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(*High Risk Investing) CFDS Explained - Beginner's Guide To Contracts For Difference in Singapore

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Old 17-03-2015, 05:08 PM   #31
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Ok I'm not too sure how sg cfd works but for overseas use credit card that's it

For margin yes in singapore need to put 3k that's it and only for longing
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Old 17-03-2015, 05:38 PM   #32
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Ok I'm not too sure how sg cfd works but for overseas use credit card that's it

For margin yes in singapore need to put 3k that's it and only for longing
Difference between cfd and margin is

For margin, u put in $10,000

U can buy up to $30,500,with $20,500 as a loan which u can pay later to redemn the loan, if u buy a Contract less than $3,500, there's no loan involved. When u buy up to $12,000, only the $2,000 is financed

For cfd, u put in $10,000

You can buy up to $100,000. But even if u buy up to $5,000 only, 90% of the $5,000 is still a loan financing. Even if u put $50,000 inside later, u still have to pay the $4,500 loan.
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Old 18-03-2015, 02:34 PM   #33
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How to Choose a CFD Broker

25 Apr, 2010 Alvin Chow Brokers

In the recent years, there is a proliferation of Contracts For Difference (CFDs) brokers in Singapore. I remembered vaguely that this financial instrument started in UK many, many years ago, before it caught on in other countries. The main advantage of trading CFD is allowing the trader to short sell a counter with ease. Without CFD, the trader would have to borrow stocks to short which depends on the supply. In other words, someone needs to hold the stock and willing to lend to this trader, so that the trader can sell and buy back later to return to the owner. Complicated process right? What I can say is that the supply is low, at least in Singapore. If you are convinced with the use of CFD, we can now discuss the evaluation criteria of a CFD broker.

Commission Market Maker or Direct Market Access

How much is the commission is usually the first and foremost question traders would want to know. But I beg to differ. One has to understand that there maybe other costs despite a cheap commission. There are 2 types of broker, namely, Market Maker (MM) and Direct Market Access (DMA). MM usually charges cheaper commission but earns additional money through the spread between bid and ask prices. For example, the real bid/ask price can be 1.01/0.99 but the MM can state her bid/ask at 1.02/0.98. Hence, you tend to lose more if you trade a bigger contract. DMA follows the actual bid/ask price quoted in the exchange and they surface your CFD orders on the exchange. Thus, your orders would contribute to the volume in the market. Since they do not really earn from the bid/ask spread, they have to charge a higher commission. My point is, a MM may not be as cheap as the commission suggests. It is important to find out more about the spread.

Range of counters

You need to find out the number of counters available in the particular market you want to trade. Some brokers offer more than others. They usually have a list of counters on their websites so this is not difficult to find out. One thing to note is that not all the counters in the list are available for shorting. You would have to ask the broker separately for this information. Those brokers that have office in Singapore usually have a good range of counters for SG stocks. POEMS and MFGlobal are 2 brokers that I have used and have the biggest range of SG and HK stocks (I only trade these 2 markets).

Data charges

DMA usually charges data fees from you. This is because they pull live data from the exchanges to you and it is the latter that charges the data. It is just a matter of transferring the cost to the user. MM does not charge data fees. MFGlobal charges me S$30+ for HK data and $2+ for SG data per month. MF would waive off these charges if I trade 2 counters for the month in that particular market. Hence, you should find out for any fee waivers.

Funding

You would want to find out how you would fund your account. Bank transfer? Does your broker has Electronic Payment System (EPS)? Try to use the same bank with your broker for transaction so that your account can be funded within the same day. It would take about 3 working days to transfer to a different bank. EPS is the most secured and fastest way but only local brokers offer this service. Besides the procedures, you must also know the minimum amount of capital you need to put in to open an account. Most brokers require a minimum S$1,000 (CMC Markets). MFGlobal requires S$3,000.

Withdrawal

This is often overlooked but it is important. We want to get our money out with ease and as fast as possible. You need to understand the withdrawal procedure and the time taken to complete the transaction. Some brokers require you to complete a form and fax over. Some do it through email correspondence. Some do it through online submission. Some would take 3 working days while some take 5 working days.

