CFD stands for contract for difference. A CFD is a derivative instrument fundamental analysis in Singapore that allows traders to speculate on the price movement of underlying assets without owning the asset itself.
Trading CFDs is a popular way to trade various assets in Singapore, as it offers many benefits such as leverage, low transaction costs and easy access to global markets.
There are two main ways to trade CFDs:
- Through a broker: Brokers offer CFD trading services through their platforms or third-party platforms.
- A CFD platform: On the other hand, CFD platforms are online trading platforms that allow traders to trade CFDs directly.
The main advantage of trading CFDs through a broker
Leverage is a double-edged sword; it can amplify your profits and losses. The amount of leverage that a broker offers depends on the asset you are trading and the regulations in your country.
Low transaction costs
When you trade with a CFD broker, you only need to pay the spread, which contrasts the bid and ask price of the underlying asset. There are no commissions or other hidden fees.
Easy access to global markets
You can trade CFDs on many underlying assets, including stocks, commodities, indices, forex, etc. CFD trading platforms also offer access to various global markets so that you can trade on the same platform regardless of your location.
CFDs are a versatile tool that you can use for various trading strategies. For example, you can use CFDs to go long or short on an asset, hedge your portfolio, or take advantage of price movements in different markets.
Most CFD brokers offer demo accounts that allow you to test out their platform and practice trading with virtual assets before you risk any natural capital.
Fundamental analysis is a method of valuing assets based on economic indicators such as GDP growth, inflation, interest rates and company earnings.
There are two main types of fundamental analysis: top-down and bottom-up.
Top-down analysis involves looking at macroeconomic factors such as GDP growth and inflation to identify which sectors or assets are likely to outperform or underperform the market.
The bottom-up analysis involves analysing individual companies to identify those that are undervalued by the market. Both these approaches have advantages and disadvantages, but many investors use a combination of both to make investment decisions.
The benefits of using fundamental analysis
It can help you identify long-term trading opportunities.
Fundamental analysis is a long-term strategy that can help you identify assets that are undervalued by the market and are likely to experience price appreciation in the future.
It can help you diversify your portfolio.
Analysing different economic indicators can better understand how different asset classes are likely to perform in different market conditions. It can help you build a more diversified portfolio that is less susceptible to market volatility.
It can help you make informed investment decisions.
Fundamental analysis requires you to do extensive research on an asset before making an investment decision. This research process can help you avoid making emotionally driven investment decisions and sticking to your investment plan.
The disadvantages of using fundamental analysis
It is a time-consuming process.
Fundamental analysis requires you to do a lot of research on different economic indicators and companies. It can be pretty time-consuming, especially if you are new to investing.
It would help if you had a good understanding of economics.
To properly assess an asset’s value using fundamental analysis, you need to understand macroeconomics.
It doesn’t work in all market conditions.
There are times when the market does not reflect an asset’s actual value Read more