From Nicholas Tan, Trader and Author of Handbook
On CFDs Trading.
The internet and online brokers have brought about new instruments of trading
and it has led to the opening of new markets to trade. Retail investors and
traders are not limited to trading stocks of their own countries but they can also
now trade a variety of instruments such as options, forex, commodities, and
contracts for difference (CFDs) of different markets.
This means that traders and retail investors now have more ways to profit from
these various instruments and markets. Contract for difference is a relatively
new trading instrument in Singapore. This is the first guide on CFDs trading
ever written and published in Singapore.
This book is written for Singapore traders and investors who want to take
advantage of CFDs in their trading. It shows you how CFDs are traded and the
strategies you can use for both bullish and bearish market conditions. Unlike
other CFDs books published by overseas authors, this book is unique as Singapore stocks are used as
examples when explaining how a trading strategy can be applied.
CFDs is a double-edged sword. If you know how to trade it and use it in your trading strategy, you can reap
good profits using a small amount of capital as it is a leverage product but at the same time, because it is a
leverage product, it can cause you to lose big amount if you have yet to master the art of trading CFDs.
I hope this book will not only show retail investors and traders the potential profits they can make trading
CFDs but at the same time educate them of the trading risks and take the necessary actions to minimise
I wish you every success in your trading.
Also Author of “Handbook On Forex Trading”, A National Bestseller and “Forex Trends and
Profitable Patterns” (Published by Rank Books).
You need to open an account with a broker that offers CFDs trading. As CFDs are traded on a margin
account, you will need to deposit money into your account before you can start trading. Some brokers
may require you to put in a minimum sum to open an account.
You must have at least 20% of the contract value in your account before you could trade. While there is
no closing trade deadline, as long as your position is open, it will be revalued daily. Should the price of
your open position drop below 20% of what you have in your account, there will be a margin call. This
would require you to top up your account by a necessary amount to bring your deposit above the 20%
requirement to continue holding on to your open position.
As the name suggests, in CFDs trading, there is no actual delivery of the shares when you buy or sell
CFDs of the underlying shares. When you buy some Singapore Press Holding CFDs, you will not
become a shareholder of SPH. It is just a book entry and when the position is closed, it is cash settled.
It will be either money added into your account or money deducted from your account. However if
Singapore Press Holding were to give out a dividend, your account will be credited with the dividend
amount, if you are still holding the CFDs. However, if you short the CFDs, you will need to pay back the
dividend amount when the share goes ex-dividend and suffer a drop in the share price. If there were to
be a stock split, your CFD position will be adjusted accordingly.
Margin Trading and Leveraging
A CFD is a margin product with leverage. This means that you can buy a large quantity of CFDs with a
comparatively smaller amount of capital. For instance, if you want to buy 10,000 shares of ABC
company at $10.00 per share, you would need to fork out $100,000 dollars ($10 x 10,000) to pay for
your purchase. However, when you decide to buy 10,000 CFDs of ABC company, you are only required
to fork out say 20% of $100,000 or just $20,000 in order to purchase the same number of shares.
Hence, when you open a position, you do not have to put up the full amount of your purchase value.
You just have to put up 10% to 20% of the contract value as margin. While you need to fork out less
than the purchased value of the shares, be warned that you are liable to pay an interest charged on your
position until your position is sold.
On top of the interest charge, there is a commission charge for each transaction.
There are many reasons why CFDs are attractive instruments for traders.
Higher Returns On Capital
With leveraging, you can use a small amount of money to make more money.
Here is an example. If you want to buy 1000 shares of OCBC from your normal broker, at $8.00 it
will cost you $8000. You will need to pay up this amount after 3 days. But if you use this same amount
of $8000 as a deposit in your CFD account, with a 10% margin required, you can buy 10,000 shares of
OCBC. Instead of having only 1000 shares, you now have 10,000 shares. If you decide to sell after 5
days at a price of $8.20, you would make $200 from your normal broker if you have bought 1000 shares.
However, if you have bought CFDs, you would have make $2000 for your CFDs position of 10,000
shares. In percentage term, you would have made a return on capital of 25% buying CFDs verses 2.5%
returns if you bought the shares.
Bigger Position Size Means Bigger Profits In Shorter Time
To make $100 for 1000 shares means the price of the share must go up by 10 cents or more. But
if you have 10,000 shares, to make $100, it means the price of the share must go up only by 1 cent.
