In the recent years, there is a proliferation of Contracts For Difference (CFDs) brokers in Singapore. I remembered vaguely that this financial instrument started in UK many, many years ago, before it caught on in other countries. The main advantage of trading CFD is allowing the trader to short sell a counter with ease. Without CFD, the trader would have to borrow stocks to short which depends on the supply. In other words, someone needs to hold the stock and willing to lend to this trader, so that the trader can sell and buy back later to return to the owner. Complicated process right? What I can say is that the supply is low, at least in Singapore. If you are convinced with the use of CFD, we can now discuss the evaluation criteria of a CFD broker.
Commission Market Maker or Direct Market Access
How much is the commission is usually the first and foremost question traders would want to know. But I beg to differ. One has to understand that there maybe other costs despite a cheap commission. There are 2 types of broker, namely, Market Maker (MM) and Direct Market Access (DMA). MM usually charges cheaper commission but earns additional money through the spread between bid and ask prices. For example, the real bid/ask price can be 1.01/0.99 but the MM can state her bid/ask at 1.02/0.98. Hence, you tend to lose more if you trade a bigger contract. DMA follows the actual bid/ask price quoted in the exchange and they surface your CFD orders on the exchange. Thus, your orders would contribute to the volume in the market. Since they do not really earn from the bid/ask spread, they have to charge a higher commission. My point is, a MM may not be as cheap as the commission suggests. It is important to find out more about the spread. For what I know, MFGlobal, SaxoCapital and Kim Eng are DMA. IGmarkets and POEMS have both options, DMA or MM. CMC Markets and CityIndex are MM. I used CMC Markets in the past and the commission is S$15 for SG stocks as compared to MFGlobal, which I am using now, charges S$25 for SG stocks.
Range of counters
You need to find out the number of counters available in the particular market you want to trade. Some brokers offer more than others. They usually have a list of counters on their websites so this is not difficult to find out. One thing to note is that not all the counters in the list are available for shorting. You would have to ask the broker separately for this information. Those brokers that have office in Singapore usually have a good range of counters for SG stocks. POEMS and MFGlobal are 2 brokers that I have used and have the biggest range of SG and HK stocks (I only trade these 2 markets).
Data charges
DMA usually charges data fees from you. This is because they pull live data from the exchanges to you and it is the latter that charges the data. It is just a matter of transferring the cost to the user. MM does not charge data fees. MFGlobal charges me S$30+ for HK data and $2+ for SG data per month. MF would waive off these charges if I trade 2 counters for the month in that particular market. Hence, you should find out for any fee waivers.
Funding
You would want to find out how you would fund your account. Bank transfer? Does your broker has Electronic Payment System (EPS)? Try to use the same bank with your broker for transaction so that your account can be funded within the same day. It would take about 3 working days to transfer to a different bank. EPS is the most secured and fastest way but only local brokers offer this service. Besides the procedures, you must also know the minimum amount of capital you need to put in to open an account. Most brokers require a minimum S$1,000 (CMC Markets). MFGlobal requires S$3,000.
Withdrawal
This is often overlooked but it is important. We want to get our money out with ease and as fast as possible. You need to understand the withdrawal procedure and the time taken to complete the transaction. Some brokers require you to complete a form and fax over. Some do it through email correspondence. Some do it through online submission. Some would take 3 working days while some take 5 working days.
MAS regulated
Look for brokers that are MAS regulated. Usually those that have a local office are MAS regulated but it is your due dilligence to confirm. The reason why MAS regulated brokers are important because they have to put your capital in a trust handled by a third party bank. This is ensure that in the event that the broker collapsed, the debtors cannot for your money with the broker as they are held in a trust.
Available order types
Different traders use different order types. I must be able to use stop orders if not I cannot trade. Some traders require One Cancel the Other (OCO), Trailing Stops, Contingent Orders, etc. You know what you need so ask if the broker has the facilities.
Interest
CFDs are leveraged instruments and you would be charged for interest when you take leverage. The interest rate does not really differ much between the brokers but it is still good to find out more.
Platform type
Different brokers offer different platforms. I find that web platforms are the best as you can trade anywhere with any computer that has an internet connection. Some offer desktop platforms where you have to install to the computer in order to place trades. Some even offer a mobile platform so that you can trade on the go with your web enabled phones. Of the brokers I used, MFGlobal offers web platform and CMC Markets offers a desktop platform. If I am not wrong, POEMS and Saxo offer all 3 platforms.
Others
When you trade for a while, you would start to realise some perculiar things about your broker. I shall share some of my experiences.
POEMS do not let you place CFD trades outside trading hours. This is very important to me as I usually place trades after work. Not able to do so is as good as telling me not to trade. CMC Markets for a period of time, forbid traders to use stop loss on HK market. They did not explain why and did not say when the ban would be lifted. This is why I left this broker.
I hope with the article you are now able to choose a broker that suits you. Please also share if you have other perculiar encounters with your broker so that we can all beware of them.
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{ 14 comments… read them below or add one }
Hi Alvin
I am also a user of CMC markets. Can I know why you made the switch to MFGlobal even though you mention that cmc has a lower commission cost?
Thanks and Regards,
Jerrick
Hi Alvin
I am also a user of CMC markets. Can I know why you made the switch to MFGlobal even though you mention that cmc has a lower commission cost?
Thanks and Regards,
Jerrick
Hello Jerrick, I explained in the para under “Others”
Hello Jerrick, I explained in the para under “Others”
Hi Alvin, need to correct you on your statement – “POEMS do not let you place CFD trades outside trading hours.” In fact from my knowledge, POEMS does allow this. POEMS CFD has 2 types CFD and CFD(DMA). CFD does not allow trades outside trading hours however CFD (DMA) allows round the clock submission of trades except for 5.05pm-5.15pm and 5am- 8am daily. CFD (DMA) also allows placing of overnight orders.
Hi Alvin, need to correct you on your statement – “POEMS do not let you place CFD trades outside trading hours.” In fact from my knowledge, POEMS does allow this. POEMS CFD has 2 types CFD and CFD(DMA). CFD does not allow trades outside trading hours however CFD (DMA) allows round the clock submission of trades except for 5.05pm-5.15pm and 5am- 8am daily. CFD (DMA) also allows placing of overnight orders.
Thanks for the clarification Ah Huat.
Thanks for the clarification Ah Huat.
I am thinking of switching from CMC to MF too. But i find that MF does not offer alot of SG counters for shorting (based on their website), especially during recently when market is bearish. I like CMC alot but i want to leave because there were a few times they did not exit on the stop loss price but actually went a few bids against me. 2ndly, like you said, no stop loss for HK markets.
I am thinking of switching from CMC to MF too. But i find that MF does not offer alot of SG counters for shorting (based on their website), especially during recently when market is bearish. I like CMC alot but i want to leave because there were a few times they did not exit on the stop loss price but actually went a few bids against me. 2ndly, like you said, no stop loss for HK markets.
I attended to find out on CIMB CFD:-
1) CIMB is DMA not MM
2) Commission is S$30 min, 0.3%
3) It’s range of counters shld be as wide as MF Global since it is using MF Global as the counter party.
4) Data Charges: S$0 for SG, some charges for HK (not sure the exact amt since they are short on time and I didn’t get back to this question)
5) Funding – min is S$2k
6) Withdrawal is via Cheque, but they can bank it in on your behalf to whichever bank you specify (not sure if they charge for this service, didn’t ask); within 2-3 working days
7) Order Type: No Stop-Limit order (thot MF Global had this feature?), no trailing stop, no contingency order; only have Stop Loss, Limit order, mkt order, one cancel the other
Interest Charge – 4.5%+SOR rate for online, 5%+SOR rate for offline.
btw, is this interest charge based on per day? or per mth?
9) Platform Type – web platform, they are coming out with mobile platform for iphone end of the year
10) Others – can put in orders outside trading hours, but it will be queue
11) Margin Required – depends on individual stocks, not the country or mkt
12) Leverage – 10% min, onwards, they didn’t state upper limit, since it is dependent on individual stocks
13) not MAS regulated, since they are dependent on MF Global, so your funds may disappear if MF Global collapse like you mentioned
hope the above helps.
btw, Alvin, for Kinetic Securities, do you open a Global Direct, Centurion, Global Trader account or a combination of them?
I attended to find out on CIMB CFD:-
1) CIMB is DMA not MM
2) Commission is S$30 min, 0.3%
3) It’s range of counters shld be as wide as MF Global since it is using MF Global as the counter party.
4) Data Charges: S$0 for SG, some charges for HK (not sure the exact amt since they are short on time and I didn’t get back to this question)
5) Funding – min is S$2k
6) Withdrawal is via Cheque, but they can bank it in on your behalf to whichever bank you specify (not sure if they charge for this service, didn’t ask); within 2-3 working days
7) Order Type: No Stop-Limit order (thot MF Global had this feature?), no trailing stop, no contingency order; only have Stop Loss, Limit order, mkt order, one cancel the other
Interest Charge – 4.5%+SOR rate for online, 5%+SOR rate for offline.
btw, is this interest charge based on per day? or per mth?
9) Platform Type – web platform, they are coming out with mobile platform for iphone end of the year
10) Others – can put in orders outside trading hours, but it will be queue
11) Margin Required – depends on individual stocks, not the country or mkt
12) Leverage – 10% min, onwards, they didn’t state upper limit, since it is dependent on individual stocks
13) not MAS regulated, since they are dependent on MF Global, so your funds may disappear if MF Global collapse like you mentioned
hope the above helps.
btw, Alvin, for Kinetic Securities, do you open a Global Direct, Centurion, Global Trader account or a combination of them?
I’m thinking of switching out frm CMC to other Brokerage, as recently they change the spead to 2 decimal pt for future indices w/o informing us. Eg: SingFut 360.13, so if i place a pending order at 360.1 then the indice drop to 360.13 and move up, my order will not be trigger, all because of that 0.03. When i call up and ask, they say by doing this will make the pice more precise and say it will be permanently. Haiz.. and their Profit & loss that shown in the platform is confusing.
I’m thinking of switching out frm CMC to other Brokerage, as recently they change the spead to 2 decimal pt for future indices w/o informing us. Eg: SingFut 360.13, so if i place a pending order at 360.1 then the indice drop to 360.13 and move up, my order will not be trigger, all because of that 0.03. When i call up and ask, they say by doing this will make the pice more precise and say it will be permanently. Haiz.. and their Profit & loss that shown in the platform is confusing.
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