{"id":46491,"date":"2021-01-26T09:24:08","date_gmt":"2021-01-26T01:24:08","guid":{"rendered":"https:\/\/www.imoney.my\/articles\/?p=46491"},"modified":"2021-03-10T15:25:44","modified_gmt":"2021-03-10T07:25:44","slug":"cfd-phillip-futures-sponsored","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/cfd-phillip-futures-sponsored","title":{"rendered":"What Are Contracts For Difference (CFD) And How Do You Invest In It?"},"content":{"rendered":"

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Have you tried speculative investments where you do not have to actually own the asset?<\/p>\n

This type of investment is based on using leverage. What ‘leverage’ means is that you are using a small percentage of deposit (also known as required margin or \u2018Initial Margin\u2019) of the full contract value to trade CFD, so you do not have to commit a huge amount of money into a single investment.<\/p>\n

This approach is useful to diversify your investment portfolio. One way that investors can now get into this speculative investment arena is through CFD trading.<\/p>\n

A CFD allows investors to participate in the price movement of an underlying asset without owning the asset. One of the key features of a CFD is it is a leverage investment product; you are required to pay only a small percentage of the full contract value to trade the product.<\/p>\n

<\/span>How does CFD trading work?<\/span><\/h2>\n

A CFD is a contract made between two parties- an investor and a CFD broker- to exchange the difference in the value of a financial product (shares or derivatives) between the time the contract opens and closes. A CFD investor never actually owns the underlying asset but instead receives revenue or incurs loss based on the price change of that asset.<\/p>\n

An investor can either be a buyer or a seller! The buyer speculates the asset\u2019s value will increase; an opening BUY (long) position can be placed. While the seller expects the asset\u2019s value will decline, an opening SELL (short) position can be placed. In order to close the opening position, the investor must purchase an offsetting trade. The net difference of the gain and loss is cash-settled through their trading account.<\/p>\n

While you can theoretically enter into a CFD for anything, guidelines set down by the Securities Commission Malaysia<\/a> limit trading to shares and indices that meet a strict criteria. These include being listed on Bursa or the exchange is listed with a capital market regulator that is a signatory of the International Organization of Securities Commissions multilateral memorandum of understanding concerning consultation and co\u2010operation, and the exchange of information among securities regulators (IOSCO MMoU); and have at least RM1 billion in market capitalisation.<\/div><\/div>\n

<\/span>Step by step example of a CFD investment<\/span><\/h2>\n

Still confused about how CFD works? Here\u2019s a simple example to illustrate how this works.<\/p>\n

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<\/span>What is going \u2018long\u2019 or \u2018short\u2019 in CFD trading?<\/span><\/h2>\n

These two terms will come up if you are trading in CFD.<\/p>\n

For regular investors, the aim is to buy low and sell high. After all, it is an easy concept to understand and provides the most straightforward way of profiting from an investment. Buying at a certain price thinking that the market value will rise is called a \u2018long exposure\u2019 or \u2018going long\u2019.<\/p>\n

What Andy, in the above example, is doing above is the \u2018long exposure\u2019 strategy. <\/div><\/div>\n

However, investors can also try to profit from a decrease in price. This generally happens by selling shares or derivatives on the promise to buy them back at a later date in the expectation that the price declines in the future. This investment move is known as a \u2018short exposure\u2019 or \u2018going short\u2019.<\/p>\n

In the above example, if Bob sells at RM0.80 per unit, and buys the same Share B again expecting it to go even lower than RM0.80, Bob is taking on the \u2018short exposure\u2019 strategy.<\/div><\/div>\n

A CFD can be opened for either \u2018long\u2019 or \u2018short\u2019 exposures. The more the market moves in the direction you took a position on (market direction favors you), the more profit you make. (provided if the market direction favors you).<\/p>\n

Speculating on these future movements in the market price without directly investing in it can provide a lot of opportunities for investors who do not need to actually come up with the full amount of cash to buy the asset.<\/p>\n

<\/span>How do you start investing in CFD?<\/span><\/h2>\n

Phillip Futures offers an easy entry into the world of CFD investment in Malaysia. This ease of access extends not only to high value shares, but also foreign share markets which may be difficult for local investors to reach due to regulations or simply because of extra fees.<\/p>\n

Phillip Futures is the first futures broking company in Malaysia to provide online trading on local and foreign Specified Exchanges. They are also one of the first brokers in Malaysia to offer CFD trading.<\/p>\n

With Phillip Futures, you can:<\/p>\n