MAS regulated

Look for brokers that are MAS regulated. Usually those that have a local office are MAS regulated but it is your due dilligence to confirm. The reason why MAS regulated brokers are important because they have to put your capital in a trust handled by a third party bank. This is ensure that in the event that the broker collapsed, the debtors cannot for your money with the broker as they are held in a trust.

Available order types

Different traders use different order types. I must be able to use stop orders if not I cannot trade. Some traders require One Cancel the Other (OCO), Trailing Stops, Contingent Orders, etc. You know what you need so ask if the broker has the facilities.

Interest

CFDs are leveraged instruments and you would be charged for interest when you take leverage. The interest rate does not really differ much between the brokers but it is still good to find out more.

Platform type

Different brokers offer different platforms. I find that web platforms are the best as you can trade anywhere with any computer that has an internet connection. Some offer desktop platforms where you have to install to the computer in order to place trades. Some even offer a mobile platform so that you can trade on the go with your web enabled phones. Of the brokers I used, MFGlobal offers web platform and CMC Markets offers a desktop platform. If I am not wrong, POEMS and Saxo offer all 3 platforms.

Others

When you trade for a while, you would start to realise some perculiar things about your broker. I shall share some of my experiences.

POEMS do not let you place CFD trades outside trading hours. This is very important to me as I usually place trades after work. Not able to do so is as good as telling me not to trade. CMC Markets for a period of time, forbid traders to use stop loss on HK market. They did not explain why and did not say when the ban would be lifted. This is why I left this broker.

I hope with the article you are now able to choose a broker that suits you. Please also share if you have other perculiar encounters with your broker so that we can all beware of them.

- See more at: How to Choose a CFD Broker

Last edited by Sinkie; 21-03-2015 at 08:14 PM..
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Old 21-03-2015, 08:14 PM   #34
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Contract for Differences - MoneySENSE

What is a Contract for Differences (CFD)?

A CFD allows you to speculate on future market movements of the underlying asset, without actually owning or taking physical delivery of the underlying asset.

CFDs are leveraged instruments. CFDs tend to be traded over-the-counter with a securities firm, known as a CFD provider. CFDs are available for a range of underlying assets, e.g. shares, commodities and currencies. In this guide, examples showing how they work will refer to shares as the underlying asset class.

A CFD involves two trades:

Firstly, you enter into an opening trade with a CFD provider at one price. This creates an open position which you later close out with a reverse trade with the CFD provider at another price.

If the first trade is a buy or long position, the second trade which closes the open position is a sell. Conversely, if the opening trade was a sell or short position, the closing trade would be a buy.

The CFD captures the price difference of the underlying asset between the opening trade and the closing-out trade.

Where you hold a long position in the CFD:

If closing out price > opening price CFD provider pays you the difference between the opening and closing out prices of the CFD

If closing out price < opening price You pay the CFD provider the difference between the opening and closing out prices of the CFD

Where you hold a short position in the CFD:

If closing out price < opening price CFD provider pays you the difference between the opening and closing out prices of the CFD

If closing out price > opening price You pay the CFD provider the difference between the opening and closing out prices of the CFD

The proceeds you pay or receive will be subject to commissions, financing charges, other charges or other adjustments made by the CFD provider.

CFDs are leveraged trading instruments; they are traded on margin. Instead of paying the full value for the underlying shares, you pay an initial margin to open the position and are required to maintain some minimum margin level for open positions at all times. You may be required to satisfy the margin calls at very short notice, especially in volatile markets. If you fail to top up your margin when required, you risk having your position liquidated at a loss.

What is the return?

The CFD captures the price difference of the underlying asset between the opening trade and the closing-out trade.

Why trade CFDs?

A CFD allows you to speculate on the future market movements of an underlying asset, without actually owning or taking physical delivery of the underlying asset.
What is the maximum amount you can lose? What is the worst that can happen?

Trading in leveraged products like CFDs potentially exposes you to a higher risk of loss than if the products were not leveraged. With leveraged products, you may lose more than what you originally invested depending on the positions you take.

As an investor, you pay an initial margin to open the position and are required to maintain some minimum margin level for open positions at all times. You may be required to satisfy the margin calls at very short notice, especially in volatile markets. If you fail to top up your margin when required, you risk having your position liquidated at a loss.
Are CFDs suitable for everyone?

