CFD Platforms And Their Features – A Comparison
CFD Trading is rapidly gaining popularity in Singapore. A Contract for Difference, commonly known as a CFD, is essentially a financial derivative that allows you to take advantage of changing prices in the financial markets. You can benefit by taking a long position if you think that prices are going to move up or a short position if, in your view, the opposite will happen.
A CFD allows you to trade an index or individual shares. They are also available for commodities, forex, and even digital currencies like Bitcoin and Ethereum.
Learn more about investing in cryptocurrencies through CFDs here
There are four basic concepts about CFDs that you must understand before you start trading:
Spread and commission
There is always a “buy price” and a “sell price” for a CFD. The buy price, which is also known as an offer price, is the price at which you can open a long CFD. The sell price or bid price is the price at which you can open a short CFD.
The sell price will be lower than the current market price and the buy price will be higher than the market price. The difference is referred to as the “spread.” This is basically the cost that you are bearing for entering into the transaction.
Each CFD that you enter into represents a certain volume or number of the underlying asset. For commodities, it would be weight and for shares it would be the number of shares.
You will need to close your trade by entering into another trade in the opposite direction. A majority of CFDs do not have a fixed expiry.
Profit and loss
There is a simple formula to calculate your profit (or loss) on your CFD transaction. Multiply the number of contracts by the value of each contract and then multiply again by the difference between the closing price and the opening price.
Profit or loss = (no. of contracts X value of each contract) X (closing price – opening price)
Of course, you would also need to pay for the charges and fees that the CFD trading platform provider would levy.
Before you begin trading, it is important to spend some time in selecting the best CFD trading platform provider. Your choice will depend on various factors. Let us look at the points that you must consider before you make your pick.
Fees and charges
Every experienced investor knows that it is essential to keep costs under control. When you view the charges that you are paying for a single trade, it may not seem like much. But if you add all the fees that you incur in a week or a month, the sum can be substantial.
It is a good practice to compare the charges that various CFD trading platform providers levy. Ready access to this data can help you to make an informed choice.
Here is a brief comparison table that will give you an idea of the fees that you can expect to pay:
|Commission per side||Minimum charge||Commission per side||Minimum charge||Commission per side||Minimum charge|
|Singapore||0.10%||S$15||0.10%||S$10||0.128% or 0.18% *||S$25|
|US||2 cents per share||US$15||2 cents per share||US$10||0.18%||US$15|
*0.128% for index component shares and 0.18% for non-index component shares
|IG||CMC Markets||City Index|
|Minimum spread||Average spread||Minimum spread||Average spread||Minimum spread||Average spread|
Risk management tools
If the market moves in your favour, there are significant gains to be made. CFD trading allows for large profits by deploying only a small amount of capital. However, the downside is great too. If your trade moves against you, your losses can be equally large.
One of the key strategies to manage your level of risk is to use a stop-loss order. This tells your broker to execute a “buy” or a “sell” and close out your trade. Stop loss orders can reduce your risks by helping to limit the loss that you make in a particular trade.
IG has gone one step further to help their clients. They have introduced the concept of “guaranteed stops” with special payment terms. These ensure that your trade is closed at the exact price that you have specified. Once you set this, you are assured that your stop will be triggered at the pre-decided level.
The unique feature of IG’s stop-loss order is that you are charged only if the stop is actually used. This allows you to reduce your costs. While other CFD trading platforms also offer the facility of stop-loss, they charge for it even if it is not used. For example, CMC Markets also provides its clients the ability to make a guaranteed stop-loss order. But if it is not utilised, they refund only 50% of the premium.
Learn more about guaranteed stop-loss orders from IG.
Range of markets
There are a number of markets for which CFDs are available. But your CFD platform may not offer all of them. Before finalising the platform, you should verify the markets that you can trade.
Here is a comparison chart that will give an idea of what the various CFD platforms in Singapore offer:
|CMC Markets|| |
|Forex||90 pairs||330 pairs||71 pairs||84 pairs||182 pairs|
|Indices||30 indices||90 indices||16 indices||17 indices||29 indices|
|Shares||8,000 shares||9,400 shares||–||4,500 shares||8,840 shares|
|Commodities||All major commodities||100 commodities||8 commodities||26 commodities||19 commodities|
Cryptocurrencies are attracting a lot of investor interest lately. Bitcoin, the first cryptocurrency, has experienced wild swings in price, along with its rapid ascend. IG offers you the chance to trade on these price changes without actually owning the cryptocurrency as they offer CFDs for Bitcoin and Ethereum.
Ease of opening an account
Finally, how easy is it to open an account and what are the facilities that the CFD platform provides? A quick review will tell you that IG offers one of the best packages. All that you need to do is enter a few basic details about yourself and you are ready to start.
Setup is absolutely free and you need not pay any annual charges. There is no charge to close your account as well. However, if you have not traded for two years or more, you would be charged S$25 per month. Even if you intend to trade only sporadically, it is unlikely that you will not trade for two years. Consequently, the possibility of paying the monthly charge of S$25 is very remote.
IG also offers access to a wide range of markets and has one of the lowest cost structures. For investors who want to make a foray into CFDs, IG would be one of the best platforms available.
Find out how to invest with IG now.
This article was sponsored by IG, the world’s No.1 CFD provider (by revenue excluding FX, 2016). All views, opinions and recommendations expressed in the article are the independent opinion of ZUU and do not in any way reflect the views, opinions, endorsements or recommendations, of IG Asia Pte Ltd (Co. Reg. No. 20051002K) (“IG”). Information is for educational purposes only and does not constitute any form of investment advice nor an offer or solicitation to invest in any financial instrument. No responsibility is accepted by IG for any loss or damage arising in any way (including due to negligence) from anyone acting or refraining from acting as a result of this information or material.