Kim Eng's CFDs Open the Door to New Investment Opportunities
“First of all, CFDs are not new,” says Mr Goh. “They are popular instruments in mature markets from London to Sydney and, by several estimates, currently account for between 20 to 50 per cent of traded volume in some markets. We have been exploring introducing CFDs for several years, and a few foreign CFD providers are already active in the Singapore market so the process of educating investors has already begun. But the rate of adoption has been slower than it has been in other markets and we take the view that this is because, among other things, existing CFD models may not entirely meet the needs of the average retail investor in Singapore. We wanted to adopt a different model that would appeal to our own clients and others like them.” And what about the timing? “In many ways, the timing of the KE CFD launch is just right,” says Mr Goh. “This is a platform that has a number of advantages over existing products in the market but, more specifically, we think that investors will come to realize that CFDs are one of the simplest and most effective tools with which to manage the challenges posed by the kind of market volatility we see today.”
When he speaks of the average Singaporean retail investor, Jeffrey Goh sounds authoritative, as well he might be after 20 years in the industry. Whilst acknowledging that there are many different types of investors, he describes a sub–segment of the investing population to whom CFDs may appeal to. “Many investors are diligent when it comes to reading and researching what drives the market. But having done the analysis and developed a market view, they don’t necessarily have the trading tool and capital to trade high priced, blue chip stocks. So they search out products and instruments which give them a certain amount of leverage. They don’t want to tie up their money — they want to diversify their capital, and they want to get in and out of the market over a short term investment horizon. But at the same time they are somewhat suspicious of over–the–counter derivatives — they (quite wisely) shy away from instruments that are not easy to understand. Finally, in Singapore at least, retail investors have had something of a psychological barrier to short–selling. A lot of people can’t get their head around the concept of selling something that they do not own, but this is beginning to change.”
Mr Goh claims that KE CFDs represent a trading tool that meets this set of investor needs. If it sounds complicated, he assured us it’s not. “Up till recently, the needs of the average investor have been broadly satisfied by products which are already well–established in the market. But as market conditions change, investors are becoming constrained by the tools available. We are beginning to see the adoption of CFDs as a powerful alternative to direct share trading. If we ask ourselves why this is so, I think the proposition is best explained with reference to 4 key areas: leverage; liquidity; pricing; and volatility.” We asked him to take us through his argument step by step.
