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CFD Trading In Taiwan

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 5, 2024

Do you want to profit from rising or falling prices on Taiwanese and global markets with a modest investment? Cue contracts for difference (CFDs), a flexible instrument that lets you amplify profits (or losses) through leverage.

The global CFD market is expected to grow at a compound annual growth rate (CAGR) of 4.3% from 2023 to 2028, according to Global Market Estimates, with Asia Pacific nations leading the charge.

This guide to CFD trading in Taiwan arms beginners with the essentials every beginner should know.

Quick Introduction

• With CFDs, you can trade a wide range of Taiwanese, Asian and global financial markets like stocks, currencies, commodities and cryptos, all from one platform. So, instead of juggling multiple accounts, you can diversify your portfolio across without hassle.
• One of the perks of CFDs is the ability to go “long” (buy) if you think say the share price of Taiwan Semiconductor Manufacturing will rise, or go “short” (sell) if you think it’s going to fall. This means you can profit even during market downturns, unlike traditional stock ownership.
• CFDs offer leverage, allowing you to control a larger position than your capital would generally allow. With 1:10 leverage, you could trade Taiwanese dollar (TWD) 50,000 worth of assets with 5,000. But leverage can increase profits and losses, so risk management is key.
• Depending on the asset, some CFD platforms offer low or even zero commissions. Instead, they typically earn revenue through the spread, the difference between the buy and sell prices. Fewer transaction fees make it cost-effective for active strategies like day trading.

How Does CFD Trading Work?

CFDs offer Taiwanese traders access to global financial markets without the added expense of owning the actual assets.

Leverage lets you open larger positions but only commit a fraction of the total value (or margin) needed to, for example, buy the equivalent number of shares listed on Taiwan’s stock markets.

To bring this to life, let’s discuss a potential CFD trading opportunity on the FTSE TWSE Taiwan 50 Index.

If you’re convinced the index will rise, you’d buy a CFD position in the FTTW 50 USD. If each contract is valued at 21,000, and your platform requires a 5% margin, then to take a position on 10 contracts, you’d need a margin of TWD 10,500 (21,000 per contract x 10 contracts x 5%).

If the FTSE TWSE 50 rises to 22,000, the price increase will yield TWD 1,000 per contract. By closing your position, you would bank a total profit of TWD 10,000 (10 contracts x TWD 1,000), excluding fees your trading provider charges. But, if the index falls to 20,000, you would lose TWD 10,000.

This CFD trading scenario illustrates CFD trading risks; you get to control significant size with leverage, but both the gains and losses are amplified.

Learning how margin and leverage work is a vital part of the CFD trading journey. If you’re a beginner, why not consider starting with a demo trading account?

It’s a terrific introduction to CFD trading; you can practice strategies and build up your confidence before you begin to risk your Taiwanese dollars in the markets.

Paul Holmes

Author

What Can I Trade? 

CFD trading provides many opportunities in a variety of financial markets, globally and in Taiwan:

• Stock CFDs – You can trade individual Taiwanese securities listed on the Taiwan Stock Exchange (TWSE) using CFDs without the added expense of buying and holding the shares.
• Index CFDs – The FTSE TWSE Taiwan 50 Index is actively traded as a CFD. It’s a market capitalization-weighted index reflecting the top 50 liquid companies in the primary market, the Taiwan Stock Exchange (TWSE). Many CFD traders prefer indices to capitalize on a stock exchange’s overall market performance rather than trade (or invest in) individual shares. You might also want to consider trading global index CFDs like the Dow Jones or S&P 500. Liquidity is always high in these popular indices.
• Forex CFDs – The TWD is traded in the foreign exchange market. Popular Taiwanese currency pairs include USD/TWD and JPY/TWD. These exotic/minor currency pairs have reasonable liquidity, but less so than majors like EUR/USD and USD/JPY, which arguably provide more opportunities for short-term traders.
• Commodity CFDs – Vital commodities like gold (a safe haven asset in Taiwan and globally) and copper (given its importance in the country’s technology manufacturing sectors) can be traded as CFDs, allowing you to speculate on their price movements.
• Crypto CFDs – The curiosity and excitement over digital asset trading in Taiwan is similar to that of other nations. Traders can trade cryptocurrency CFDs like Bitcoin and Ethereum for access to the volatile but very high-risk world of crypto.

Is CFD Trading Legal In Taiwan?

CFD trading in Taiwan is legal but highly regulated, and access to CFD products is limited compared to other countries.

The Financial Supervisory Commission (FSC) oversees financial markets and investment products to protect investor interests in Taiwan. The FSC is cautious about high-risk speculative products, including CFDs.

Taiwanese brokers are generally prohibited from offering CFDs directly to local investors. Instead, residents who want to trade CFDs must use foreign brokers regulated by reputable international authorities, such as the FCA (UK) and ASIC (Australia).

While foreign brokers are legally allowed to accept Taiwanese clients, they must comply with Taiwan’s financial promotion rules. Any international broker promoting CFD products in Taiwan must avoid false advertising and clearly disclose risks to ensure transparency.

Many international CFD brokers offer Chinese-language versions of their platforms to attract Taiwanese traders. This makes accessing account support, trading guides, and educational materials easier.

