CFD Dealing

A lot of people are intimidated by CFD. This is understandable as conventional stock brokers have been around in Singapore for a much longer time. Traditional stock brokerages are also well known brands and banks. Some traders start out observing what their parents do. Well meaning parents often provide advise, and naturally advise their children to start out with traditional stock brokers, just as they had.



CFD Dealing as a valuable trading tool


CFD is a leveraged instrument and like margin trading, has invoked horror stories of traders who lost their entire capital, or even more when they are unable to meet the broker's margin calls. Leveraging is a tool that can allows a trader to snowball his capital steadily. Like most things in life, it is a dangerous tool for the uneducated and reckless trader. With sound money management, a trader knows exactly how much he could trade. To this end,  a prudent trader may not even utilize the full leverage provided by the CFD broker, or choose to use a smaller capital to achieve the same trading objectives.


In addition to brokerage fees, CFD brokers charge or pay a financing cost which is charged every day, until the contract is closed. Given that the natural tendency is for traders to go "long", they usually end up incurring  interest on their CFD trades. From a big picture perspective, this financing cost is a small trade off for the leveraging that a trader can get. This is a worthy price to pay for the ability to participate in trades that would otherwise be too expensive. Alternatively, a trader may engage in a few trades that could otherwise not be possible with his capital alone. Through leveraging, he is able to portion is capital into multiple trades.


A small price to pay for the many benefits of CFD Dealing

At the end of the day, CFD is not complex and for all intents and purposes, offers more options for traders, for a small price. Unlike warrnats, CFD do not expire as long as the financing cost is paid and there's sufficient margin balance. With CFD, sophisticated trading and hedging strategies can be adopted that would otherwise not be possible with conventional brokers. A trader can easily go "short" and profit from a down trending market. CFD brokers typically allow a trader to access many types of trading instruments such as Indices, Commodities and Forex. Dealing with CFD contingent orders are also easily achieved without having to go through a human broker. Such automated orders allow the trader to customize his risk management level and hedge his portfolio against big draw downs.