If you came here looking for a comparison of CFD brokerages in Singapore, you’re probably not a total beginner to investing.
But just in case you’re not familiar with the notion of CFD (contract for difference) trading, a little introduction is in order.
Either way, this is a simple guide to the complex world of CFD trading in Singapore.
What is CFD trading?
Unlike most other forms of investing where you have a clear idea of what asset or whose company you’re investing in, it’s not so intuitive with CFD trading.
The clue to CFD’s meaning is what the acronym stands for: “Contract for difference”.
Now, a regular contract between a buyer and a seller states that the buyer will pay a certain amount for whatever the seller is selling.
A contract for difference, on the other hand, compels the buyer (or seller) to pay only the difference in value between now and a later point in time.
Still confused? Let’s think of this in terms of property investment.
Suppose there’s a real estate mogul called Ms Dewi. She snaps up a luxury property when home prices dip, and resells it when prices increase.
In the process, she needs to sign 2 contracts for the purchase and sale of the home.
With a CFD-type scenario, Ms Dewi would not need to buy the property in the first place. Instead, she gets a payout if home prices increase between now and [a stipulated time], or pay the difference out of her pocket if they decline.
This means she doesn’t need to actually buy the item in order to make or lose money from it.
How is this even possible?
Well, with a whole lot of leverage, that’s what.
In the example above, Ms Dewi does not need millions of dollars in capital to buy that luxury property. Instead, whoever issues the CFD will lend her the money needed to buy it.
This is sometimes expressed as leverage or margin. A 10X leverage is equivalent to 10% margin. Both simply mean that, with an investment of $10, you can trade CFDs for up to $100 (or 10 x $10) of stuff.
A classic, familiar example of CFD trading is forex trading. Forex traders don’t need to go to the money changer and buy $10,000 worth of foreign currency, then sell it back to the money changer.
Instead, they can make or lose the same kind of money with just a 10th of the amount, i.e. a $1,000 investment, in a 10% margin scenario.
Wah! You mean CFD trading is so lucrative?
If you’re doing the sums in your head, you’ll realise that a 10X leverage or 10% margin basically 10X-es your potential profits.
Say you invested $1,000 for $10,000 worth of USD. The USD to SGD exchange rate rises by $0.10 tomorrow. You’d be making $1,000 from the trade instead of the $100 you would have made by going to the money changer.
At the same time, it also means your risks are seriously amplified. Should the USD to SGD exchange rate fall -$0.10, you’d lose a lot more money too: -$1,000 instead of just -$100.
However you slice it, CFD trading is an extremely high-risk type of “investing”. In fact, let’s just come right out and admit it has a lot more in common with betting, gambling or speculating.
For this reason, CFD is banned in the US and Belgium, and closely watched in other parts of Europe.
In Singapore, the MAS doesn’t seem to be so strict with CFD brokers. MAS does require them to show potential investors a fact sheet of risks, though.
What kinds of products have CFDs?
Apart from forex trading, which is arguably the most famous CFD product out there, you can also find CFDs for all kinds of investment vehicles.
These include but are not limited to…
Shares: You can buy CFDs for shares, which allows you to possibly profit from share prices changes without owning the stock itself. You can also choose to “short sell” with a CFD, in which you bet that the company’s stock will fall by $0.10 tomorrow. If you’re buying shares the regular way, you can’t make money when the share price falls.
Indices: You can buy CFDs for lots of global indices (i.e. the plural form of “index”), which track the performance of a larger cluster of stocks. The most famous examples are Singapore’s Straits Times Index and the US’s S&P 500. These work similarly to shares CFDs.
Commodities: No matter how exciting the price fluctuations are, most of us aren’t interested in actually owning a barrel of oil. CFDs for commodities promise to make you an oil baron (or an oil pauper) without needing to own the commodity itself.
Cryptocurrencies: Some brokers, such as IG Markets, offer CFDs for bitcoin, ethereum and the like, which are known to be volatile. Again, the benefit of not actually owning the cryptocurrency is that you have the option of betting on a decline in prices.
