You can trade forex via forex brokers that are licensed with multiple Top-tier regulators
6 Steps to Start Forex Trading in Singapore
Forex trading, also known as currency trading, refers to the trading of global currencies. Currencies are traded in pairs, forex traders buy one currency and sell another. Forex trading is done for a variety of reasons such as hedging against currency risk, maintaining forex reserves, and speculating on the price movements for profit.
Forex trading has been gaining in popularity in Singapore over the last decade. Retail investors are turning towards online forex trading in greater numbers due to high liquidity and high leverage in the forex trading market.
Yes, Forex trading is legal in Singapore and is regulated by the Monetary Authority of Singapore (MAS). Any forex or CFD derivative broker that is based in Singapore is required to hold a regulatory license from the MAS.
Brokers based in foreign countries can offer forex trading services to clients in Singapore with or without the MAS license. Although, it is strongly recommended to only trade with MAS-regulated forex brokers in Singapore. The third-party risk is lower with all the MAS-regulated forex brokers in Singapore.
Clients registered with the MAS authorized brokers are regulated and protected under compliance with The Securities and Futures Act (SFA) of Singapore. MAS-regulated brokers hold Capital Markets Services (CMS) License issued by the Monetary Authority of Singapore (MAS). The details of the license can be checked from the official website of the MAS.
As per the regulatory compliance of MAS, the maximum leverage is capped at 1:20 for the retail clients. If the criteria for the professional account are met, the maximum leverage can be increased up to 1:50. The licensed entity must hold assets worth more than 5 million Singapore dollars. There are several other regimes and regulatory compliance that must be met by the MAS-regulated brokers.
In this guide, we’ll talk about everything you need to know about forex trading in Singapore.
Here is a brief overview of forex trading.
The forex market is the largest financial market in the world. The forex market has an average daily turnover of more than $6.6 trillion according to a BIS report in 2019. The same report also stated that the daily trading volume of forex in Singapore is more than half a trillion USD. The size of the global forex market has only been increasing every year.
Singapore is the largest forex exchange hub in Asia and the third-largest in the world after London and New York.
Similar to other financial markets, the exchange rate between different currencies depends on demand and supply, amongst other factors. The price of a currency moves upwards if there are more people buying the currency than those selling the currency.
The forex market is an example of a decentralized market. This means that there is no central control over the market. The decentralized nature of the market makes it possible for traders and investors to deal directly with each other rather than rely on a central exchange.
The global forex trading market is open at all hours during weekdays. It is closed during the weekends. This 24/5 system makes it convenient for traders from all around the world to trade with each other. However, the liquidity for particular currency pairs is different at different times of the day. In hours of low liquidity, the spreads can become wider.
People from different time zones interact and make the market run for 24 hours a day. However, the forex market can be divided into four main time zones. These different time zones correspond with the Australian market, the United States market, the European market, and the Japanese market.
There are several participants that contribute to the forex market in different ways. Some of the most major players in the market include the banks (both central and commercial), worldwide governments, large multinational companies, retail investors and traders, investment management firms, brokers and dealers, money-transfer and money-exchange companies, and so on.
For example, as a retail trader, you can use a bank to convert your currency from SGD to USD. There can be different purposes for making the exchange including travel and business needs.
Forex is traded in pairs. For example, a currency pair is SGD/USD. This currency pair allows you to buy or sell SGD in exchange for USD. There are numerous currency pairs operating in the global forex market.
However, forex traders should know that the USD is the most traded currency in the world. Most of the popular currency pairs in the world involve the USD. For example, EUR/USD is the largest traded currency pair.
Currency pairs can be traded through a variety of financial instruments. A financial instrument denotes the type of contract through which you are making the trade. Different financial instruments include spot forex contracts, forward contracts, contracts for difference, and so on.
We have briefly covered each financial instrument here:
Spot forex contract – A spot forex contract is the most widely used instrument for forex trading. This is the traditional way in which forex trading is and was done. A spot forex contract allows currencies to be exchanged immediately. The delivery and settlement of the contract are done instantly.
Futures forex contract – This is a more complicated derivative contract. A futures forex contract allows you to deliver and settle your trade at a later date. The prices are agreed upon beforehand. A futures forex contract allows you to take advantage of future price movements in the present.
Currency swaps – A currency swap allows traders to exchange their loan denominated in one currency for a loan denominated in another currency. This is why it is called a “swap”. A swap allows you to repay the principal amount and interest amount in a different currency. Any one of the two parties involved in a currency swap will earn profits.
Currency Forward – A forward contract allows you to exchange one currency for another at a future date, however, the exchange rate is determined at the present. This allows for future exchanges while negating the effect of price movements in the forex market. This type of contract is most often used for international trades.
Options forex contracts – An option contract provides the buyer with the right, but not the obligation, to exchange currency at a later date at a predetermined exchange right. The buyer does not have to exchange the currency on the future date, but they can. For this right, the seller is paid a premium at the time of making the contract.
