Best CFD Investment Accounts in Singapore (2023)

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.