Hence, with the ability to have a bigger position for less capital, you can profit from small movements in
the share price over a shorter period of time.
Lower transaction cost
While your local internet trading for equity will cost you 0.275%, with other additional cost like SGX
clearing fee, which means your cost per trade is now over 0.3%. But trading in CFDs for the same
shares will cost you only 0.15%. That is almost half your cost. Low transaction cost equates to greater
CFDs can be used to buy US shares as well. This is where low transaction cost really benefit you.
The transaction cost for CFDs in US shares is 0.1% of the share’s contract value while your normal
broker will charge you 0.4% to trade in US shares.
The ability to short sell when market is down is perhaps the key attraction of CFDs. You can short
CFDs without restriction. When you trade shares, you are unable to sell without first having the shares
in your CDP account (Central Depository Account). For CFDs trading, there is no such restriction.
However, do note that not all stocks are available for shorting. The list available for shorting varies from
broker to broker.
You may want to check with the broker on the counters available for shorting before you open an
account with them. There is no restriction on the period you can carry your short position as well. You
can carry your short position as long as you like, as long as your account has enough deposit to
maintain that short position. In other words, you can sell today and 10 days later you buy back to close
the position. The other benefit of shorting CFDs is that when you are holding a short position, you
actually earn interest on your short position as well. This means that if the market goes down, you made
capital gain as well as interest!
For new comers to CFDs trading, some may worry that the CFD broker will cheat them on pricing.
In CFDs trading, the CFD prices of any particular counter are the prices quoted real-time in the various
exchanges where the shares are traded. The price for OCBC shares CFDs if you were to buy or sell is
exactly the same as the price quoted on the local stock exchange for OCBC shares.
Ease and fast execution of trades
Your CFD broker will provide you with a platform to trade. With the platform, trading is fast and
instantaneous. It takes only a couple of second to confirm that your trade is executed.
Flexible contract sizes
There is no fixed contract size. CFD brokers usually allow their clients to trade in any size. You
can trade any small quantity if your margin deposit is small and does not allow you to trade the usually
board lot in the Singapore Exchange. For example, you can actually buy 750 shares of OCBC if you
only have a small deposit maintained with your CFD broker.
Wide ranges of products
One of the greatest attractions of CFDs is that with one account, you get access to the global
stock markets. You can trade US shares, Hong Kong shares, London, and even Netherlands shares.
You can trade Foreign Exchange with your CFDs account. You can trade stock index from around the
world. With one account, you could trade more than you can possibly monitor!
Nicholas Tan has more than 20 years of experience in the area of foreign exchange (“forex”) trading. He
worked for 13 years as a forex trader with banks in Singapore, gathering much invaluable experience in the
process. He rose from the ranks to vice president, making millions for the banks in those years.
From 2005 to 2008, Nicholas Tan was involved in the Diploma in Wealth Management Course at a private
institute where he taught as a freelance lecturer, a module on forex and CFD Trading (stock market).
In conjunction with Rank Books and Rank Seminar, Nicholas Tan has been running a monthly forex trading
course since 2007. This class is now Singapore’s longest running forex course, and has exposed hundred of
participants to his simplified yet highly effective forex trading techniques.
Nicholas Tan is also the author of two best sellers; “Handbook on Forex Trading”, an easy guide to profitable
currency trading, and, “Forex Trends and Profitable Patterns” an easy guide to spot profitable trends and
patterns in forex. Handbook on Forex Trading was ranked among the 10 Top Best Sellers in Popular
bookstores in 2007 for several months. Both books are still best sellers in local bookstores till today.
Nicholas Tan has been featured in the Channel News Asia program, “Cents & Sensibilities EPISODE 6 -
Money, Money, Money: Forex Trading”. On national television, he has given advice on how one can maximize
their gains on the forex market. You can catch him at http://www.channelnewsasia.com/cents/episode6.htm.
Besides a Bachelor Degree in Business Administration from the National University of Singapore, Nicholas Tan
is also a Certified Financial Technician (“CFTe”). This is an elite certification from the International Federation of
Technical Analysts, given to a handful of qualified technical analysts across the world after passing their
rigorous examinations. As of today, there are not many CFTe holders in Singapore.