scrutiny.

What other considerations do you need to keep in mind?

CFD trading is fast-paced and can be applied to almost any financial instrument. Therefore, you might want to start by demo trading for several months to learn the ropes and get used to your preferred broker’s features and tools.

Take this time to determine which financial instruments you would like to trade CFDs in and see how you can weave this into your investment portfolio as a whole.

Confused about CFD Investment terms?

Glossary terms to know for first-time CFD Investment users

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