Getting started with CFDs trading might seem daunting at first, but it’s the quickest way to achieve a high return on your investment so long as you know how to minimise your risks. If you are new to CFDs trading or want to learn more about it, this article is for you. This article will discuss the basics of CFDs trading and how to get started in Singapore.
What are CFDs?
CFDs, or contracts for difference, are financial instruments that allow traders to bet on the movement of asset prices. CFDs are traded over the counter (OTC), meaning they are not listed on any exchanges. This makes them a more complex investment instrument than stocks or forex, and therefore require a bit more knowledge to trade safely.
How do CFDs work?
When you trade CFDs, you are essentially betting on whether the price of an asset will rise or fall. In a typical CFD trade, you would first borrow some money from your broker to buy the asset and then sell it back at a higher price to recoup your initial capital plus a profit. Your return on investment is essentially the difference between the asset’s future and current prices.
What are the benefits of trading CFDs?
CFDs have many advantages over other investments such as stocks and forex. Firstly, they do not require you to own any shares to make bets on their prices. This makes them suitable for traders who want exposure to an individual stock or commodity without spending too much on buying actual shares in that company.
Secondly, since CFDs are traded over the counter, they offer a high degree of liquidity, which means you can quickly get in and out of trades. Lastly, CFDs are usually leveraged products which means you can trade a much higher position size than your account balance. This can lead to significantly higher profits if your trade is booming.
How to get started with CFDs trading in Singapore?
If you want to start trading CFDs in Singapore, there are a few things you need to do first.
Open an account with a broker
Firstly, you need to open an account with a licensed broker. Many brokers choose from, but finding one reputable and offers good customer service is essential. For reputable online brokers in Singapore like Saxo Bank, browse this site. Once you have opened an account, you can start trading and depositing money.
Limit your trade
Never trade more than 5% of your total capital in one trade – reduce this risk by spreading your money out over multiple brokers or shares so that another picks up the slack when one loses value. It may sound complicated, but start small and add bits here and there until you’ve built yourself a mini-portfolio that gives you a sense of security should the markets take a turn for the worse.
Factors to consider before trading CFDs
There are a few other things to keep in mind when starting.
- Always have a stop-loss order in place, so you don’t lose more money than you’re comfortable with – make sure this is also factored into your margin calculations!
- Use limit orders whenever possible as they tend to fill faster and at a better price than market orders.
- Be aware of news announcements and how they might affect the price of the stock you’re considering trading. Try not to trade during high volatility periods (i.e. earnings season) as prices can swing wildly without rhyme or reason.
In conclusion
Unless you’re a seasoned trader with a good working knowledge of stock movements, CFDs are probably the best way to get started in the world of online trading. They’re relatively easy to understand, and you can start trading with a relatively small amount of money. These tips should give you a good starting point, but there is no substitute for doing your research before getting involved in any form of trading.