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CFD Trading In Singapore

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.  

» Paul Holmes Profile Page

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

Interested in making trades on rising and falling markets, such as stocks like Singapore Airlines? Contracts for difference (CFDs) are a go-to for active traders in Singapore looking to tap into various markets with flexibility.

In this guide for beginners, we’ll walk you through the essentials of CFD trading in Singapore, outlining regulations and taxes, plus revealing the opportunities and risks through practical examples.

Quick Introduction

• CFDs let you trade global stocks, commodities, indices, and forex from one platform, including Singapore’s SGX, without needing to buy assets or navigate multiple exchanges.
• CFDs allow you to trade on margin, amplifying your buying power for potentially larger returns. However, leverage can increase losses as well, so risk management is essential.
• Unlike traditional investments, CFDs let you profit from both rising and falling prices, offering flexibility in Singapore’s fast-moving markets and more opportunities for returns.
• CFD trading is permitted by the Monetary Authority of Singapore (MAS), but retail investors must adhere to evolving rules to safeguard their investments and the financial markets.
• Since CFDs aren’t direct asset purchases, there’s no stamp duty from the Inland Revenue Authority of Singapore (IRAS), making it cost-effective for day traders focused on returns.

All CFD Brokers In Singapore

How Does CFD Trading Work?

CFDs offer Singaporean traders a gateway to trading worldwide markets without incurring the added expense and administration needed to own specific assets.

Leverage is a powerful tool and an attractive element of CFD trading. Using leverage, you can control and open more significant positions but only need to commit a fraction of the total value (or margin) needed to, for example, buy the equivalent number of shares listed on Singapore’s stock market.

Here’s how it works…

I’m using the example of a leading Singapore stock market index, the Straits Times Index (STI), a market capitalization-weighted index that tracks the performance of the top 30 companies listed on SGX, to investigate a potential CFD trading opportunity.

If you’re convinced the STI will rise, you’d buy a CFD position in the Index. If each contract is valued at 3,600, and your trading platform requires a 30% margin, then to take a position on ten contracts, you’d need a margin of Singapore Dollars (SGD) 10,800 (3,600 per contract x 10 contracts x 30%).

If the STI rises to SGD 3,700, the price increase will yield SGD 100 per contract. By closing your position, you would bank a total profit of SGD 1,000 (10 contracts x SGD 100), excluding broker fees. But, if the index falls to 3,500, you will lose SGD 1,000.

This highlights the risk of CFD trading; you can control significant size with leverage, but both the gains and losses can increase.

Understanding how margin and leverage work is vital because it’s critical to your success trading CFDs.

If you’re a beginner, consider opening a demo trading account. It’s a fantastic introduction to CFD trading; you can practice strategies and build confidence before risking any Singapore dollars in the markets.

Paul Holmes

Author

What Can I Trade? 

Trading CFDs provides many trading opportunities in various financial markets, both globally and in Singapore:

• Stock CFDs: You can trade some of the most active individual Singaporean stocks listed on the SGX, like SingTel, Singapore Post Ltd, and Genting Singapore, or consider trading equities from other Asian, European, US and global stock markets.
• Index CFDs – The Straits Times Index (STI) is actively traded as a CFD in Singapore and globally. CFD traders in Singapore might prefer trading market indices to capitalize on a stock exchange’s overall performance rather than invest in individual shares. You could also consider trading global index CFDs like the Dow Jones and NASDAQ. Liquidity is always high in these indices, as is the trading volume, making the trading costs fairly competitive.
• Forex CFDs – The Singapore dollar (SGD) is a fast-growing global currency that is actively traded in the foreign exchange market. Popular SGD currency pairs include USD/SGD and JPY/SGD. These currency pairs have high liquidity and provide opportunities for short-term currency traders interested in trading SGD.
• Commodity CFDs – Trade critical commodities such as precious metals like gold and silver, plus crude oil (Singapore is a leader in oil refining and a key trading hub for oil products in Asia). Price movements in commodities are often linked to macroeconomic events.
• Crypto CFDs – The curiosity surrounding trading digital assets is alive and well in Singapore, helped by the government’s forward-thinking approach to regulation. You can trade cryptocurrency CFDs like Bitcoin and Ethereum for exciting but high-risk opportunities.

Is CFD Trading Legal In Singapore?

CFD trading is legal and well-regulated in Singapore. The regulatory environment, led by the Monetary Authority of Singapore (MAS), offers strong investor protection and transparency, making CFD trading accessible and relatively secure.

• Licensing requirements for brokers: MAS requires all CFD brokers operating in Singapore to hold a Capital Markets Services (CMS) licence. Providers must meet strict standards regarding financial health, operational stability, and transparency. Only licensed brokers can offer CFD trading in Singapore. MAS’s oversight helps filter out potentially unreliable providers.
• Mandatory risk disclosure: Brokers must provide comprehensive educational materials to inform traders about how leverage works, potential losses, and risks of CFDs. This is especially helpful for newer traders who might not know the complexities and risks of leveraged trading.
• Client fund protection and segregation: Licensed brokers must keep client funds separate from their own operational funds in segregated accounts. This ensures that client funds are protected even if a broker faces financial difficulties and can be returned. It also adds a layer of security against potential broker mismanagement.
• Regular audits and reporting requirements: MAS requires licensed brokers to undergo regular audits and submit periodic reports to ensure compliance with all regulatory standards. MAS monitors these reports closely; irregularities could lead to penalties, warnings, or even licence revocation.
• Protection from scams: With MAS’s strict regulatory framework, brokers operating illegally or engaging in fraudulent activities face severe penalties. This is a key protection for retail traders, as MAS actively monitors and investigates suspicious activities, often issuing warnings to the public regarding unlicensed operators. You can check the MAS Financial Institutions Directory to verify if a CFD provider is licensed.

