What Is Forex Trading And How Does It Work?
Forex Trading refers to the exchange of currencies against each other in the foreign exchange market on prevailing market prices. With a daily turnover of more than 6 Trillion US Dollars, the forex market is one of the most liquid markets in the world. As far as forex trading in Singapore is concerned, the country undergoes an average trading volume of nearly 633 Billion US Dollars a day, according to a survey published by TheStraitsTimes.
Let’s understand the concept of forex trading with an example;
Suppose you wish to buy 100 US Dollars using your native currency, i-e Singapore Dollar. The first thing you need to check is the current market price of 01 USD against 01 SGD. For instance, if it is 1.33 SGD per USD that means you can buy 100 US Dollars for 133 Singapore Dollars (100 x 1.33 = 133 SGD).
A week later, you notice that the price of 01 US Dollar has increased to 1.40 against SGD. So, selling 100 units of US Dollars could yield a profit of $7 ($140-$133). Now consider the same example and imagine if you could buy and sell currencies in real-time with ample liquidity available – that’s called forex trading.
There are many traders in Singapore who carry out forex trading as a full-time business known as Day Traders. These traders use day trading strategies and aim for a specific amount of profits everyday. On the other hand, there are some long term traders who like to hold positions for days and weeks.
Pros And Cons of Forex Trading
Forex trading has its own merits and demerits. Let’s discuss a few of them briefly:
- Liquidity – Since the forex market is highly liquid, therefore, traders can enter or exit a position within a fraction of second. The transaction will involve a small spread fee i.e bid and ask to compensate broker and liquidity providers.
- Flexible Hours for Trading – Divided into three major trading sessions, including London, Tokyo/Sydney, and New York, the forex market has no time restrictions. Traders can perform trading 24 hours a day except for weekends (Saturday and Sunday).
- Transparent – Unlike stock markets, where the risk of price manipulation is higher due to insider information, the forex market is less biased. Usually, governments or central banks with higher levels of public scrutiny hold information concerning possible price movements. Therefore, the chance of price manipulation becomes negligible.
- Leverage – With limited funds, traders can have increased market exposure using the leverage offered by a broker. Some brokers offer a high leverage ratio while others offer a maximum leverage of up to 1:30. Still, a trading volume of 30 times more than your actual investment means a lot for small scale traders.
- Low Cost – As compared to trading bonds and equities, currency trading is considerably cheaper. It doesn’t come with pricey commissions or hidden fees as opposed to other tradable financial instruments that can be very expensive to trade. Most of the time, the only cost traders need to bear is the spread between the ask and bid price of an underlying asset. Although there could be some additional charges, such as the fee for holding overnight positions, still forex trading remains a low-cost investment opportunity.
- Volatility – Besides having increased liquidity levels, the forex market can sometimes become extremely volatile. Unexpected abrupt prive moves take no time in blowing up traders’ profitability or even the entire investment.
- Less Residual Returns – Unlike other tradable financial instruments, including stocks and bonds, where traders can benefit from annual interest or perpetual dividends, forex traders mainly rely on price appreciation of an underlying forex pair to make profits.
- Regulatory Issues – Although various regulatory bodies have strict regulations in place concerning forex trading in different regions of the world, still the market is full of non-regulated brokers. Since your funds are likely to be safer with a regulated broker, traders need to make sure that the broker holds a license from a well reputed regulatory institution, i-e FCA, MAS, etc.
How To Start Trading Forex in Singapore
Traditionally, people head towards banks or money changers for currency exchange. However, when it comes to forex trading, all you need is an online trading platform and an account with a regulated broker (preferably).
Getting Started – Open an Account
The first step to start forex trading in Singapore is to open a live account with a broker. Since the market is full of unregulated and dishonest brokers, therefore, you need to remain extra vigilant while choosing a broker.
