It’s no secret that Singapore is one of the world’s top financial hubs. With so many options for trading, it can be tough to decide which avenue is right for you. This article explores the benefits and cons of CFD trading vs. stock trading in Singapore and helps you decide on the best option. You can also try CFD trading on a CFD demo account before fully committing yourself.
What are CFDs and stocks?
These are a type of derivative trading. Essentially, you’re betting on the price movement of an underlying asset without actually owning that asset. CFD trading is widespread in Singapore because CFDs allow you to trade various assets, including indices, forex, commodities, and shares.
On the other hand, stocks are simply ownership units of a company that are traded on an exchange. When you buy stocks, you take on partial ownership of a company and its profits or losses.
Critical reasons for choosing CFDs?
Take a look at key factors to consider when making your decision.
One of the most significant advantages of CFD trading is leverage, which allows you to trade with more capital than you have in your account, magnifying both your profits and losses. For example, if you have $1,000 in your account and use 10x leverage, you’re effectively trading with $10,000.
It can be highly beneficial if used correctly, but it’s important to remember that it also amplifies your losses. So, you must use stop-loss orders to limit your downside risk.
Another significant advantage of CFD trading is that you can short-sell assets, which means you can profit from falling and rising prices. With this, you can only profit from rising prices, since you’re buying company shares.
CFD trading is generally more cost-effective than stock trading, and this is because there are no commission fees and the spreads are usually lower. With stock trading, you have to pay broker fees and stamp duty.
Access to global markets
CFD trading gives you access to global markets 24 hours a day. With stock trading, you’re limited to trading during market hours.
CFDs tend to be more volatile than stocks so prices can move up and down more rapidly. It can be advantageous if you’re looking to make quick profits, but it also means more risk is involved.
The stock market in Singapore is highly regulated, but the CFD market is relatively unregulated, which means more opportunities for fraud and manipulation in the CFD market.
CFD trading platforms are usually more sophisticated than stock trading platforms. They offer more features and tools, such as charting indicators and advanced order types.
CFD trading is generally considered to be more professional than stock trading, and this is because it requires a higher level of knowledge and understanding of the markets.
Risk of CFD trading over stocks?
The main risk with CFD trading is that it’s a highly leveraged product, which means you can lose a lot of capital very quickly if you don’t know what you’re doing. It’s important to remember that leverage magnifies both your profits and losses.
Another significant risk is that the CFD market is relatively unregulated, which means more fraud and manipulation opportunities. It’s vital to do your research and only trade with reputable brokers.
Finally, CFDs are generally considered more complex than stocks, which means they’re unsuitable for beginner investors. If you’re new to trading, it’s best to stick to stocks until you’ve gained more experience.
How to start CFD trading?
If you’re interested in CFD trading, the first step is to find a reputable broker. It can be done by reading online reviews or speaking to other traders. Once you’ve found a broker you’re comfortable with, you’ll need to open an account and deposit funds.
When your CFD account is funded, you can start trading CFDs. It’s important to remember that CFD trading is high-risk, so you must educate yourself before putting any money at risk. Numerous online resources can help you learn about the markets and how to trade effectively.
When you’re ready to start trading, you must limit your downside risk by using stop-loss orders. It will help you protect your capital if the markets move against you. You should also only trade with money that you can afford to lose. CFD trading can be a great way to make money, but it’s important to remember that it’s a high-risk activity. So, make sure that you educate yourself before putting any money at risk.