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True or false: CFD trading and share trading are the same because both involve buying and owning the underlying asset directly.
Explanation
In CFD trading, you don't actually own the underlying asset. You're trading a derivative contract based on the asset's price. CFDs are also leveraged, meaning you can control a larger position with a smaller deposit. In share trading, you buy and own actual shares, and it's non-leveraged, so your maximum loss is limited to what you invest upfront.
Which of the following best describes leverage in trading?
Explanation
Leverage allows you to control a larger trade with a smaller upfront deposit (called margin). This can amplify both your potential profits and potential losses. For example, with 10:1 leverage, you can control a S$10,000 position with just S$1,000 in margin.
True or false: When trading CFD markets, if you think a price is going to fall, you can open a short position to try to profit from the drop.
Explanation
Short-selling allows traders to profit from falling market prices. When you open a short position, you're predicting that the price will go down. If it does fall, you can close the trade at the lower price and keep the difference as profit. This is a key advantage of CFD trading over traditional share ownership.
Which of the following best explains why traders use different chart time frames (e.g. 10-minute, 1-hour, 1-day)?
Explanation
Different time frames help traders align their analysis with their trading goals. Short-term traders use shorter time frames (like 10-minute charts) to spot quick entry and exit points, while long-term traders focus on broader trends using daily or weekly charts. Many traders look at multiple time frames to confirm their trading signals.
Why is it important to be careful when selecting position size when placing a trade?
Explanation
Your position size directly determines how much money you stand to gain or lose per point of market movement. For example, if you trade 2 contracts at S$10 per point, each point move costs or earns you S$20. Choosing the right size based on your risk tolerance and account size is crucial for managing exposure and avoiding large losses.
What does a stop-loss order do?
Explanation
A stop-loss is a risk management tool that automatically closes your trade when it reaches a loss level you've set in advance. For example, if you buy at S$100 and set a stop-loss at S$95, your trade will automatically close if the price drops to S$95, limiting your loss to S$5 per share.
What does "spread" mean in trading?
Explanation
The spread is the difference between the buy (offer) price and sell (bid) price of an asset. For example, if the bid price is S$99.50 and the offer price is S$100.50, the spread is S$1.00. This is how many brokers make money — you buy at the slightly higher offer price and sell at the slightly lower bid price.
What are the three main types of trading risk?
Explanation
The three main types are: Market risk (losing money due to price movements), liquidity risk (being unable to buy or sell quickly enough), and systemic risk (the entire financial system being affected by major events). Understanding these helps you prepare for different types of potential losses.
What is the benefit of trading with a demo account? Select all that apply.
Explanation
Demo accounts let you practise trading with virtual money, so you can explore new markets, test strategies, and learn how the platform works without risking your real funds. This is valuable for both beginners learning to trade and experienced traders testing new approaches.
What happens if you enter an order ticket without setting a stop-loss or limit?
Explanation
Without a stop-loss or limit, your trade can run indefinitely in either direction. This means you could face unlimited losses if the market moves strongly against you, or miss out on profits if you don't close manually when the market moves in your favour. This is why risk management tools are so important.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Professional Clients can lose more than they deposit.
The value of shares and ETFs bought through an IG stock trading account can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.
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