How Malaysia’s ‘Hidden Hands’ Could be Oiling the Wheels of CFD Speculation

How Malaysia's 'Hidden Hands' Could be Oiling the Wheels of CFD Speculation by CF Lieu - Certified Financial Planner Malaysia

Never before have there been quite so many different opportunities for people to invest and speculate on. Naturally, there is the traditional method of trading stocks and shares. However, in recent times, cryptocurrencies have also become a major focus for some. But with fluctuating prices that can be affected by many outside influences, these have proved too volatile for more cautious investors as price falls can happen as suddenly as rises.

For those who are concerned about falling prices, however, Contracts For Difference (CFDs) do offer an alternative.

CFD trading explained

The principle behind CFD trading is a relatively simple one. It uses contracts that copy live financial markets. The buyer buys and sells these contracts in the same way that they would invest in stocks and shares – but this is not an investment, it is more of a wager as to whether the market will move up or down. So, rather than deciding how many shares you would like to invest in,  you pick how many contracts to buy.

If your market moves in the direction that you have predicted, it can produce a profit. If it goes against your expectations, it means a loss. It’s when you sell the contracts that you’ve bought at the outset that you realize your profit or loss. 

One of the appeals for speculators is that CFDs are leveraged products. This means that it’s possible to trade by paying just a fraction of its total value. The upside is that, if you make a profit, it will be magnified, the downside is that any losses will be too.

In what has been a challenging period for the financial world. CFD trading means that even falling prices or values can yield a return has made it an even more attractive vehicle for some. Add to this the fact that the fees involved are generally quite low and its appeal becomes even easier to see. Still, an element of risk does stand.

Commodities are one area in which CFD is proving to be very popular, offering a wide range to follow and, hopefully, profit from. One of the keys to success is to keep a close eye on economic and other influences around the world which will have a bearing. This is where Malaysia becomes relevant.

Government support steps in

Fuel and cooking oil are both very important commodities in the country. Rising prices and other economic uncertainties have meant that their values could soon become unaffordable, both for the general public and for the millions of small traders in Malaysia.

The announcement in June 2021 that the country’s government would be providing subsidies worth around 8 billion ringgit ($1.95 billion). This is more than double the 3.78 billion ringgit that had been suggested by the Ministry of Finance. In doing so, the aim was to restrict the effect of price rises, even though the oil price, in general, is still likely to fluctuate over the coming months.

It’s this fluctuation, and its effects in Malaysia, which will possibly attract those in the country and the wider world who are on the lookout for a likely commodity for their next CFD trades. It also provides a useful insight into the importance of having a clear picture of macroeconomics and keeping one’s finger on the pulse of world news. This is because interventions like this usually have an impact on commodity prices.

Far-reaching effects

Nor is it just commodity prices. There are also the obvious effects that events have on exchange rates between currencies which affect forex trading. Stocks and shares are equally exposed to broader influences. Naturally, many of these are unpredictable and unexpected when they do occur, but there may be clear signs of many other events some time in advance for those who know what these may be.

In terms of commodities, these catalysts can come from many sources. For example, poor harvests leading to shortages will mean that prices may rise, with bumper harvests and gluts having the opposite effect.

The importance of oil

How Malaysia's 'Hidden Hands' Could be Oiling the Wheels of CFD Speculation by CF Lieu - Certified Financial Planner Malaysia

Oil is one commodity, in particular, that is subject to great fluctuations. One only has to see how much the pump prices in gas stations can rise and fall over time, seemingly with no real reason behind it.

But, examined a little more closely, it becomes easier to appreciate why these changes occur. The link between the level of supply and the amount of demand at any given time and many factors can affect them. One example came in March 2021 when the blockage of the Suez Canal caused by a sinking container ship saw prices rise and then fall almost as quickly.

It is also something that nations can control by increasing or decreasing the number of barrels of oil that they produce. As only a moderate oil producer, at around 600,000 barrels a day compared with the 2.5 million a day produced by India, Malaysia is more vulnerable than some to price changes.

While this might not be very good news for the government’s finances, it does offer plenty of opportunities to CFD traders whose motto might well be, “volatility is good – as long as it’s always heading in the right direction”.

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