The convenience of these platforms has made CFD trading more appealing in Taiwan despite the regulatory restrictions around domestic offerings.

Is CFD Trading Taxed In Taiwan?

Yes, CFD trading profits are subject to taxation in Taiwan, though there isn’t a specific tax category for CFD gains. Instead, any profits derived from CFD trading are generally considered part of an individual’s income and are subject to personal income tax.

Profits made from CFD trading are usually categorized as miscellaneous income under Taiwan’s tax regulations. If you’ve made gains from CFD trades, you’ll likely need to report them as part of your annual income when filing taxes.

Losses from CFD trading cannot be deducted from your taxable income, as Taiwan’s tax laws are restrictive about offsetting losses with investment income.

Taiwan requires individuals to declare their income each year. If you’ve made profits from CFD trading, you’ll report these gains alongside other forms of income like salary or rental income. The exact tax rate will depend on your total annual income, as Taiwan has a progressive tax rate ranging from 5% to 40%.

Since CFD trading in Taiwan is typically conducted through foreign brokers, earnings are often held in foreign currency accounts. Any foreign currency gains must be converted into Taiwan dollars (TWD) for tax reporting purposes.

Also, bringing large sums of money back to Taiwan from foreign brokerage accounts could potentially trigger additional tax reporting requirements. Be sure to check with a tax advisor to remain compliant.

An Example Trade

Let’s walk through a detailed CFD trade on a Taiwanese market to bring this all to life.

Background

If you’re considering trading in overseas markets that are (excuse the pun) foreign to you, then weighing up your options in terms of risk is critical.

That’s why if I’m looking to provide a trading example from overseas markets, I’ll choose a popular trading index, a major currency pair or a stock with high capitalization and daily trading volume. In most cases, I’ll defer to an index, which I’m concentrating on here.

A primary index can provide insight into the overall sentiment of a specific market, and it can also serve as a barometer regarding the overall weather view of a country’s economy.

A popular trading index is generally heavily traded, so your fills should be accurate, and the spreads and commissions should be highly competitive.

Any market whipsaws you might experience should also, in theory, be less common than when you trade a stock or minor/exotic currency pair.

I traded the FTSE TWSE Taiwan 50 Index (FTTW 50 USD) for this example. It’s a weighted index of the 50 most capitalized quoted firms on the TWSE.

Paul Holmes

Author

Technical Analysis

As is my habit, I tend to analyze individual assets using two time frames, a lower and a higher one, such as the 2-hour (2HR) and the daily (D1).

In doing so, I’m getting a short-term view of the movement today (as a day trader) and evaluating whether there is any medium-term support for my decision. So, if I see a trend developing or momentum building on the 1-2HR timeframes, are those factors also visible on the D1?

I reduce my use of technical indicators (TIs) to a minimum. If, like me, you need to look at a chart, identify an opportunity, make a quick decision and enter the market, then you can’t afford the luxury of procrastination. You have to set up your charts to pinpoint price action immediately.

Although you can select one TI from each of the four key groups: momentum, trend, oversold/overbought, and volume/volatility, I prefer to try to choose no more than three and combine this TA with candlestick charting, whether traditional or Heikin Ashi.

In this instance, I’m using a basic EMA crossover strategy with the RSI. The EMAs should indicate price action, momentum and trend, while the RSI illustrates volatility and oversold and overbought conditions.

2HR Timeframe

Based on analysis of the 2HR timeframe, my entry signal came when the RSI, which illustrated a change in volatility, fell below the 50 median line and the EMAs crossed. My entry is pinpointed by the + sign on the chart below.

The HA price-action formation was bearish. We can clearly see price struggles to print fresh highs before the formation of an inverted hammer/Doji candlestick, followed by two short-bodied bearish candles, including a hammer and the full-bodied bearish candle with a long wick/shadow.

D1 Timeframe

The D1 timeframe analysis supported my bearish view and decision to take the trade based on the 2HR TF analysis. The HA candlestick formation illustrates the definitive end of the bullish momentum.

We also see the formation of a classic Doji candle, indicating indecision and a delicate balance between bulls and bears. After that, the sell-off begins.

Combined with the HA price action analysis, we observe the RSI reaching the oversold levels (+80), suggesting that the bullish momentum has been exhausted.

I traded this market using a CFD through a UK-based, FCA-regulated broker that offers decent margin and leverage options for overseas indices.

I entered short and got filled at 21,050. My margin commitment broke down like this at 20% margin: 10 contracts at 21,050 x 20% = 42,100.

My stop-loss order was set at 21,375, the recent high. If the stop-loss is triggered at this point, my trading direction will have, quite simply, been proven wrong.

At the time of writing, the trade is in profit.

Bottom Line

CFD trading in Taiwan offers an accessible path to engage in global financial markets, providing traders with flexibility and diverse investment opportunities.

While it’s legal, CFD trading in Taiwan is conducted through foreign brokers, so traders must choose platforms regulated by respected international authorities to ensure security and compliance.

Profits from CFD trading are taxed as personal income, making it essential for traders to track gains and understand Taiwan’s tax obligations.

To get started, turn to DayTrading.com’s pick of the best CFD day trading platforms.

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