What is CFD trading?

It’s a type of derivative trading that allows traders to theorize on the price movement of an asset without having to own the underlying asset. CFDs are traded over the counter (OTC), meaning any central authority does not regulate them.

Is CFD trading legal in Singapore?

Yes, CFD trading is legal in Singapore. However, as with any other form of investment, there is always some risk involved, so it is essential to do your research before starting trading.

How does CFD trading work?

When you trade CFDs, you are essentially betting on whether the asset price will go up or down. If you think the price will go up, you “buy” the CFD, and if you think the price will go down, you “sell” the CFD.

CFDs are traded on margin, meaning that you only need to put down a small deposit (usually around 5-10%) of the total value of the trade. It allows you to leverage your capital and potentially make more profits, but it also means that you can lose more money if the trade goes against you.

What are some of the benefits of CFD trading?

CFD trading offers many advantages over other investment strategies:

Increased leverage

You can trade CFDs with a much smaller deposit than you need to trade the underlying asset.

No commission fees

Most CFD brokers do not charge commission fees, which can save you a lot of money in the long run.

Diversification

CFDs allow you to trade various assets, giving you exposure to a broader range of markets.

Hedging

You can use CFDs to hedge your existing positions, protecting your investments from price fluctuations.

Lower risk

CFDs are traded on margin. They offer a lower risk than traditional investment strategies.

No expiry dates

Unlike options or futures contracts, CFDs do not have an expiry date, so you can hold them for as long as you want.

Access to global markets

With CFDs, you can trade assets from all around the world, giving you access to a broader range of opportunities.

24-hour trading

CFDs can be traded 24 hours a day, five days a week, giving you more flexibility than other investment strategies.

Demo accounts

Most CFD brokers offer demo accounts, which allow you to practice trading without risking any real money. It is a great way to learn about the market and test out your strategies before committing to live to trade.

What are the risks of CFD trading?

CFD trading is a high-risk investment and is not suitable for everyone. It would be best to only trade with money that you can afford to lose. Some of the risks associated with CFD trading include:

Leverage

As mentioned above, CFDs are traded on margin, which means that you can lose more money than you have invested if the trade goes against you.

Counterparty risk

When you trade CFDs, you enter into a contract with the broker. It means that there is a risk that the broker may not be able to meet their obligations if they run into financial difficulty.

Liquidity risk

Some assets, such as penny stocks, can be very illiquid, which means it may be challenging to sell your position when you want to.

What are the best strategies for CFD trading?

There is no one “best” strategy for CFD trading, as it depends on your individual goals and objectives. However, some common strategies include :

Fundamentalist

This strategy involves analyzing the fundamental factors that affect the price of an asset, such as economic indicators and company earnings.

Technical analysis

This strategy involves using charts and technical indicators to predict future price movements.

Position trading

This strategy involves holding positions for an extended period to profit from short-term price fluctuations.

Day trading

This strategy involves opening and closing trades simultaneously to take advantage of intra-day price fluctuations.

There is no one “right” way to trade CFDs, but it is essential to do your research before starting trading and choosing a broker that offers good customer support. With a little bit of practice, you can become a successful CFD trader. You can also consider practicing with paper trades on https://www.home.saxo/en-sg/products/cfds before making your first real-money trade.