Not everyone should trade CFDs. Do not consider CFDs if you:

Want potentially higher returns BUT are not prepared for volatile returns which include the risk of suffering unlimited losses beyond your original investment amount;
Do not understand or are unclear about the factors and scenarios that can affect CFD prices;
Do not understand the risks associated with CFDs.
Do not have the time and resources to monitor the markets, and respond to margin calls to cover your losses at short notice or risk having your position closed at a loss.
Do not have the appetite and financial capacity to withstand the losses that may arise if your view on the future price direction of the CFDs underlying share proves wrong.


What should you watch out for? What are the key risks involved?

Market risk

You are likely to enter into a CFD when you have an opinion of the future direction of the price of an underlying asset and want to take a position reflecting this view. The risk you take is that your view turns out to be wrong. Given that CFDs are bought or sold on margin, the leverage will have the effect of magnifying the loss. In some cases, the loss is potentially unlimited and can be much more than the cost of the initial margin.

Some CFD providers may offer stop loss or limit order measures which allow you to limit losses by setting price triggers to close the open position. Do check with your CFD provider if this is available to you.

Counterparty risk


This is the risk that the CFD provider fails to meet a payment obligation due to you, for example, if your CFD provider becomes insolvent. As a CFD buyer, you have no recourse to the underlying shares as you have not actually bought the underlying shares.

Pricing of CFDs

There are currently two CFD models in the market:

i. Market Making model:
The CFD provider makes bid-offer prices for the CFDs provided. Prices quoted by the CFD provider may or may not match the exchange traded price of the underlying share.

ii. Direct Market Access:
When you give an order to buy or sell a CFD to the CFD provider, the CFD provider sends a corresponding order on the underlying share to the exchange for execution. The DMA model should mean that CFD prices more closely match the exchange traded price of the underlying share. You may wish to clarify this directly with your CFD provider.

Currency risk

You face currency risk if the CFD is quoted in a currency which differs from the currency of the underlying share. Even if the currency of the CFD and the underlying share is the same, you are still exposed to currency risk if the currency is different from your own base currency.
How does the product work?

Trade on margin

CFDs are traded on margin. This means you pay a small proportion of the value of the underlying shares (typically between 10% and 30% set by the CFD provider) to open the position, instead of paying the full value for the underlying shares.

Example 1: Initial Margin

Suppose the shares of XYZ Ltd, are quoted at an offer price of $2.00 and Mr A intends to buy 2,000 shares of XYZ Ltd as a CFD at the offer price of $2.00. Assuming the CFD provider sets the margin of the CFD at 10%, the initial margin Mr A puts up will be 10% x $2.00 x 2000 = $400.

Mr A will be able to open the position with $400 versus a payment of $4,000 for the underlying shares.

How leverage magnifies profits and losses

The leveraging effect means that if the markets move in favour of or against Mr As position, Mr As respective profits or losses will be magnified. Here are some examples of how leverage impacts Mr As profits and losses.

Example 2: Example of a Profit

Suppose on the next day, the shares of XYZ Ltd have risen and are quoted at a bid price of $2.05. Mr A then decides to sell his CFD at $2.05. He will gain a profit of $100 [($2.05- $2.00) x 2000].

The return on investment (ROI) from the CFD works out to 25% (100 400). This compares to an ROI of about 2.5% (100 4,000) if he had invested directly in the underlying shares.

Mr A will receive from the CFD provider $100 less any financing and transaction costs and commissions due from him.

Example 3: Example of a Loss

Conversely, if the market moves against Mr As position and the shares of XYZ Ltd are quoted at $1.95, Mr A may choose to sell his shares at $1.95 to avoid incurring further loss. Mr A will incur a loss of $100 [($ 1.95 - $2.00) x 2000] from trading the CFD.

In this example, the ROI for investing in the CFD would be -25% (-100 400), as compared to an ROI of -2.5% (-100 4,000) if he had invested directly in the underlying shares.

However, Mr A will end up paying more than $100 to the CFD provider, once margins, financing and transaction costs and commissions are factored in.

Continuous margin adjustments

At any time that the markets move against your open position, the CFD provider will require you to top up your margin to cover your losses.

In the above Example 3, if Mr A intends to keep the position open, the $100 loss will be deducted from the initial margin and he will be required to top up his margin with additional funds (known as a margin call) to the initial amount of $400, or to a level prescribed by the CFD provider.