MAS’s proactive approach to oversight, combined with Singapore’s strong financial infrastructure, gives CFD traders a solid foundation, but the responsibility still lies with individual traders to manage their risks.

Paul Holmes

Author

Is CFD Trading Taxed In Singapore?

In Singapore, CFD trading is subject to specific tax regulations but generally enjoys a favorable tax environment for traders.

• Capital gains tax – One of the most attractive aspects of trading in Singapore is that there is no capital gains tax. This means that profits from trading CFDs are not taxed like gains from other investment forms.
• Income tax – If you are trading CFDs as part of a business activity, meaning you’re trading frequently and treating it as your primary source of income, then the profits may be subject to income tax. The key factors MAS looks at to determine this include:
  • If you trade often and engage in a high volume of transactions, it indicates a business activity.
  • The income may be taxed if you intend to profit consistently from trading rather than investing.
  • A structured approach, such as keeping detailed records and having a trading plan, suggests a business activity.
  • If your CFD trading is classified as a hobby or a personal investment, your profits would not be taxable.
• Tax residency – Singapore tax residents are taxed on their income earned in Singapore, while non-residents may face different tax rules and typically pay tax only on income sourced within the country.
• Goods and services tax (GST) – Under the Goods and Services Tax (GST) Act, financial services, including trading CFDs, are generally exempt from GST. This means you don’t have to pay GST on commissions or fees associated with your CFD trades.

Even though there’s no capital gains tax, you should keep accurate records of your trades, including dates, amounts, and types of assets traded.

This documentation is essential, especially if the nature of your CFD trading could lead to taxable income. If you are required to file taxes as a business, you must report your trading income accurately.

Paul Holmes

Author

An Example Trade

I’ve decided to trade the Straits Times Index (STI), the primary index on the SGX stock exchange, using a CFD.

When it comes to spotting opportunities in unfamiliar markets, I tend to favor indices for the following reasons:

Technical Analysis

In some ways, I forgo fundamental analysis when trading an index compared to when I’m looking to trade an individual stock highlighted by a stock screener.

However, I’ll still scope out the macroeconomic landscape relating to the economy the index represents and analyse the recent data and metrics related to that economy.

For example, I’ll examine inflation, government borrowing, unemployment, GDP growth, political stability, consumer spending, wage growth, etc. In doing so, I can quickly decide if I’m bullish or bearish on the index and underpin any long or short CFD trade decision I’m considering.

Regarding technical analysis, I keep my charts relatively clean and uncluttered. This enables me to analyze a chart on a specific timeframe immediately and make in or out, long or short decisions. Focusing on the chart, where you can see the price action and momentum development, is also essential.

I analyzed the STI using two primary technical indicators: the stochastic oscillator and the RSI:

• The stochastic delivers accurate entry and exit points, illustrates trends, and highlights existing or developing momentum.
• The RSI is perfect for generating signals of oversold and overbought conditions and gauging volatility/volume.

These two technical indicators (TIs), complemented by candlesticks such as the smoothed Heikin Ashi (HA), cover many of my bases when I’m looking to determine price action and execute a market order.

I’m avoiding duplication of the feedback by using these two TIs. In theory, the two deliver readouts from the four groups of indicators we should concentrate on: trend, momentum, volatility, and volume.

But here, we’re only using two indicators, not four (one from each group), to simplify our analysis, allowing us to look at our charts and make rapid decisions.

Another technical analysis addition I often use is the simple trend line. For those unfamiliar with this concept, it’s very straightforward. Pick two or three points to determine a trend: the recent low or high, a test of the current direction, and finally, the current price.

Here are some types of trends and how trend lines represent them:

• Uptrends: Prices are making higher highs and higher lows, and uptrend lines connect at least two lows.
• Downtrends: Prices are making lower highs and lower lows, and downtrend lines connect at least two highs.
• Consolidation: A sideways, ranging market where prices oscillate between two parallel trend lines.

As shown by the trendline illustrated above, price has been in an uptrend over several sessions. Allied with this, the stochastic crossed and the HA candlesticks were solid with small upward shadows/wicks.

I entered when the first bullish candle followed the Doji candle. The HA candles eventually took on a classic three-soldiers pattern, encouraging me to stay in the trade until the session ended.

I exited on an end-of-day (EOD) basis, which coincided with an overbought RSI reading. The blue tick icons drawn on the 1HR TF represent the entry and exit points.

Don’t trade against the trend, is a saying ingrained in my trader mindset.

Trendlines give me an idea of where price is headed. Identifying the direction of an underlying trend is a basic method to increase the probability of a successful trade because it ensures general market forces are working in your favour.

Paul Holmes

Author

Trade Ticket Parameters

• I used a CFD to trade the STI.
• I entered at 3580.
• I placed my stop-loss order at 3,555.
• I placed my take profit limit order at 3,600.
• I moved the stop to 3593 to lock in profit.

The margin required to execute this CFD trade through my broker was 30%. So, the calculation broke down like this: 10 CFD STI index contracts at SGD 3,580 x 10 x 30% margin = SGD 10,740.

Sticking to my trading plan, rules and discipline, I only risked 1% of my account size on this trade.

Bottom Line

CFD trading in Singapore offers access to global markets, tax advantages, and robust regulatory protection under MAS.

Yet while it provides flexibility and potential for high returns, the risks of leverage mean that careful planning and disciplined risk management are essential.

With a licensed broker and solid strategy, you can maximize the benefits and navigate CFD trading risks in Singapore’s dynamic market.

To get going, turn to DayTrading.com’s selection of the top CFD trading platforms in Singapore.

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