Trading and investment approach to two completely different. In a previous article, we wrote about the reasons why some people prefer trading to investing.
IG Singapore recently a new product called the Singapore Index CFD. This product allows traders to get exposure to Straits Times Index (STI) via the index contracts for difference (CFD). This can be particularly important to local merchants who are looking to trading exposure to this popular index.
Before trading index Singapore CFD, we believe that it is important to first understand the product.
#1 you are trading, investment
Simply investors tend to adopt a longer holding period to achieve returns when the asset they invest in to increase in the long-term price, or the payment of dividends with minimum trading volume. In contrast, traders tend to adopt a shorter holding period with the aim of achieving profits through short-term changes in prices. Usually traders use technical analysis to study chart patterns of historical price movements, to help them determine entry and exit positions.
If you are going to get exposure in sexually transmitted diseases across the CFDs on the Singapore Index trading mentality usually adopted. Because of the nature of CFD with leverage Overnight Financing Costs, this product appeals to those who are looking for shorter tenure or those that think the use of index CFD on the control of monetary liquidity in the shares component.
# 2 you can trade the index through a CFD
CFD trading is very different from investing in the ETF which track the performance of the STI.
CFD is a contract between two parties to exchange the difference between the price of the asset from the opening position to the closing position. Its value depends on underlying assets which follow in this case, STI.
Because of the structure of how CFDs work, traders can take either long or short positions in the trade. They take a long position if they believe that prices will rise and a short position if they think that prices will go down.
# 3 you are using leverage
If you are trading the Singapore index using CFDs, you will not make use of leverage or trading on margin. And then you need to be more careful in your trades.
When trading using leverage, a small change in the index can have a significant impact on the value of the trade for better or for worse. For example, with leverage up to 20 times, if you are on the index (i.e. you think the index will rise) and it does not rise by 2% of your earnings up to 40% because of the leverage. However, if the index goes down, your losses will also be magnified. In other words, leverage is a double-edged sword that can help traders increase exposure and amplify both profits and losses.
Simple ways to manage risk include placing a stop-loss position or a trailing stop that automatically adjusts your stop level and your position becomes more profitable, so that you are able to reap the potential profits in it, while at the same time keeping the downside limited. Unless you’re very experienced, you should also avoid trading during times when an important announcement is expected, as you can never be sure of how the financial markets will react to any unexpected news.
#4 you can use to get rid of long-term investments as well as
As an investor, you can also use CFDs to hedge your long-term positions. For example, if you invested in the STI in the long run, but expect the next few months to be difficult and volatile, and can limit the potential downside to taking a short position to hedge yourself in the market. If the STI doesn’t even goes down, your investment portfolio will decline but this will be offset by the gain on the CFDs. The full example here.
#5 Don’t click, but the overnight cost of funding the position
Unlike financial derivatives such as options, index CFDs through IG no expiration date. This means that similar to investing in stocks, you can hold your position as you want until you decide to close it.
However, because of the leverage used (i.e., you borrow funds to finance the site), will have to bear finance charges at the positions that you held.
Here is an example of the charges on indices CFDs on IG: