Brokerage fees are on the way down and this is a good thing for investors and traders, I for one am definitely not complaining.
Although $0 commission brokerage has been introduced previously, but it’s mainly for US stocks at the moment.
Well, the good news is that you can now trade Contracts For Difference (CFDs) on a myriad underlying assets and enjoy $0 commission. With this, you can expand beyond US stocks and trade Singapore and Hong Kong stocks for free. You can also trade indices and commodities without paying any commissions!
That is how versatile CFDs are.
Phillip Futures now allows you to trade all of them conveniently on one single platform instead of having to sign up with various brokerages – a stock brokerage account to trade stocks and a futures brokerage account to trade indices and commodities.
$0 commission – so how do they earn?
The first question that comes to your mind is probably “how does Phillip Futures make money if there’s no commissions”?
Are they like Robinhood who sells your order flow to high frequency trading institutions?
No, they don’t. Instead, they make money via two other avenues.
First, from the price difference between the bid and ask quotes. It is just like your typical money changer which you would notice there is a gap between the ‘we buy’ and ‘we sell’ quotes. Your broker can determine the spreads. Hence, it is important to stick to a regulated entity like Phillip Futures as they need to comply to fair practice and the rule of law. It is harder for such entities to go rogue.
Second, they make money via financing since CFDs are leverage instruments – you pay a holding fee if you hold positions overnight. The interest rates are competitive and they don’t differ much from other competitors, even if you shop around.
Analyzing the price spreads
Trading fees are a concern if you trade frequently. Since Phillip Futures makes money from spreads, I wanted to see how large the spread is, especially when compared to fee-paying brokers.
Let’s start with stocks.
Below is a partial screenshot of the MT5 trading platform showing the price spread of CFD on Tesla shares. The difference between the BUY and SELL price was a mere $0.438. The spread is pretty tight and your spread loss is probably similar as with other brokers. Yet, you paid zero commission in this case. So there’s a lot of cost savings.
I took a screenshot from a commission paying broker for Tesla stock and the spread was $1.86! This is on top of a commission of 0.3% (US$20 min):
Clearly, CFD is a cheaper alternative especially you just want to trade the price movements of Tesla and not hold the underlying stock.
Next, I look at the quotes for the S&P 500 index, the spread was only 0.8 points. That was lower than the published 4 points spread by Phillip Futures.
Although Phillip Futures earn money via price spreads, the spreads seems tight across various asset classes.
The $0 commission and tight spread will significantly lower your cost of trading.
Short with CFDs
Besides going long on any asset class, some traders would like to take the short side to take advantage of a downward price movement.
For example, it is very inconvenient to short stocks directly. Some exchanges ban short selling or they may require you to cover the short within a day. All these limitations do not exist for CFDs and you can hold a short position over days, weeks or even months if you think that’s how long it will take for the trade to play out.
Due to the market volatility right now, prices can crash significantly and traders can be rewarded handsomely on their short positions. Hence, this is an important option if you are a bi-directional trader.
Place trade orders directly from the charts
Traders love the metatrader platform but MT4 used to be limited to forex only. With the upgraded MT5, traders now have access to an expanded selection of stocks, futures, bonds and options. It can really live up to its meta name today and has become more convenient for the trader to trade everything on one platform.
Phillip Futures offers the beloved MT5 trading platform and one of the best features is that you can place trades directly on the charts instead of having to use another screen to key in the orders.
It also offers a mobile app and a web version if you prefer not to install anything. Both have many of the functions that were previously only available on the desktop client. You can trade anywhere you want without much degradation to the functionality.
Phillip Futures CFDs are great for frequent short term trades
If you’re looking to take advantage of the price movements in any assets but have no intention of holding the them long term, Phillip Futures CFDs are a suitable option for you.
The advantages of using Phillip Futures CFDs to trade US, SG, HK stocks along with indices and commodities include:
- $0 commission,
- fair price spreads,
- convenience of shorting,
- and a powerful MT5 charting platform.
This post is sponsored by Phillip Futures. The views belong to the author.