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CFD Trading In Indonesia

Written By

Paul Holmes

Written By

Paul Holmes

Paul has over 14 years experience in the trading industry, both as a full-time trader and working with leading brokers. He’s traded indices and forex, developed proprietary day trading techniques, and built his own MetaTrader algorithms. He excels at delivering simple-to-follow guides for beginners to experienced traders.  

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Edited By

James Barra

Edited By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

» James Barra Profile Page

Fact Checked By

Michael MacKenzie

Fact Checked By

Michael MacKenzie

Michael is a writer and editor with over a decade in journalism and publishing. His niche lies in editing and fact-checking content in the financial services sector, with a focus on online brokers and trading platforms. Michael previously reported on politics and economics in the Middle East and edits books for established publishers.

» Michael MacKenzie Profile Page

Updated

Nov 11, 2024

Contracts for difference, or CFDs, offer a flexible way for traders to enter Indonesian, other Asian and global financial markets without directly owning assets.

Instead of buying or selling, say, shares in Fortune Indonesia Tbk, you’re speculating on their price movements. If you think prices will go up, you “go long,” and if you think they’ll drop, you “go short.”

Use our beginner’s guide to CFD trading in Indonesia to build your understanding of the opportunities, risks, regulations and tax considerations. We also walk through an example CFD trade on an Indonesian equity index.

Quick Introduction

• CFDs give you access to a wide range of financial assets, including forex, commodities, stocks indices and cryptos – all from a single platform.
• They allow you to trade in rising (going long) and falling (going short) markets. This means you can profit no matter which direction the market moves.
• A key draw is leverage, which allows you to control a larger position with fewer Indonesian rupiahs. However, this also increases risk – losses can exceed your investment.
• While CFDs are popular for their flexibility, it’s important to watch for costs like spreads, commissions and overnight holding fees (day traders can avoid), which can add up over time.

How Does CFD Trading Work?

Trading CFDs allows Indonesian investors to trade financial markets without the added expense of owning the actual assets.

Leverage is a crucial element of CFDs. It lets you open larger positions while only committing a fraction of the total value (or margin) needed to buy the equivalent amount of shares listed on Indonesian stock markets, for instance.

To understand how this works, let’s examine a potential trade using a CFD to speculate on a popular Indonesian market index:

The Jakarta Stock Exchange Composite Index (JKSE) is a modified capitalization-weighted index of all stocks listed on the Indonesia Stock Exchange (IDX).

If you’re convinced the JKSE will rise, you’d buy a CFD position. Let’s say each contract is valued at Indonesian rupiah IDR 7,800, and your trading platform requires a 5% margin. So, to take a position on 10 contracts, you’d need a margin of IDR 3,900 (7,800 per contract x 10 contracts x 5%).

If the JKSE rises to 8,000, the price increase would yield IDR 200 per contract. By closing your position, you make a total profit of IDR 2,000 (10 contracts x IDR 200), excluding brokerage fees. Alternatively, if the index falls to 7,600, you will lose IDR 2,000.

This shows you the risks involved with CFD trading; you get to control significant size with leverage, but gains and losses are increased.

Getting to know how margin and leverage work is critical to your future success.

If CFD trading is new to you, why not start with a demo day trading account? It’s a great introduction to developing and experimenting with strategies, and it can build confidence before you begin to risk your rupiahs.

Paul Holmes

Author

What Can I Trade? 

CFD trading provides many trading opportunities across various financial markets, both in Indonesia and worldwide:

• Stock CFDs – You can trade individual Indonesian shares listed on the IDK using CFDs without incurring the added expense of buying and holding the shares. Alternatively, you can trade stock CFDs from other markets like the US, Europe and Australia, which are more widely supported by brokers from our investigations.
• Index CFDs –  The Jakarta Stock Exchange Composite Index (JKSE) is Indonesia’s leading share market index. It is a market capitalization-weighted index of the total capitalisation of the top listed companies on the IDK.  Traders choose index CFDs to capitalize on a stock exchange’s overall market performance rather than deal in individual shares. You can also consider trading CFDs on global indices like the Dow Jones or S&P 500. Liquidity is always high in these popular global indices; consequently, the trading fees are very competitive.
• Forex CFDs – The Indonesian rupiah (IDR) can be traded in the foreign exchange market, however short-term traders may find superior opportunities, lower costs and better availability on platforms by focusing on major currency pairs like EUR/USD and USD/JPY.
• Commodity CFDs – Vital global commodities for commerce, such as gold, silver, crude oil and nickel (Indonesia has huge reserves) can be traded as CFDs, allowing you to speculate on the price movements of these valuable resources.
• Crypto CFDs – The fascination about digital asset trading has expanded to Indonesia. You can trade cryptocurrency CFDs like Bitcoin and Ethereum for opportunities in the exciting but high-risk world of digital tokens.

Is CFD Trading Legal In Indonesia?

CFD trading is legal in Indonesia, but it’s closely regulated to protect traders and ensure that the market operates fairly.

The two main regulatory bodies overseeing CFD trading are:

1. Otoritas Jasa Keuangan (OJK) is Indonesia’s Financial Services Authority, responsible for supervising the entire financial sector, including capital markets, banking, and non-bank financial institutions. While OJK oversees many financial activities, its role in CFD trading is more on ensuring the overall integrity of financial markets.
2. The Commodity Futures Trading Regulatory Agency, or BAPPEBTI, regulates explicitly the futures and derivatives market, including CFDs. It ensures brokers offering CFD trading comply with Indonesian laws and international standards. BAPPEBTI protects traders from fraud and ensures that providers adhere to transparency and risk management requirements.