The prescribed margin should be made known to you before entering into the CFD. You will usually be required to make the top up within a short period of time (e.g. within 2 days or less as required by the CFD provider). Otherwise, the position may be closed at a loss to you. This process of valuing the profit and loss of open positions is called "marking to market". This, coupled with managing margin requirements, is a continuous process.

If you want to trade CFDs, you must be financially prepared to top up margins at short notice, especially when markets are volatile.

What are the costs involved?


Costs relating to CFD trades may include bid-offer spreads, commissions, daily financing costs, account management fees and Goods and Services Tax (GST).

The commission charge is usually a percentage of the total value of the underlying shares and paid on a per transaction basis. The cost of the trading services may also be quoted in the form of a bid-offer spread on the CFD. Do clarify this with the CFD provider before trading in CFDs.

Example 4

Suppose XYZ Ltd is quoted at $2.00 and Mr A intends to buy 2,000 shares of XYZ Ltd as a CFD at $2.00. The commission, assuming that the rate is 0.5%, to be debited is $2.00 x 2000 x 0.5% = $20.00.

Financing charges may be calculated on the total value of the underlying shares of the CFD. Some providers may however charge based on mark to market value instead of the opening or initial contract value.

Example 5

If Mr A holds 2000 shares as a CFD overnight, he will incur daily financing interest which may be set at say 5% of the initiated contract value. If the opening CFD price of the shares is $2.00, the daily interest charge will be ($4,000 x 5% / 360 days) = $0.56.

The commission charged by the CFD provider is subjected to Goods and Services Tax (GST).

Example 6

If the commission charged is $20.00, GST (at 7% of $20.00) of $1.40 will be levied.
Is short selling allowed?

Various restrictions apply to short selling in the stock markets. CFDs, however, allow you to take short positions, without having to first own the underlying shares. But taking short positions can be very risky and can potentially lead to unlimited losses.

Example 7

Suppose Mr A expects the shares of XYZ Ltd, quoted at $2.00, to fall. He can sell 2000 shares at $2.00, as a CFD. The initial outlay to open the position will be $400 (10% x $2.00 x 2000).

After 7 days, the shares of XYZ Ltd are quoted at $1.95. Mr A decides to close the position by buying 2000 shares at $1.95 as a CFD. The profit made will be $100 [2000 x ($2.00 - $1.95)] or 25% ROI, although the actual amount received will be less once transaction and other costs are deducted.

However, if his view had turned out to be wrong and the price had moved in the opposite direction by $0.05, the investor would have incurred a loss of $100 or -25% ROI. In this case, the amount he has to pay the CFD provider will be $100 plus transaction and other costs.

If his view had turned out to be very wrong and the price had moved up by $0.20, the investors loss would be $400 [2000 x ($2.00 - $2.20)] or -100% ROI. In this situation, he would have lost his entire initial investment of $400. Any further gain in price beyond $2.20 would result in further losses to the investor. In other words, he faces unlimited losses in this scenario.

Do CFDs expire? What happens then?

CFDs may or may not have expiry dates. It is decided by the CFD provider. Do clarify this with your CFD provider. For those with expiry dates, you will have to close out your position at expiry. If you wish to maintain your exposure to the underlying shares beyond the expiry of the CFD, you will have to initiate a new position by entering into a new CFD. The position is said to be "rolled over" and the profits or losses are realised when the original position is closed. The new CFD position may be subject to commissions and financing charges. Meanwhile, your account may require adjustments to margin, as well as to reflect current profit and loss status.

Do be vigilant about monitoring open positions where there is no expiry date.

What are my rights in corporate actions as a CFD buyer?

As a CFD buyer, you will not have bought the underlying shares. Do check with your CFD provider as well as check what rights you have as a CFD buyer. Buyers of CFDs may be entitled to adjustments to their CFDs, if dividends on the underlying shares are paid by the respective companies.
Key questions to ask before trading CFDs:

Do I fully understand how CFDs function, their features and risks? Do I fully understand the risks of investing in a leveraged product like CFD? Am I comfortable with the risks? How does leverage affect my losses?

Do I have the appetite and financial capacity to withstand the losses that may arise if my view on the future direction of the CFDs underlying share proves wrong? Such losses can be significantly higher than the initial margin invested. In cases of short selling, it may lead to unlimited losses. Can I afford to lose some or all of my financial capital when trading CFDs without endangering my overall financial plan and goals?

