Why Phillip CFD

Leverage

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Higher leverage, more trading power

Investors can use CFD as a diversification tool because it allows them to trade from margin requirements as low as 10% for selected Equities CFDs and 5% for certain World Indices CFDs. This allows them to make their capital work harder for them and possibly achieve higher return on equity.

For example, stock XYZ is trading at the following prices:

Using conventional stocks trading, investors would need S$2,260 to buy 1,000 shares at S$2.26. Using CFDs, investors can buy 1,000 shares with just S$226 at S$2.26 (assuming margin requirements of 10%).

This effectively frees up his capital for other investments such as Real Estate, Futures, FX trading, ETFs, Unit Trusts, Insurance, and so on. Investors could have only bought 1 lot of a blue chip stock in the normal cash market, but using the same capital, they could strengthen their portfolio by buying up to 10 lots of the same stock with CFD.

Trading on leverage is a double-edged sword, as it is possible to lose more than what you put into the investment, which is why prudent risk management practices and using the right trading platform for your trades is very critical.

Example of Long Trade

A client is bullish on Straits Times Index SGD 5 CFD and buys 1 contract.

Buying Price = 2,681

Scenario 1

Positions are closed 4 days later at a higher value.

Selling Price    = 2,724
Net Gain/Loss    = S$187.47
Return on Equity = 27.97%

Calculations:

Scenario 2

Positions are closed 4 days later at a lower value.

Selling Price    = 2,632
Net Gain /Loss   = (S$272.42)
Return on Equity = (40.64%)

Calculations:

Leverage allows trading with a smaller amount of capital. Higher leverage allows investors to achieve high return on equity on winning trades, but it is also possible for investors to lose more than what they put in should this be a losing trade, so we would recommend investors to be cautious in their CFD trades, and use systems such as CFDTrader to help manage their risks.