After selecting a broker, you need to verify your identity and address. For this purpose, the broker usually requests a scan copy or your passport/driving license/ID card as well as bank statement/utility bill. Once your trading account is verified, then is the time to fund your account. The minimum deposit amount varies from broker to broker. Usually, it stays between $1 to $250. Most brokers offer multiple payment options available, such as debit cards, credit cards, bank transfers, e-payments, etc.
Given below are some tips on how to choose a good forex broker in Singapore.
As mentioned earlier, a reliable broker is crucial for a successful forex trading journey. Always try to find a broker with multiple regulations. A broker regulated by the Monetary Authority of Singapore (MAS) is more reliable as compared to foreign regulated brokers. In case of fraud or dispute, it is more convenient to pursue legal actions against a locally regulated broker as compared to a broker that holds regulation in foreign countries.
Broker Types & Trading Platforms
A broker with a user-friendly trading platform having all the basic-level trading tools available can be a perfect choice to start. Moreover, a straight-through processing broker or brokers with an ECN trade execution policy should be your preference over the dealing desk brokers. Similarly, traders should also consider the trading platform being provided by a broker. The platform should be easy-to-use and user friendly.
Availability Of Demo Accounts
The broker you select should offer demo accounts. The virtually funded demo account could become a great source to practice new trading strategies. Traders can even try various robots and automated scripts without fearing the loss of investment. Demo accounts help traders to build enough confidence before going live.
Forex Trading Communities, Forums, and Discussion Groups in Singapore
There are some popular trading communities and discussion forums that can be very helpful if you are a forex trader based in Singapore. Here I list top three of them:
#1 Investing Note
Investing Note is one of well established social trading platforms in Singapore. Traders use this platform to share trading ideas and discuss any trading related issues and queries. The platform has more than 50,000 registered members from all across Singapore and some other regions.
#2 IG Singapore Community
Being a reputable broker for forex trading in Singapore, IG hosts a dedicated community platform where traders from a specific region such as Singapore meets up with other traders to share trading experiences. You might need to sign up with a broker to access the IG singapore community
#3 Singapore Forex Trading
Singapore Forex Trading is a facebook group page dedicated to traders in Singapore for general discussion and information sharing about forex trading. The page has a high ranking on google and seems to be worth checking out.
Forex Infuencers to Follow in Singapore
#1 Rayner Teo
Rayner Teo is one of the most favorite forex traders and forex influencers to follow in Singapore and Asia. He runs a blog and a youtube channel where more than half of a million subscribers learn from his trading experience. You may also follow his Facebook page Forex Trading Community where he regularly shares useful updates on forex trading.
#2 Adam Khoo
Adam Khoo is another renowned forex trader from Singapore. Having a stock trading background, he has authored two books, including Winning the Game of Stocks and Profit from the Panic. His channels have millions of views and over 616K subscribers.
#3 Karen Foo
Based in Singapore, Karen Foo is a forex trading expert and a motivational speaker. He regularly delivers lectures on trading psychology through his youtube channel and website www.trading-education.com.
Is forex trading legal in Singapore?
Yes, it does. Forex trading is not only legal in Singapore but also becoming increasingly popular in the country. The Monetary Authority of Singapore (MAS) regulates the financial affairs of the country, including financial institutions and entities dealing in forex trading.
What is the best time to trade forex in Singapore?
Overlapping times (when two or more markets are open) provide increased liquidity levels, therefore, it may be regarded as the best time for trading in Singapore. Given below are some of the best timings when major market sessions overlap each other.
- US/London Overlap: 9:00 PM to 1:00 PM
- Sydney/Tokyo Overlap: 03:00 PM to 5:00 PM
- London/Tokyo Overlap: 04:00 PM to 05:00 PM
Is Forex Trading taxable in Singapore?
Forex traders need to pay taxes on the capital gains from forex trading in different regions of the world. However, profits from forex trading in Singapore are tax-free, as far as your forex trading is not your main source of income.
Can you make money trading Forex in Singapore?
Yes, people make a lot of money trading forex in Singapore. For example, several big names in the country such as Rayner Teo , and Collin Seowand are real world examples that you can follow.