Do I have the time to monitor the performance of the underlying shares and rates offered by the brokerage closely? Will I be able to react quickly enough to limit any losses I may suffer? When will a margin call be issued, and what can the company do if I fail to meet margin call? Under what circumstances can the company close my position?

Can I place stop loss and limit orders, which will help to limit my losses? Will I be charged to place or change these orders? What additional services will be provided by the CFD provider? Do I have to pay extra for these services? If I place a stop-loss order, am I assured of the price that I set the stop-loss at?

As a buyer in a CFD, what rights do I have? Are these rights different from those of a shareholder of the underlying shares? Can I sell the CFD when the underlying share is suspended? What happens when trading in the underlying asset is suspended or halted? How can I exit my position and will I suffer losses?

Does the CFD have an expiry date? If so, when? What if I wish to continue with the CFD after the expiry date?

What are the costs I have to pay? What margin, commission, transaction and financing charges are there?

Where are the margins and deposits that I have placed with the CFD provider kept and maintained? Will I be able to get back my margins and deposits if the CFD provider becomes insolvent? How long will the recovery of my moneys take?

How is the derivative contract quoted? Can the trade be executed at a price that is different from my order price?

Is the CFD provider I am going to engage authorised or licensed to deal in CFDs? Do check the Financial Institutions Directory on the MAS website whether the firm has the requisite authorisation or licence.

The above information is prepared in collaboration with the Securities Association of Singapore.
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Old 25-02-2016, 12:18 AM   #35
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[Investor Intermediate] Contract for Difference

For all active investors and traders, who have some risk appetite and have moderate experience in trading on the stock market, would like to start on this topic called "Contract for Difference". Feel free to ask any questions relating to them and I will try my best to answer them.
If I had gotten anything wrong, please feel free to correct me.

What is Contract for Difference?

Contract for Difference or CFD for short, is a financial derivative product that involves two parties, a buyer and seller (usually with opposing views), trading on a particular position of an asset in the market (could be any asset as long as the brokerage allows). Unlike buying or selling shares in the stock exchange (SGX), CFDs are usually traded only between the brokerage and their clients.

Positions and Leverage

Because CFDs are traded between brokerage and the clients (investors), when the investor starts trading by opening a position on a particular asset on the market, the investor does not actually own the asset. In essence, the investor has a contract deal with the brokerage on the asset with either a long or short position. Therefore, the investor can leverage on this asset and require to maintain only a minimum margin level (usually a certain percentage) to begin trading.

Eg. SIA at $11.50 per share.
Investor opens a long position of 1000 shares on SIA with 10% margin (10x leverage).
Investor need to only put in: $11.50 * 1000 * 10% = $1150
If have to buy the stock from open market investor actually requires $11,500 instead.

This allows the investor to leverage (paying only a small portion of the value instead of paying the full value of the asset). As long as the balance in the investor account stays above the minimum margin level, the position is good. Otherwise, the brokerage may do a margin call to restore the balance. If the investor fails to meet the margin call, brokerage may liquidate the CFD position of the investor to cover the short-fall at discretion.

Benefits of CFD

1) Leverage of Capital
As the investor only requires a small portion of the total value of the asset, the investor can stretch his dollar and gain access to bigger quantity or invest in other additional assets.

2) Access to Global Markets
As CFDs provide wide range of markets that would otherwise not be available to retail investors, the investor have bigger spreads and choices of assets to trade in.

3) Make Money Even When Markets Fall
Instead of owning shares or indices and make profit only when it rises, CFDs allow investors to trade and make money by shorting when prices falls!

4) Hedging On Investment
If investor holds a stock on the stock exchange for capital appreciation, he can hedge using CFDs to protect against potential losses when market prices falls.

Risks of CFD

1) Leverage is Double Edged Sword
Because leverage uses only a small amount of deposit for its margin, this may cause an oversight that an investor gets over exposed to an asset when there is adverse changes in market prices.

2) Liquidity & Volatility Issue
As CFD are tied to underlaying asset, and if the asset is illiquid (no demand) or if the market is small (not popular), it might be almost be impossible to close a position during trading.

3) Counter-Party Issue
As CFDs are between the investor and brokerage, if the brokerage is unwilling or unable to fulfil its contractual obligations due to financial or other issues, there may be an impact to investors.