Important note! You should only ever consider CFDs for the asset classes that you understand fully.
Although CFDs seductively allow you to invest in assets for a fraction of the usual amount, that’s no reason to get involved in something you know nothing about. The CFD you buy is always dependent on the actual asset, so make sure you know what you’re getting into.
Which are the popular CFD trading brokers in Singapore?
The main CFD trading brokers in Singapore are:
There are more, of course, but these are the 5 most established ones.
Most of the brokers offer the standard CFD assets we talked about above — shares, indices, commodities and forex (typically includes cryptocurrencies) — but at different scales.
To illustrate, the global players IG, CMC and Saxo are the biggest ones with the most options for the retail investor. On the other end of the spectrum, there’s Phillip CFD, which is a much smaller regional player, but it has a solid base of fans in Singapore.
Other CFD brokers may specialise in specific forms of CFDs. For example, Oanda is huge on forex and cryptocurrencies. If you’re interested in forex trading in particular, there are several other players that focus on that, and you can read about those in our guide to forex trading in Singapore.
In any case, it’s best to choose only from the more established CFD brokers as there’s not a whole lot of regulation in the CFD field in Singapore (yet). If you’re considering a broker that’s not on this list, make sure you look them up on the MAS Financial Institutions Directory first.
What are the fees for CFD trading in Singapore?
So you think you’ve got the guts for CFD trading? The next step is to survey the fees involved. After all, even the most enticing investment would be a mistake if the cost of investing eats significantly into your profits.
With regular shares, you’d pay your investment broker a commission fee, usually X% of your investment. For CFD, the types of fees differ from product to product.
Forex (incl. cryptocurrencies): Forex transactions work on the basis of spreads. It works similar to a commission, in that the broker earns a percentage of your transaction amount.
However, because of the more volatile nature of forex, what most brokers can only assure you of is the minimum spread they’ll charge. A more realistic metric to look at is the average, if available. For example, a forex pair with a minimum spread of 0.6 may actually have an average spread of 1.5.
Indices: Similar to forex, when investing in stock index CFD, brokers also charge a spread. Indices are a lot less volatile than forex, though, so usually the spread is just whatever is stated — there are no surprises.
Commodities: A spread is also charged on commodity CFDs. Depending on the product, the spread can be significantly higher than that of forex and indices, e.g. 2.8 on more volatile commodities like crude oil.
Shares: Commission prices for shares CFDs are a fixed percentage of the total price. Note that for leveraged trading, all brokers charge a funding cost to keep the position open overnight. This cost is usually pegged to interbank rates and can become quite substantial if you decide to hold a position over a longer timeframe.
Sample CFD trading spreads / fees in Singapore
It’s not possible to compare all the fees / spreads that CFD brokers charge, since there’s a different one for every single CFD type.
What we’ll do is just compare a handful of popular ones available at the 3 biggest brokers.
|CFD||IG Markets||CMC Markets||Saxo Markets|
|US share (per share)||US$15||US$10||US$4|
|Index (S&P 500)||0.4||5||0.4|
|Commodity (crude oil)||2.8||3||0.05|
As you can see, there’s a bit of variation from product to product, but the big 3 providers have fairly competitive minimum spreads in most cases.
However, in some instances, such as shares or commodities CFD trading, there can be some clear winners in terms of commission fees / spreads.
What else should you look out for?
While cost is definitely an important factor when choosing a CFD broker, it’s always good to see what other features and resources each broker offers.
This is because CFD trading is a particularly fast-paced and involved affair, so investors should appreciate convenience and ease of monitoring your trades.
You definitely want a broker that has a convenient platform that loads quickly both on mobile and desktop, and is preferably customisable to your needs.
Certain additional technological features like risk management tools, in the form of guaranteed stops or alert tools, can also set a broker apart.
For more advanced traders, access to algorithmic trading systems to automate the trading process could also be something to look out for in a platform.
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