If you’re looking to start trading in Singapore, deciding between stock trading and CFD trading can be challenging. While both have advantages, some clear benefits of trading CFDs include accessing a broader range of markets and increased liquidity. In this article, we will discuss why CFD trading may be preferable over stock trading in Singapore for those new to investing or experienced traders.
Access to a broader range of markets
For investors looking for more opportunities and flexibility, CFDs may provide them with greater access to assets than traditional stocks. With CFDs, you can choose from commodities such as gold and silver, indices like NASDAQ 100 and significant currencies such as USD/EUR. It allows traders to diversify their portfolios quickly and easily without investing large amounts into any single asset.
Increased liquidity
CFDs provide increased liquidity compared to stocks, allowing traders to enter and exit positions more quickly. It helps reduce the risk of losses due to slippage and provides more flexibility for investors who want to take advantage of shorter-term trends or opportunities. In addition, CFDs allow traders to go both long and short, making money regardless of market conditions.
Leverage trading
CFD trading also offers leverage, allowing investors to control a more prominent position than they would be able to with traditional stocks. It can magnify returns for successful trades and help spread risk across multiple positions in the portfolio. However, leverage also works against you if the market moves against you, so it’s essential to understand how CFD leveraged trading works before taking advantage of this feature.
Lower costs
CFDs generally have lower transaction costs than stocks, as most products have no commission or stamp duty. In addition, CFDs eliminate other fees, such as account maintenance charges, which can add up over time. It helps to keep overall trading costs to a minimum, making CFD trading an attractive option for those looking to save money. Moreover, many brokers offer demo accounts which allow traders to practice and test strategies without risking any capital.
Trading is easier
CFD trading is often much more accessible than stock trading, as most platforms or apps are designed with a simple user interface. It allows new investors to start quickly and easily, reducing the learning curve significantly. With fewer steps involved in trading, investors can focus on finding advantageous opportunities rather than worrying about paperwork and other administrative tasks. In addition, some brokers offer educational material and trading signals, which can help new investors get up to speed quickly.
How are CFDs riskier than stocks?
Though there are several benefits, CFD trading can also be riskier than trading stocks. Traders should be aware of these risks to ensure they understand the potential rewards and losses of CFD trading. By learning about the risks, traders can learn valuable strategies to mitigate them and avoid heavy losses.
Leverage trading
As mentioned earlier, leverage trading allows investors to trade a more prominent position than they would be able to with stocks. It can magnify returns for successful trades but also works against you if the market moves against you. Leverage magnifies losses and gains and should only be used by experienced traders who understand how this feature works and have sufficient capital to cover potential losses.
Volatility
CFDs are typically based on highly volatile markets, such as commodities or cryptocurrencies. While this provides abundant opportunities for traders, high volatility carries a considerable risk of significant losses in a short amount of time. As such, traders must ensure that their strategies consider the inherent risks of CFD trading on volatile markets.
Unregulated markets
Traders can do CFD trading on unregulated markets, such as cryptocurrency exchanges or certain CFD brokers. It exposes traders to additional risks, such as fraud or the lack of a regulatory framework to protect investors’ funds. As such, traders must ensure they only trade on regulated and trustworthy platforms to minimise these potential risks.
Short-selling risk
CFDs allow traders to go long and short, meaning investors can make money regardless of market conditions. However, due to the counterparty nature of CFDs, this also means that investors may incur losses if the market moves against them. Traders need to understand how this works before entering into trades.