How often have you wanted to own a basket of shares in some Japanese companies but either did not have the money or did not want to tie up your capital? Luckily, an excellent financial product known as stock CFDs allows you to do precisely this. However, before we get into how to trade stock CFDs in Japan, let’s talk about what they are and why they can be better than owning individual stocks.
Firstly, what is a CFD?
A CFD stands for ‘Contract For Difference,’ which means that you’re essentially buying or selling a contract on another party’s assets instead of taking ownership yourself. In the case of Japan, the assets will be listed as domestic company shares.
For example – say Honda is listed in Japan, and you’re unsure where it will go. You can buy or sell CFDs on Honda, which both act as a bet that the price of Honda shares will either go up or down, respectively.
If you think Honda is going up, you’ll buy the CFD by putting down money for the difference between what the current share price is and what you think the price will be when the trade ends; if you were to guess wrong, then your loss would be precisely that sum.
Japan’s financial market over the past 20 years
The Japanese economy has been one of the strongest if not the strongest performing economies since its bubble burst in 1989 – 2001, where they were left with a considerable debt load after excessive spending leading up to the crash.
They have since recovered and returned to power with a huge banking sector, the world’s most significant debt-to-GDP ratio at 220%, strong economic growth of around 1% to 2% per year, low unemployment rates, and strong exports sector led by automobile manufacturers like Honda, Toyota, Nissan, etc.
Why trade CFDs in Japan?
CFDs are perfect for those looking to invest in major Japanese companies. Still, they don’t want to tie up their money: you can buy or sell them at any time with relatively low risk and low cost, and they expire after a set period, so there is no need to pay administration fees.
In addition, since you’re not buying stocks, if more people want them, their price will rise accordingly; this means that CFDs are excellent options for traders looking for volatility.
Stock CFDs are also very flexible vehicles. If you wanted, you could open a CFD position on several companies at once without having to purchase the entire basket of shares at once; alternatively, you could even trade your CFDs using an automated trading system that monitors market trends and executes trades according to rules set by the user.
Where can you trade CFDs in Japan?
The best way to trade stock CFDs in Japan is through an online trading platform that offers CFD trading on Japanese stocks listed overseas(Saxo). There are numerous platforms out there, so it comes down to what suits you best – Execution speeds, availability of instruments (e.g., volume), how much you will pay in commissions, how much leverage they give you, etc.
Leveraged stock CFDs
Leveraged stock CFDs will allow you to multiply both profits and losses. It means that instead of buying or selling CFDs for twice their face value, brokers will lend more money to amplify gains or losses respectively.
In other words, if a share price goes up 10%, then a 2:1 leveraged CFD may double your gains to 20%, but conversely, if it falls by 10%, you’ll lose 20%. This tool is for more advanced traders and can lead to huge losses and significant profits, so please be careful when using them.
Stock CFDs are a simple way of getting exposure to companies in Japan without purchasing the shares themselves. Although leveraged call options will amplify gains and losses, they can be used safely by trading according to a set of rules or through an automated system that watches the market for trends.