Differences Between Trading Singapore CFDs And Singapore Knock-Outs

There are various trading opportunities that the volatile market has presented to Singaporeans. Opportunities to consider include Singapore CFDs and Singapore knockouts. You can take advantage of these opportunities but they come with huge risks. Recently Monetary Authority of Singapore increased FX margins to 5% implying that traders have to now fork out more for similar trade size. This imposed new margin applies to all FX trades regardless of whether one is investing in Singapore CFDs or Singapore knockouts. This also includes exempted institutions such as banks that do not need a capital markets license.

 

Singapore CFDs

Contract for Differences (CFDs) is simply a trading way that lets the trader speculate and take advantage of price movements. They allow the trader to speculate movement of various financial markets such as shares, commodities, indices and currencies irrespective of the price movement. When trading CFDs it means you are predicting the market movements of your preferred assets instead of owning the underlying instrument.

Trading CFDs is easy and when you open your position you have to choose the the amount yoy expect to trade. As a result you will make profit relative to the points that the market moves in your favour. If you speculate that there will be upward movement and you buy then you will make profit if the price increases. If it drops you will make losses.

 

Singapore knockouts

Knockouts are CFDs offered in Singapore that enables investors to manage risks. Besides helping traders manage risks they also allow them to find and take advantage opportunities in the volatile market. It is set at a level where once the underlying market price of the provider gets to you automatically get closed out. This is the knockout level and they move with the market which means that the knockout level will move the same points the underlying market moves. Interestingly knock-outs can only be bought and not sold.

For instance if a trader speculates that the price of an index will increase they can purchase a bull knock-out below the underlying price. Therefore if there is an upward movement you will make money. Similarly if you feel like the price will drop then you purchase a bear knock-out with your knock-out level above the underlying price to cushion you should the price go up.

 

Similarities between CFDs and Knock-outs

Contracts for Difference are derivatives that traders can trade. In simpler terms a CFD is the price difference when a trader commences a trade and when he closes the trade. They are normally pegged on different assets including forex, shares, commodities and indices. Traders trade CFD tracking changes in price of an assets and you can make profit of loss relative to the market movements.

Knock-outs are also similar to CFDs in terms of the trades you can make. You can trade on shares, forex, shares, and commodities. Just like the CFDs the knock-out price also moves with the price of the changes in prices of the underlying asset of the CFD. Knock-outs are special for the fact that you set a level before you begin trading. This is the maximum risk you are ready to incur. Once your knock-out level reaches your position automatically closes thus minimising your loss to what you had predetermined.

 

Differences between CFDs and Knockouts

The first difference between Singapore CFDs and Singapore Knockouts is that once a knockout level for a trade has been set it cannot be changed. Knock-outs minimise risks but once you have entered a trade you cannot change it since you will have set your maximum risk before placing a trade. Interestingly you can close the trade any time before hitting the knockout level.

Equally you ca minimise loss with a the knock-outs relative to CFDs. Besides the knock out level youy can also set stop-loss on your knockout level. This offers you a choice of closing the your trade earlier in the event you are making losses. Similarly if you are making profits you have the choice of locking the profits earlier.

Equally unlike CFDs your loss cannot be more than the initial margin if you are trading knock-outs. This implies that your losses cannot exceed the money you set for the trade.

Knock-outs instil discipline in traders because unlike guaranteed stops that allow you to alter the trade before to closes you cannot adjust your knock-out level once you have set it. The fact that the knockout level is cannot be altered helps one to be a disciplined trader.

 

Benefits of CFDs and knock-outs

Singapore CFDs offers the trader leverage as they can only deposit part of the trade’s value to enter a trade. The deposit is called a margin.

Both CFDs and Singapore knock-outs are flexible and customizable form of trading. CFDs allows traders to take advantage of the market irrespective of the movement. Interestingly the knock-outs are customizable as you can set a ceiling of the losses you want to risk.

CFDs and knock-outs enable traders to trade in several markets such as shares, indices, forex, options and commodities among other. You can equally trade some markets once the market has closed.

It is more transparent to trade CFDs and knockouts because it depends on your speculation. Equally the setting of a knockout limits enables the trader to know beforehand what the loss will be.

Pricing is equally simple as the your trade mirrors the movement of the underlying price of the provider. In the case of knock-outs it moves one-on-one with the price and if there is a change in knockout premium the knock-out price also moves.

The Singapore CFDs and Singapore knock-outs are designed to mirror trading in the underlying market. For instance in forex trading you can buy forex CFD at a given amount of the base currency and sell it at the amount similar to the quote currency. It is also the same when buying a share CDF for a given company as it will be equivalent to a single share of the company.

(By Neha Gupta)

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