Growing interest among investors in Contracts for Difference
There is a growing interest among investors in Singapore in Contracts for Difference (CFDs).
These are investment tools that allow investors to speculate on share price movements without actually owning the shares.
Some market players, such as IG Markets, CMC Markets and Saxo Capital Markets, said the volume of CFD trading in Singapore has more than doubled from last year.
The number of investors interested in CFDs has grown in recent years because of the instrument’s high leverage.
A recent talk on the product in Singapore drew over 100 participants, and organisers said this was more than expected.
Some firms said that a few years ago, many clients were asking what it was. Now, most of them are enquiring about the CFD products on offer.
CFDs allow investors to make money from price movements, for a fraction of the cost of buying the actual share.
They can also take on either a short or long position. Unlike futures, the contracts have no fixed expiry date or contract size.
For example, in a contract with 10 per cent leverage, an investor will only need to put in S$1,000 to buy S$10,000 worth of shares.
If the share value rises to S$10,500, the S$500 profit will translate to a 50 per cent return.
If the investor had actually bought S$10,000 worth of shares outright, then the return would only be 5 per cent.
The CFD will therefore allow the investor to free up more funds to be invested elsewhere.
The market for CFDs has grown, from just one provider in 2003 - Phillips Securities - in 2003, to at least five now.
Investors are increasingly using the instrument as a hedge against market movements in either direction.
Geoffrey Sawyer, general manager, CMC Markets, said: “Recently the markets have rallied up quite strongly, there is potential for the clients who want to see that as an opportunity to lock in the current prices by simply selling their CFDs against their long core holding in their portfolio.
“CFD traders are very keen to partake in the current market. Volatility provides that opportunity to go long and short again. Greater volatility is greater opportunity.”
But the danger with a leverage instrument is that while profits can be amplified several times, so can losses.
Roger Tan, vice president, SIAS Research, said: “Like a margin, they are putting up a small amount to play 100 per cent. Know your limits when you go in, do not think that you can play more by putting in less than, then putting more and getting yourself into trouble.”
Data about the size of the CFD market in Singapore is not readily available, but some industry players have put it at a single digit percentage.
This compares with London, where CFDs make up about one-third of trading activity. - CNA/ms
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Growing interest among investors in Contracts for Difference
There is a growing interest among investors in Singapore in Contracts for Difference (CFDs).
These are investment tools that allow investors to speculate on share price movements without actually owning the shares.
Some market players, such as IG Markets, CMC Markets and Saxo Capital Markets, said the volume of CFD trading in Singapore has more than doubled from last year.
The number of investors interested in CFDs has grown in recent years because of the instrument’s high leverage.
A recent talk on the product in Singapore drew over 100 participants, and organisers said this was more than expected.
Some firms said that a few years ago, many clients were asking what it was. Now, most of them are enquiring about the CFD products on offer.
CFDs allow investors to make money from price movements, for a fraction of the cost of buying the actual share.
They can also take on either a short or long position. Unlike futures, the contracts have no fixed expiry date or contract size.
For example, in a contract with 10 per cent leverage, an investor will only need to put in S$1,000 to buy S$10,000 worth of shares.
If the share value rises to S$10,500, the S$500 profit will translate to a 50 per cent return.
If the investor had actually bought S$10,000 worth of shares outright, then the return would only be 5 per cent.
The CFD will therefore allow the investor to free up more funds to be invested elsewhere.
The market for CFDs has grown, from just one provider in 2003 - Phillips Securities - in 2003, to at least five now.
Investors are increasingly using the instrument as a hedge against market movements in either direction.
Geoffrey Sawyer, general manager, CMC Markets, said: “Recently the markets have rallied up quite strongly, there is potential for the clients who want to see that as an opportunity to lock in the current prices by simply selling their CFDs against their long core holding in their portfolio.
“CFD traders are very keen to partake in the current market. Volatility provides that opportunity to go long and short again. Greater volatility is greater opportunity.”
But the danger with a leverage instrument is that while profits can be amplified several times, so can losses.
Roger Tan, vice president, SIAS Research, said: “Like a margin, they are putting up a small amount to play 100 per cent. Know your limits when you go in, do not think that you can play more by putting in less than, then putting more and getting yourself into trouble.”
Data about the size of the CFD market in Singapore is not readily available, but some industry players have put it at a single digit percentage.
This compares with London, where CFDs make up about one-third of trading activity. - CNA/ms
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