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What are CFDs
CFDs or Contracts for Difference is an agreement between two parties to exchange, at the close of the contract, the difference between the opening price and closing price of the contract, multiplied by the number of underlying stocks specified in the contract. CFDs are traded in a similar way to ordinary stocks and used as an alternative instrument to stock trading. It allows the investors to:
-Gain exposure to stock price movements, without the need for ownership of the underlying stocks; and
-To take long or short positions, instead of paying the full contract value of the underlying position, the investor is only required to place a cash deposit (known as margin) as collateral.
CFDs do not have an expiry date. As long as the investor is able to top up variation margin and interest payment as required, the investor is able to hold the position indefinitely*.
An Introduction To CFDs - According to Investopedia
The difference between where a trade is entered and exited is the contract for difference (CFD). A CFD is a tradable instrument that mirrors the movements of the asset underlying it. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned. Essentially, it is a contract between the client and the broker. Trading CFDs has several major advantages, and these have increased the popularity of the instruments over the last several years.
Features & Benefits
1. Flexibility to Short
One of the main appeals of CFD trading is that you can short sell without owning the underlying stock. When you invest in a stock via a CFD on the CIMB Securities CFD Trading System, you can open a short position on the spot at the real-time tradable price by selling with the aim of profiting from the falling stock price.
2. Leverage
CFDs are traded on margin, using leverage to maximise your trading capital. This means for a small outlay you can open larger positions in the market compared to that of traditional stock trading.
3. No Expiry Date of Contracts
Gives you the freedom to roll over your open positions on a daily basis until you choose to close the position*.
4. Transparent Pricing
Our Direct Market Access system gives you the same transparent pricing and liquidity as stock trading.
5. Ease of Trading
There is more than one mode of trading CFDs - through broker or online. The online system for CFD trading includes features like good-for-the-day orders, real-time portfolio and daily account management.
6. Corporate Action
As an owner of an Equity CFD you will have your account adjusted to reflect cash dividends credited or debited on the underlying stock and to participate in stock splits, just as you would if you owned the physical stock. The only difference is that with a CFD you are not entitled to any voting rights.
What is Direct Market Access?
Direct Market Access (DMA), is the electronic facility that allows for CFD prices and liquidity to be identical to the underlying stock markets. Investors enter into CFDs at the underlying market price. This means that all orders are executed in real time and the investors can be assured of true market prices.
DMA also has the added benefit of offering the ability to participate in the pre-opening and pre-closing phase of the market, which is often the most liquid and volatile period of the trading day. CIMB Securities adopts the Direct Market Access model for Contracts for Difference as it offers one of the most transparent pricing structures to investors.
With the DMA CFD provider model, the investor experiences/ allows :
No additional spreads
Straight through processing
Potential to be a price taker or maker, and;
Participate in pre-opening and pre-closing phase.
In comparison, the Market Maker (MM) CFD model :
May not always have the same prices as the exchange
There is potential for additional spreads and potential requotes
Market makers are price takers only, generally there is no participation in pre-opening and pre-closing phase.
DMA vs. Market Maker Comparison#
Comparison of CFDs against Traditional Stock Trading
Illustration 1: Investor has a long position in XYZ stock and CFD price was up when the position was closed off.
Illustration 2: Investor has a long position in XYZ stock and CFD price was down when position is closed.
Please continue to read to find out the various CFD broker we have in Singapore
CFDs or Contracts for Difference is an agreement between two parties to exchange, at the close of the contract, the difference between the opening price and closing price of the contract, multiplied by the number of underlying stocks specified in the contract. CFDs are traded in a similar way to ordinary stocks and used as an alternative instrument to stock trading. It allows the investors to:
-Gain exposure to stock price movements, without the need for ownership of the underlying stocks; and
-To take long or short positions, instead of paying the full contract value of the underlying position, the investor is only required to place a cash deposit (known as margin) as collateral.
CFDs do not have an expiry date. As long as the investor is able to top up variation margin and interest payment as required, the investor is able to hold the position indefinitely*.
An Introduction To CFDs - According to Investopedia
The difference between where a trade is entered and exited is the contract for difference (CFD). A CFD is a tradable instrument that mirrors the movements of the asset underlying it. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned. Essentially, it is a contract between the client and the broker. Trading CFDs has several major advantages, and these have increased the popularity of the instruments over the last several years.
Features & Benefits
1. Flexibility to Short
One of the main appeals of CFD trading is that you can short sell without owning the underlying stock. When you invest in a stock via a CFD on the CIMB Securities CFD Trading System, you can open a short position on the spot at the real-time tradable price by selling with the aim of profiting from the falling stock price.
2. Leverage
CFDs are traded on margin, using leverage to maximise your trading capital. This means for a small outlay you can open larger positions in the market compared to that of traditional stock trading.
3. No Expiry Date of Contracts
Gives you the freedom to roll over your open positions on a daily basis until you choose to close the position*.
4. Transparent Pricing
Our Direct Market Access system gives you the same transparent pricing and liquidity as stock trading.
5. Ease of Trading
There is more than one mode of trading CFDs - through broker or online. The online system for CFD trading includes features like good-for-the-day orders, real-time portfolio and daily account management.
6. Corporate Action
As an owner of an Equity CFD you will have your account adjusted to reflect cash dividends credited or debited on the underlying stock and to participate in stock splits, just as you would if you owned the physical stock. The only difference is that with a CFD you are not entitled to any voting rights.
What is Direct Market Access?
Direct Market Access (DMA), is the electronic facility that allows for CFD prices and liquidity to be identical to the underlying stock markets. Investors enter into CFDs at the underlying market price. This means that all orders are executed in real time and the investors can be assured of true market prices.
DMA also has the added benefit of offering the ability to participate in the pre-opening and pre-closing phase of the market, which is often the most liquid and volatile period of the trading day. CIMB Securities adopts the Direct Market Access model for Contracts for Difference as it offers one of the most transparent pricing structures to investors.
With the DMA CFD provider model, the investor experiences/ allows :
No additional spreads
Straight through processing
Potential to be a price taker or maker, and;
Participate in pre-opening and pre-closing phase.
In comparison, the Market Maker (MM) CFD model :
May not always have the same prices as the exchange
There is potential for additional spreads and potential requotes
Market makers are price takers only, generally there is no participation in pre-opening and pre-closing phase.
DMA vs. Market Maker Comparison#
Comparison of CFDs against Traditional Stock Trading
Illustration 1: Investor has a long position in XYZ stock and CFD price was up when the position was closed off.
Illustration 2: Investor has a long position in XYZ stock and CFD price was down when position is closed.
Please continue to read to find out the various CFD broker we have in Singapore
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