What a CFD is
A contract for difference, or CFD, is an over-the-counter derivative between a buyer and a seller. It gives exposure to the price of an underlying asset, and it is settled only in cash.
You do not own the underlying asset. For CFDs on shares or REIT units, the SC guidelines say there are no voting rights or conversion options.
CFDs are leveraged. You put down a margin that is only part of the value of the position. The SC requires providers to tell investors that they may lose more than their initial investment.
Who regulates CFDs in Malaysia
The Securities Commission Malaysia (SC) regulates CFDs. Its Guidelines on Contracts for Difference were first issued on 6 April 2018 and were last revised on 14 June 2024.
Only a holder of a Capital Markets Services Licence for dealing in derivatives, or one limited to CFDs, may offer CFDs in Malaysia.
The guidelines say CFDs can only be offered to sophisticated investors. They are not allowed to be offered to retail investors.
The underlying assets allowed include shares, REIT units and ETF units listed on Bursa Malaysia or a foreign exchange, commodity derivatives on Bursa Malaysia Derivatives or a specified exchange, and indices. Leveraged and inverse ETFs are excluded.
What licensed CFD providers must do
Set minimum margins. The guidelines set minimum initial margins, such as 5% for indices, 10% or 20% for single stocks and 15% for commodity derivatives. Providers may ask for more.
Mark positions to market daily and make margin calls where needed. If a client does not meet a margin call within a reasonable time, the provider may close out some or all positions.
Assess suitability before opening an account, and give the client a disclosure document and a product highlights sheet. The client must sign an acknowledgement of the risks.
Offer stop loss measures and disclose any extra cost. Providers must also run educational programmes every quarter on topics such as leverage and margin calls.
Keep client assets separate. The guidelines do not allow client assets to be re-used by the provider, a practice known as rehypothecation.
How to check a CFD provider is licensed
Search the provider's exact company name in the SC Investment Checker at sc.com.my/investment-checker. It shows the status of licensed entities and includes Investor Alert List entries marked "Unauthorised".
Also search the company name and its website address on the SC Investor Alert List at sc.com.my/investor-alert-list. The SC says this list is not exhaustive.
SmartChecker shows register records and reviews for the companies it lists, so you can compare what a provider says about itself with what the official registers show.
Common questions
Can retail investors trade CFDs in Malaysia? Under the SC guidelines, CFDs can only be offered to sophisticated investors and are not allowed to be offered to retail investors.
Is a CFD the same as owning a share? No. A CFD is settled in cash, and a CFD on a share carries no voting rights.
Can I lose more than I deposit? Yes. The SC requires CFD providers to state that investors may lose more than their initial investment.
Where can I take a dispute with a CFD provider? The SC guidelines say investors may take disputes to SIDREC, and may also complain to the SC's Consumer and Investor Office.