How to trade stock CFDs in Hong Kong?

For those of you looking to make more of your money by trading stocks but cannot become a full-fledged trader due to a lack of time or patience, there is always the option of stock CFDs.

If you’re unfamiliar with the term, CFDs stands for Contracts For Difference and is a way that allows people to trade different types of assets without actually owning them. The main reason why someone would do this is that, in many cases, it can be challenging (and in some cases almost impossible) to get the funding necessary to buy certain types of investments.

How does a CFD work?

For example, suppose I wanted to invest in Apple shares directly through their company (like one would do in Australia). In that case, I’d have to go through a broker and pay the brokerage fee (about $30), in addition to the normal fees associated with buying stock shares (at least 0.5%).

Once I’ve got my Apple shares, I’d have to make sure that I didn’t sell them below their current value or else I’d lose money thanks to the brokerage fee. This is where CFDs can come in incredibly handy.

Using CFDs allows me to invest in any asset (Apple, Google, Tesla etc.) regardless of whether it’s tradeable or not, without owning it; all that matters is that the underlying asset exists somewhere. The ‘owner’ of this potentially non-existent asset would be the CFD Provider, who will allow traders to invest in it.

The main reason CFDs exist is that not everyone can trade certain assets. For example, if you purchase a share of Tesla on the stock market, they won’t let you sell below its current value (since doing so would be bad for business). In many cases, this isn’t an issue, after all, they don’t want to lose money either. 

But for those of us looking to make a quick buck through short term trades, being unable to sell below the current price means we miss out on a lot of potential return on investment. This is where CFD trading comes in: by pioneering a new type of asset whose value changes with demand and supply trends, and traders can trade without having an actual position in the underlying asset.

The main downside to CFDs

The main downside to CFDs is that they typically come with much higher management fees (about 1% per day) than regular trading accounts do, which means that you’ll need to make sure your investment returns are high enough to cover these fees before closing your position. The best way of doing this would be to use automated trading software.

However, if you decide to trade without one, remember that since CFD assets aren’t anything at all, there’s always the risk that the provider will go out of business/run away with your money and not allow you access your account anymore. This has happened many times before, so it’s always best to trade with someone reputable.

Key things to know about CFD trading

When trading CFDs, there are some key things to know about. The first thing is that you do not need to hold onto your stocks until expiration, as outlined in traditional CFD contracts. Instead, if your stock falls by half, you can sell it and take your money out. This may happen within minutes. But remember that it can also go up quickly. In terms of their volatilities, they tend to be much higher than other assets such as forex. Investors new to this market need to keep this in mind when making their trades. Trading CFDs can be risky and rewarding if you manage to get it right.

Summary

For those of you who’ve never traded CFDs before or are looking for a way to start trading quickly, we recommend using an experienced and reputable online broker from Saxo capital markets.