What are CFDs? A contract for difference (CFD) is an agreement with a provider to exchange the change in price of a share, index, currency or commodity between the day you open the position and the day you close it. You never own the underlying asset. You put down a small deposit, called margin, and your gain or loss is calculated on the full value of the position.
That is what makes CFDs dangerous. With a 10% margin, a 10% move against you wipes out your entire deposit, and a bigger move leaves you owing the provider money.
Risk warning: CFDs are leveraged, high-risk Specified Investment Products. MoneySense, the government’s financial education site, warns that you may lose more than you originally invested, and that short positions can lead to unlimited losses. Before dealing with any provider, check it in the MAS Financial Institutions Directory and the MAS Investor Alert List. Most people do not need CFDs to invest, and nothing here suggests you trade them.
What Are CFDs and How Do They Work
- You open a position. Say you “buy” a CFD on S$10,000 worth of an SGX-listed share. You are betting the price will rise. You could also “sell” first, betting it will fall.
- You put up margin. MoneySense says margin is typically 10% to 20% of the underlying value, set by the provider. At 20%, you deposit $2,000.
- Your account is marked to market. Every price move changes your profit or loss in real time, on the full $10,000.
- You pay to hold it. Most CFDs charge daily financing on the full value if you keep the position overnight.
- You close it, or the provider closes it for you if your margin runs short.
Because a CFD is a Specified Investment Product, MoneySense notes that you need to pass a Customer Knowledge Assessment before you can trade one.
What Happens to a $2,000 Deposit
Our illustration: a CFD on $10,000 of a share, opened with $2,000 margin (20%). Costs are left out to keep the maths clear. Illustration only, not a forecast.
| Share price move | Profit or loss | What is left of your $2,000 | Return on your deposit |
|---|---|---|---|
| Up 10% | +$1,000 | $3,000 | +50% |
| Down 5% | −$500 | $1,500 | −25% |
| Down 10% | −$1,000 | $1,000 | −50% |
| Down 20% | −$2,000 | $0 | −100% |
| Down 30% | −$3,000 | You owe $1,000 | −150% |
Someone who bought the same $10,000 of shares outright would be down 30% in the last row, with $7,000 of shares still in hand. The CFD trader has lost everything and owes more.
The short version: a CFD multiplies a small price move into a large change in your deposit, in both directions. Losses can exceed the money you put in.
CFD vs Stocks: What You Own and What You Can Lose
| Buying the share | A CFD on the same share | |
|---|---|---|
| What you pay up front | Full price | Margin, typically 10% to 20% (MoneySense) |
| What you own | Part of the company | A contract with the provider |
| Where it is held | Your CDP account or a broker’s custody | The provider’s books |
| Voting and shareholder rights | Yes | No |
| Dividends | Paid to you | Cash adjustment, if the provider makes one |
| Cost of holding | None from the exchange; some brokers charge custody | Daily financing on the full value |
| Most you can lose | What you paid | More than your deposit |
| Approval needed | None beyond opening an account | Customer Knowledge Assessment |
MoneySense’s guide to shares explains that shareholders may receive dividends and can vote at general meetings. If the company does badly, your shares fall in value, but you never owe anyone more than you paid.
A CFD gives none of this. MoneySense notes you have no rights to the underlying shares. Your contract is with the provider, and MoneySense warns the provider may fail to pay what it owes if it becomes insolvent. You would then be a creditor of the provider, not the owner of anything.
Holding for a Year, Two Ways
Our illustration: exposure to $10,000 of an SGX-listed share for a year. We assume a 4% dividend, 20% CFD margin ($2,000), financing at an illustrative 5% a year on the full value, and commission of 0.10% each way with a $10 minimum on both routes. Real charges vary. Illustration only.
| Share rises 6% | Share falls 15% | |
|---|---|---|
| Shares: price, dividend, costs | +$600, +$400, −$20 | −$1,500, +$400, −$20 |
| Shares: net result | +$980 (+9.8%) | −$1,120 (−11.2%), shares worth $8,500 still held |
| CFD: price, dividend adjustment, financing, costs | +$600, +$400, −$500, −$20 | −$1,500, +$400, −$500, −$20 |
| CFD: net result on $2,000 deposit | +$480 (+24%) | −$1,620 (−81%) |
In the good year the CFD looks better as a percentage, but the shareholder made twice as much money and the CFD trader spent $500 on financing. In the bad year, margin calls would likely have forced the CFD trader to add money or be closed out near the low.
Margin Calls and Being Closed Out
When the price moves against you, your margin shrinks. The provider will ask you to top it up, which is a margin call. MoneySense says you may have to meet it at very short notice, especially when markets are volatile.
If you cannot, the provider can close your position without telling you first, at whatever price is available. That is how losses get locked in at the worst moment.
Stop-loss orders can limit losses, but MoneySense notes they may not be guaranteed: if the market gaps, you can be closed at a worse price. Some providers sell guaranteed stops for a fee.
Can You Lose More Than Your Deposit?
Yes. We read the Singapore client terms of three providers that sell CFDs here:
- OANDA Asia Pacific says plainly that it does not provide negative balance protection, and that all clients are liable for all negative balances.
- CMC Markets Singapore says a negative cash value after a close-out is a debt payable immediately.
- IG Asia says its transactions can result in losses that exceed your initial deposit, and that any debit balance must be paid.
Short positions add another layer. A share can only fall to zero, but it can rise without limit, so a losing short CFD has no ceiling on the loss. Our factual reviews of IG, CMC Markets and OANDA set out each provider’s terms and charges.
The Costs That Run While You Wait
- Spread: the gap between the buy and sell price you are quoted.
- Commission: charged on the full position value, not your deposit. IG’s Singapore page lists 0.10% with a $10 minimum per side on Singapore share CFDs, and CMC Markets lists 0.1% with a $10 minimum, as at November 2026.
- Overnight financing: a daily charge on the full position value. IG describes its rate as a benchmark interest rate plus a funding adjustment, usually 3% a year. MoneySense’s own example uses 5% a year; on $10,000 that is about $500 a year, or a quarter of a $2,000 deposit. Short positions can also carry a borrowing charge.
- Currency conversion if the CFD is priced in another currency.
- GST on fees.
Buying the share outright costs a commission when you buy and sell, plus SGX fees and GST, and nothing for simply holding most SGX shares. Our SGX broker comparison costs the same orders across brokers.
Over a few days, financing is small. Over months it is usually the biggest cost, which is why CFDs are rarely a way to hold an investment for years.
Who CFDs Do Not Suit
- Anyone investing for retirement or a long-term goal. Daily financing makes CFDs an expensive way to hold anything for years.
- Anyone who cannot watch positions closely or meet a margin call at short notice.
- Anyone using money they cannot afford to lose in full, and then some.
- Anyone learning to invest. Our guide on how to start investing in Singapore covers lower-risk routes, and investing vs trading looks at how frequent trading tends to work out.
Scams are a further risk. Unlicensed “CFD platforms” promoted on social media are a common route for fraud. If a firm is not in the MAS Financial Institutions Directory, or appears on the Investor Alert List, do not send it money.
What To Do Next
- Read MoneySense’s guide to contracts for difference in full, including its list of questions to ask a provider.
- Write down what you are trying to achieve. If it is long-term growth, owning the asset is usually simpler and cheaper.
- Work out the largest loss you could afford if a position went to zero, then double it, and calculate the financing for the time you expect to hold.
- Do your own due diligence: check the provider in the MAS Financial Institutions Directory and Investor Alert List, and read its client agreement on margin calls and negative balances.
- See how steady, unleveraged investing compounds with our compound interest calculator.
