After the CFD Forum: Understanding it as a Specified Investment Product
(PRWEB) February 03, 2012
The Lehman Brothers mini-bond saga in 2008 resulted in about 10,000 retail investors in Singapore losing all or a large part of their investments when the American investment bank collapsed, and the financial institutions that distributed these products were accused of having sold these relatively high-risk products to the investors, many of whom were the elderly and the less educated, with misleading information. As a result, in July 2011, the Monetary Authority of Singapore (MAS) introduced new requirements with the regards to what is called “Specified Investment Products (SIP)”.
Financial institutions have been preparing the ground on how to educate clients about the new regulations on selling investment products which come into force this year. From 1 January 2012, sales people involved in the selling of SIPs will have to assess whether the client has the relevant knowledge or experience to understand the risk and features of a SIP. So what is an SIP and how does any broker assess a customer’s investment knowledge? To answer this and more, Phillip CFD was the first broker in Singapore to hold a forum on 3rd December 2011 featuring our panelists who were Luke Lim (Head of Phillip CFD, Extended Settlement & ETF), Asa Soo (Head of Business Development) and Lee Chang Wen (Manager, CFD Market Maker), who took questions and shared their knowledge with the participants. Our emcee and moderator for the event was Kevin Lim, who is a senior correspondent at Thomson Reuters.
First up was Lee, who spoke on the importance of managing one’s risks and debunked the four common myths of CFDs such as:
Myth: If you lose, the Market Maker makes money.
Fact: As the counterparty, Phillip Securities does take positions that are both proprietary and against clients in order to hedge clients’ positions. This is how commission and finance charges can be lower than traditional instruments (such as shares) and even from other forms of CFD such as Direct Market Access (DMA) CFD. The truth is that, Market Makers are traders too and they do lose money.
Clients should not be distracted by the presence of Market Makers’ positions because stock prices are transparent and the ultimate goal of the client is to profit from market movements.
Myth: Trading CFD lacks transparency as it is over-the-counter (OTC).
Fact: This is not true as information pertaining to risks of the product and how it works is covered extensively in our seminars and marketing materials. In addition, all of our Equities CFD price quotes are based on cash market with no additional spread, so clients who view prices on their stock screen will see the exact same prices on the CFD side.
Myth: There is no liquidity in trading CFDs.
Fact: Liquidity is provided by the underlying instrument in which our CFDs are based on (e.g. stocks or indices) and additional liquidity is provided by the Market Makers. If there are no buyers, it only means that the underlying instrument has no buyers.
Myth: CFD is only good for short positions.
Fact: Statistics show that most of our clients use CFD to take long positions as investors tend to find short-selling difficult. The main objective of using CFD for most of our clients is for the leverage, rather than shorting. Nevertheless, clients nowadays are becoming more responsive to shorting and CFD allows clients the flexibility to switch or hedge their portfolios depending on market conditions.
All attendees were highly encouraged to fill in what is known as a “Client Knowledge Assessment (CKA)” form on the day itself, especially if they wish to invest in unlisted SIPs, such as CFD and Forex. We are glad to report that almost 70% of the 240-strong audience completed their forms that day while others had already done theirs online.
Phillip CFD will continue educating our clients with our various seminars and online video tutorials. We hope that all of our clients took away helpful information to better their investments and we look forward to seeing more of our clients at our future events!
For more information pertaining to SIPs, please visit http://www.phillip.com.sg/sip.
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