Like most people, you probably think of CFDs as a tool used exclusively by professional traders. But did you know that retail investors can also use CFDs? In this article, we’ll list six reasons why you should experiment with CFDs. By the end of the article, you’ll see that CFDs can be a powerful tool for retail investors looking to expand their investment portfolio.
Table of Contents
1. You can trade a variety of assetswith CFDs
One of the great things about CFDs is that they can be used to trade various assets, including stocks, indices, commodities, and even cryptocurrency. It means that you have a lot of options when it comes to choosing what you want to invest in.
You can diversify your investing portfolio by being able to trade a number of assets. It is crucial because it enables risk mitigation. You will lose a lot of money, for instance, if all of your investments are in equities and the stock market crashes. But let’s say you have a well-balanced investing portfolio with other asset classes like bonds and commodities. In that instance, you can use the stock market to make up any losses.
2. CFDs offer leverage
Another reason to experiment with CFDs is that they offer leverage. Leverage is a feature that allows you to trade with more money than you have in your account. For example, if you have $1,000 in your account and you’re trading with 10:1 leverage, you can control a position of $10,000.
The reason why leverage is so attractive is that it allows you to make more significant profits. However, it’s important to remember that leverage also amplifies your losses. It means you need to be very careful when using leverage and only use it if you’re confident in your ability to make money.
3. You can go short or long
When you trade CFDs, you can go short or long, which means you can profit from rising and falling prices. For example, let’s say that you think the price of gold will fall, and you could open a short position and make money when the price falls. Conversely, if you think the price of gold will rise, you could open a long position and make money when the price increases.
This flexibility is one of the reasons why CFDs are so popular. It allows you to take advantage of both bullish and bearish market conditions.
4. CFDs are commission-free
Another advantage of CFDs is that they are commission-free, which means you don’t have to pay any fees when you trade. The only fee you have to pay is the spread, which is the difference between the buy and sells price.
It differs from other investment products, such as stocks, where you have to pay a commission every time you trade. When trading CFDs, you only have to pay the spread, which can be very low depending on the broker you use.
5. You can trade CFDs on a demo account
CFDs should be tested out on a demo account if you are new to trading. You can practise trading without putting your money at risk by using a demo account, which simulates a trading environment. It is a fantastic method to become familiar with the ins and outs of CFD trading without having to risk your money.
Most brokers offer demo accounts, so it’s easy to find one that suits your needs. Make sure you choose a broker that offers a good selection of assets and competitive spreads.
6. Financial authorities regulate CFDs
CFDs are regulated by financial authorities in Singapore. Most notably, all Singaporean brokers must be licensed by the Monetary Authority of Singapore (MAS) to operate. This adds an extra layer of security for local traders.
The bottom line
CFD trading is a great way for intermediate traders to gain new skills and to tap into new markets. If you want to start trading CFDs in Singapore, you should make sure you understand the market of the underlying asset in which you wish to trade. You should also do adequate research on ensuring that you have enough funds to place your trades.