[Links in the post lead to external sites.]
The bearish stock market has led me to revisit this post on Contract for Difference which was what I have read up to kick-start short selling. BUT this is not a post to encourage anybody to do so, it's more of an FYI.
CFD is one of the instruments that can be used for short selling which gives you more flexibility to investment and also hedging power, read more here. Only some brokerages offer CFD and it is traded using a margin (leverage) account.
Type of CFD
The brokers that offer CFD can be subdivided into DMA or MM. DMA seems like a better option with higher transparency. DMA stands for direct market access which reflects the actual stock market prices.
Here's an interesting read about what is short interest. But I have yet to discover where can we find short interest ratio for sg stocks.
Using CFD - Risks
Short selling can be used as a hedging tool. It can also be used to earn money in a bearish market. However, due to the use of leverage, it can also be a double edge sword as an investment tool if not properly used.
CFD is not actual stocks - it is a derivative products (so you do not own any shares of the company which you buy or sell). It is provided by a market maker who earns interest and commission from your buying of CFDs from them.
Charges
There are 2 components - commission (usually min $25) and finance charges (p.a) for holding positions overnight.
We could view an example of charge details here.
There may be no time limit to the holdings but as mentioned, since it involves leveraging most traders would use it as a short-term investment to prevent accruing high interest (e.g the finance charges from holding the position).
See also:
http://www.bigfatpurse.com/2010/08/how-to-choose-a-cfd-broker-part-2/
http://www.moneysense.gov.sg/Understanding-Financial-Products/Investments/Types-of-Investments/Contract-for-Differences.aspx
http://www.contracts-for-difference.com/risks/Counterparty-risk.html
Last but not least there's 7 useful trading tips for CFD which can be found here.
And I shall end this post with a quote to remember...
The bearish stock market has led me to revisit this post on Contract for Difference which was what I have read up to kick-start short selling. BUT this is not a post to encourage anybody to do so, it's more of an FYI.
CFD is one of the instruments that can be used for short selling which gives you more flexibility to investment and also hedging power, read more here. Only some brokerages offer CFD and it is traded using a margin (leverage) account.
Type of CFD
The brokers that offer CFD can be subdivided into DMA or MM. DMA seems like a better option with higher transparency. DMA stands for direct market access which reflects the actual stock market prices.
Here's an interesting read about what is short interest. But I have yet to discover where can we find short interest ratio for sg stocks.
Using CFD - Risks
Short selling can be used as a hedging tool. It can also be used to earn money in a bearish market. However, due to the use of leverage, it can also be a double edge sword as an investment tool if not properly used.
CFD is not actual stocks - it is a derivative products (so you do not own any shares of the company which you buy or sell). It is provided by a market maker who earns interest and commission from your buying of CFDs from them.
Charges
There are 2 components - commission (usually min $25) and finance charges (p.a) for holding positions overnight.
We could view an example of charge details here.
There may be no time limit to the holdings but as mentioned, since it involves leveraging most traders would use it as a short-term investment to prevent accruing high interest (e.g the finance charges from holding the position).
See also:
http://www.bigfatpurse.com/2010/08/how-to-choose-a-cfd-broker-part-2/
http://www.moneysense.gov.sg/Understanding-Financial-Products/Investments/Types-of-Investments/Contract-for-Differences.aspx
http://www.contracts-for-difference.com/risks/Counterparty-risk.html
Last but not least there's 7 useful trading tips for CFD which can be found here.
And I shall end this post with a quote to remember...
- "Risk is not knowing what you are doing." Warren Buffett
***