Check whether the BAPPEBTI licenses your CFD broker to safeguard your funds and avoid scams. Regulations often affect leverage limits, fees, and how CFDs are traded in the local market. Indonesian regulations may limit your leverage, which is essential for managing risk.

Is CFD Trading Taxed In Indonesia?

CFD trading in Indonesia is subject to taxation. The Indonesian government, through Pajak (Tax Directorate General (DJP)), taxes income from financial activities, including profits from trading CFDs.

• Capital Gains Tax: Profits from CFD trading are generally considered capital gains, which means they can be taxed like any other form of investment income. The exact tax rate may vary depending on your income and tax bracket.
• Personal Income Tax: If CFD trading is a part of your income, it may be subject to personal income tax. Indonesia has a progressive income tax system, with rates ranging from 5% to 35%, depending on your annual income.
• Filing Requirements: It’s important to declare any profits from CFD trading when filing your annual tax return. Traders must keep accurate records of their trades, profits, and losses to report them correctly to the Indonesian tax authorities.
• Tax Deductible Losses: In some cases, losses from CFD trading can be deducted from your taxable income, which helps reduce the overall tax burden. However, this rule can be complex, so it is recommended that you consult a tax advisor.

To stay compliant, consulting with a local tax advisor or financial expert who understands the intricacies of Indonesian tax law related to CFD trading is best. This ensures you report your trading activity correctly and pay any taxes owed.

Paul Holmes

Author

An Example Trade

To show you how CFD trading in Indonesia can work in practice, let me take you through a trade…

Background

Trading a stock market index makes a lot of sense if you’re unfamiliar with a country’s stock exchange. Especially if that exchange doesn’t generate much turnover or liquidity compared to, for example, the S&P 500 or NASDAQ.

Indices can also serve as a barometer of the overall health of a country’s economy if measured over the medium term, and the whipsaws trading an index tend to be reduced as the liquidity and activity are higher than a specific stock that may be undercapitalized.

For these reasons, I’ll often look to trade indices on exotic markets ahead of individual stocks. That’s why, for this example trade, I chose to use a CFD to trade the IDX’s JKSE.

As you would when trading a currency pair, I’ll examine the country-specific metrics before trading an index. I’ll look at government debt and borrowing, inflation, unemployment, GDP growth, etc., and any government announcements that should be listed on my economic calendar.

Technical Analysis

When trading an index, I prefer using a timeframe that delivers a medium-term market view, so I’ll favour a timeframe such as the 4HR. I’ll also flick between lower and higher timeframes to see if a trend is developing or if an existing one has considerable momentum.

I tend to avoid adding too many technical indicators when I’m conducting technical analysis. If you’re not careful, you can duplicate the feedback and suffer from analysis paralysis, whereby conflicting information becomes overwhelming.

A basic EMA crossover strategy should signal a significant market change. Suppose you match this with an indicator like the RSI, which pinpoints oversold/overbought conditions and illustrates volatility.

You’ve probably covered enough bases in that case, especially if you underpin it with candlestick formation price action analysis using Heikin Ashi candles. HA is a smoothed candlestick that is easier to interpret than standard candlestick charting.

4HR Timeframe

In the 4HR timeframe below, I identified the bullish trend increasing in strength and momentum. I waited until the EMAs crossed and the RSI rose above the 50 median line (indicating bullish conditions and increased trading volume and volatility) before entering long.

The Heikin Ashi candlestick pattern also supported my long CFD trade decision. After a series of bullish 4HR candles, price continued to print higher highs, and the candles became fuller with short upward wicks/shadows.

Therefore, when my platform generated a signal to enter (as illustrated by the + marked on the above chart), I had no hesitation in entering.

Daily Timeframe

I used the D1 timeframe belo to make two decisions:

1. First, a three-soldier pattern can be seen in the series of five bullish candles. The EMAs crossed, and the RSI indicated volatility. This analysis on the D1 supported my conviction to go long. Once the RSI approached the overbought zone, it was time to consider exiting the trade.
2. Second, the bearish Doji on the D1 was my trigger to exit. I didn’t wait for a corresponding bearish EMA cross in the opposite direction, as I wasn’t looking to reverse the trade direction and go short. This example trade was all about banking profit based on the bullish momentum and strong trend.

I used a CFD to trade JKSE and entered long at 7,600. My stop loss order was placed at 7,480, the recent low before sentiment changed from bearish to bullish. I closed the trade at 7,755.

My margin was 20% to trade this index, the equivalent of IDR 152,000 for 100 contracts (7,600 x 100 x 20%.).

Paul Holmes

Author

Bottom Line

CFD trading in Indonesia is legal and regulated but comes with tax obligations. Profits from trading are subject to capital gains or personal income tax, so it’s important to keep track of your earnings and consult a tax professional to ensure compliance.

It also remains a high-risk way to trade Indonesian and global financial markets. Therefore, never risk more than you can afford to lose.

To get going, make use of DayTrading.com’s choice of the top CFD day trading platforms.

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