4) Currency Risk
When trading in foreign market or with foreign currency assets, the fluctuation of the currency rate may have great impact on investors. Profits could be undermined or losses could be even greater given the volatility of foreign exchange.

5) Shares Being Recalled
When investors take a short position, the brokerage needs to borrow the shares from an investor who owns the shares. This lender may at a certain point in time, recall the shares that was loaned to the brokerage, at which the brokerage may need to close the investor's short position in short notice at the prevailing buy price of the market.
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Old 25-02-2016, 12:27 AM   #36
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1) what happens to CFD shorts during rights issue?
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Old 25-02-2016, 12:59 AM   #37
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If I want to short Noble
how many times can I leverage with $10,000?
and whats the total costs like ?
Depends on broker.

Think most brokers up the margin requirement for noble. Probably about 30%.

Therefore u can margin up to 33,333 Approx 100 lots

Total cost will be your done price and commission and margin financing (daily)

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Old 25-02-2016, 06:49 AM   #38
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http://deluxeforums.hardwarezone.com...l#post92686115

Got Cfd sticky thread already
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Old 25-02-2016, 09:26 AM   #39
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Up thread for sinkie.

Can someone share which CFD broker to use and the comparative costs/fees/expenses?
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Old 25-02-2016, 09:46 AM   #40
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Up thread for sinkie.

Can someone share which CFD broker to use and the comparative costs/fees/expenses?
Depends which instrument or market you are looking at one..
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Old 25-02-2016, 11:32 AM   #41
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1) what happens to CFD shorts during rights issue?
Corporate actions will always have impact on CFD and as such, it is up to brokerage to factor in the economic benefits or penalty. The only thing investors won't have in CFD is the non-economic benefits like voting rights.

Eg. Dividends for a stock is given and if investor holds CFD long for this stock, he may be given an equivalent amount as he would, if he actually owns the stock. Short positions will likely get penalize and need to cough out the dividend equivalent (they hope after XD the prices will fall and make profit from there).

In your questions, what happens to short position after rights issue. Depending on brokerage, they might or might not increase the size of the CFD to reflect the effect of rights issue for those in long position. For short position, they might lower the size of your CFD which means investor require lesser margin after rights issued and adjust the prices for closing positions accordingly. It is still best to call your brokerage to ask about the impact it will have on your open positions.

Actually some of my answers are found in E-Learning Portal by ABS.
You need to pass the quiz to get a certificate before can open an CFD account with any brokerage (MAS rule) unless you have financial background.

http://sips.abs.org.sg/Default.aspx

Last edited by Alphidius; 25-02-2016 at 11:43 AM..
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Old 25-02-2016, 11:34 AM   #42
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1) what happens to CFD shorts during rights issue?
u will 'owe' the rights to cfd

cfd provider will 'value' the rights and deduct from your free equities.
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Old 25-02-2016, 11:40 AM   #43
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Part time cfd trader full time options trader
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Old 25-02-2016, 11:41 AM   #44
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Cfd makes things much much easier when shorting
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Old 25-02-2016, 11:42 AM   #45
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Corporate actions will always have impact on CFD and as such, it is up to brokerage to factor in the economic benefits or penalty. The only thing investors won't have in CFD is the non-economic benefits like voting rights.

Eg. Dividends for a stock is given and if investor holds CFD long for this stock, he may be given an equivalent amount as he would, if he actually owns the stock. Short positions will likely get penalize and need to cough out the dividend equivalent (they hope after XD the prices will fall and make profit from there).

In your questions, what happens to short position after rights issue. Depending on brokerage, they might or might not increase the size of the CFD to reflect the effect of rights issue for those in long position. For short position, they might lower the price which means investor require lesser margin after rights issued (the money will be placed back into investor's account balance) and adjust the prices for closing positions. It is still best to call your brokerage to ask about the impact it will have on your open positions.

Actually some of my answers are found in E-Learning Portal by ABS.
You need to pass the quiz to get a certificate before can open an CFD account with any brokerage (MAS rule) unless you have financial background.

http://sips.abs.org.sg/Default.aspx
I did the quiz before. But don't remember rights issue because during rights the buyer has the option of not purchasing the shares.

The rest is just short opposite of long position. Long get div short pay div, long get shares short minus shares etc

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