3 Reasons to Start Your Equities CFDs Journey with POEMS

Figure 1: Adapted from Interbrand, Best Global Brands 2019 [2]

 

Wall Street Legend Peter Lynch has a very basic investment tenet, “Buy what you understand.” Lynch believes that individual investors have an advantage over Wall Street as they have an advantage of the first hand observation.

Dear Readers, let’s experiment with this:

While being cooped up at home during this lockdown period, look around you. Observe the appliances and products you use, if something attracts you as a consumer, why can’t it pique your interest as an investment?

Fun Fact: Many of Peter Lynch’s great investment ideas were discovered while walking through the grocery store or chatting casually with friends and family.

Take an electronic device which many of us cannot live without, the smart phone. Many of us use iPhones (AAPL-US) or our XiaoMi (1810-HK) to surf Facebook (FB-US) for news and updates. When we crave entertainment, we use our smartphones to catch up on the latest k-dramas and blockbusters through Netflix (NFLX-US). This lockdown period, many of us resort to playing video games (Tencent Holdings (0700-HK)), to socialise with our friends and family and maintain relationships. Whilst working from home, we could be using computers from Lenovo (0992-HK) and Hewlett Packard Enterprises (HPE-US). of us may also turn to online shopping viaTaoBao (BABA-US) or Amazon (AMZN-US) to continue shopping despite being homebound. To make electronic payments, we use services such as Visa (V-US) or MasterCard (MA-US).

Whether we realise it or not, we as consumers are constantly interacting with these foreign publicly traded companies through their products and services on a daily basis! Trading opportunities present themselves when these businesses expand their reach and influence.

Most of us are aware of the importance of asset allocation and diversification. Diversification is a core risk management technique that helps to reduce risk by allocating investments among a variety of assets within a portfolio. Diversification can also be practiced through asset, sector and geographic allocations.

In trading, a fundamental tenet is that you do not want to put all your eggs in one basket. If we are trading stocks in a specific market, any adverse economic, geopolitical or market events specific to that market could significantly affect our trading.

For instance, in 2018, Singapore implemented property cooling measures (ABSD and LTV). On the following day, property and banking stocks in Singapore came under heavy selling pressure as investors reacted negatively to unexpected news of cooling measures. With market events that are specific to your market, your trade could be impacted significantly as compared to a geographically diversified portfolio.

Trading different markets could help you reduce your risk and reliance on a single market for return.  With access to over 8 markets (Singapore, US, HK and more), we offer a wide range of global markets for you to trade in!

When we are trading, we must take note of liquidity in the market. A liquid investment implies that there is sufficient trading interest in the market to allow traders to enter and exit positions without experiencing a drastic change in the asset price. In simple terms, it is a measure of how many buyers and sellers are present and the ease of transactions taking place.

A liquid market is generally associated with less risk as there is usually someone willing to take the other side of a given position. This means that a seller is able to find a buyer without having to cut the price of the asset to sell it and the buyer does not need to pay a liquidity premium to buy the asset he/she wants.

Here is a list of some of the largest and most liquid stock market exchanges around the world.

• New York Stock Exchange, United States
• NASDAQ, United States
• Tokyo Stock Exchange, Japan
• Hong Kong Stock Exchange, Hong Kong

The price quotes for our Equities CFDs mirror those of the underlying stocks as quoted on the exchanges. Given that different foreign markets have different operating hours, there are always trading opportunities round-the-clock! There are also free live prices^{^} for Singapore, Japan, Malaysia and United States stock markets, and you can trade with confidence with our 24/5 trading support!

^{^}Open to individuals who qualify as Non-Professional Investors

Trading some of these foreign shares can be quite expensive and you may not have sufficient capital. Through CFDs, you are only required to place an initial margin to open a trade. Hence, you would not be restricted by your capital. However, leverage is a double edged sword which can amplify your returns and losses. Therefore, it is paramount that you always utilise stop-loss orders when you are trading.

Another key feature of CFDs is that these instruments allow you to trade the market both directions, long and short. Short selling is an investment or trading strategy that speculates on the decline in a stock. To understand more, you can read up on the article on short selling, take a look at our recent webinar or view our Top 10 Reasons to Short Sell CFDs with POEMS. For CFDs traders, you will not be restricted by the bull or bear market. If you are expecting the recent bull run to be a mere dead cat bounce, CFDs can be a handy tool for you.

We sincerely hope that you have found value in this article. 

Be rewarded as a Phillip CFD customer, no matter whether you are a new customer or a seasoned trader. Every step of the way, we have rewards that will help you trade better. Visit our promotions page to check out more!

 

Begin your CFD Trading Journey with us!