Non-deliverable forward (NDF) – A non-deliverable forward allows a buyer and a seller to settle a currency exchange without actually exchanging any currency. This is why the term “non-deliverable” is used. A Non-deliverable forward is the same as a forward contract, with the exception that the actual currency is never exchanged.
CFDs – A CFD, also known as a contract-for-difference, allows forex traders to trade on price movements of the currency. Under this type of contract, only the price difference between the opening and the closing of the contract needs to be paid. There is no physical exchange of one currency in return for another.
Online forex trading allows retail traders (also known as individual traders) to trade currencies and profit from price movements in the currency market. These brokers offer trading on forex pairs as a CFD. Online forex trading is gaining in popularity around the world since it provides traders with access to a highly liquid and volatile market.
Forex traders can trade online by taking advantage of the high leverage provided by global online forex brokers. Online forex trading can be done through a variety of financial instruments (as detailed above) but the most commonly used instrument is CFD. CFDs allow traders to only pay the difference in price and the actual currency does not need to be exchanged.
Online forex trading via CFDs is the least complicated. The easy availability of leverage makes it much more lucrative. You only need to make a small minimum deposit into an online brokerage account in order to get started. You can trade using margins, which means that your deposited amount only needs to cover the difference between the trades. High leverage can assist in booking bigger profits with smaller deposits. However, leverage also increases the risk factor as clients can lose the whole amount kept in the trading account.
Online CFD trading is done through trading platforms like MetaTrader 4. These trading platforms offer an easy way to keep track of price movements of different currencies and to execute trades. Online forex brokers offer a trading platform for free to their users.
There are several online forex brokers in the world these days. Over the last decade, the popularity of online forex trading has grown exponentially. The demand for forex brokers is increasing due to the ease of accessibility in CFD trading.
For example, a trader in Singapore just needs to open an account with a MAS-regulated forex broker such as CMC Markets or Plus500. To open an account, they need to complete certain KYC formalities and provide a deposit amount. Once the account is registered, the trader can download the trading platform and start trading.
There are certain basic terms that a forex trader needs to understand.
Currency pair: A currency pair denotes the two currencies you will be trading. One currency will be bought and the other currency will be exchanged. For example, SGD/USD is a currency pair that denotes the Singapore Dollar and the US Dollar.
When trading the SGD/USD, you will be buying or selling the SGD in exchange for the USD. All forex trading is done via currency pairs.
In this currency pair, the SGD is known as the base currency and the USD is known as the quote currency. The exchange rate of SGD/USD denotes how much of the quote currency you will need in order to trade one unit of the base currency.
There are three types of currency pairs – major, minor, and exotic.
You should always try to trade major currency pairs since these are more predictable, have tighter spreads, and have the highest volume. This is because major pairs are largely traded and are highly liquid.
Pips: A pip is the smallest movement that the price of a currency can have. For USD-related currency pairs, the value of a pip is $0.0001. The spread that you will be charged for trading a currency pair is denoted in pips.
Leverage: Leverage is a debt taken from liquidity provider to trade CFDs. A leverage ratio of 1:5 means that clients can open a position worth $500 with $100 in the account. The higher the leverage, the larger the trade that you can make with a given amount of money.
Leverage increases the potential profit you can make through your trades since you only need a fraction of the money to be able to enter a sizeable trade. However, this also increases the amount of risk that you face with your trades. For the MAS-regulated forex broker, the maximum leverage is capped at 1:20 for the retail clients.
Bid Price: The bid price is the highest price that a buyer is willing to pay for one unit of the underlying asset. In forex, the bid price refers to the amount of quote currency needed to buy or sell one unit of the base currency.
Ask Price: The ask price is the lowest amount that a seller is willing to pay to sell a security. In forex, the ask price refers to the amount of quote currency that you will need to sell in order to get one unit of the base currency.
Spread: The spread is essentially a fee levied by a forex broker. It is denoted as the difference between the bid price and the ask price. The difference between the two is the fee that the broker or liquidity provider is charging in order to provide brokerage services.
The spread is usually variable in nature. This means that the spread fluctuates in accordance with the liquidity and the timing of the trade.
The spread for trading each currency pair will be different. Usually, major currency pairs have tighter spreads than minor currency pairs. This means that trading major currency pairs is more affordable than trading other types of currency pairs.
For example, the below screenshot shows the spread for EUR/USD at XM. Their spread with Micro Account is 1.9 pips on their MetaTrader platform.
Lot sizes: Lot size is the amount of currency that you will be trading. There are three different main lot sizes in the forex market.
The three sizes are Standard, Mini, and Micro.
A Standard lot is equivalent to 100,000 units of the base currency.
A Mini lot is equivalent to 10,000 units of the base currency.
A Micro lot is equivalent to 1,000 units of the base currency.
Different brokers offer different types of lot sizes, however, the terminology for the three main types of lots largely remains the same.
Currency pairs can be traded online as CFDs or other derivative instruments. There are several brokers and banks that offer forex trading services. Such services can be either by acting as a market maker or by straight-through processing (STP). This depends on the business model of the forex broker or bank.
Most forex brokers online offer CFDs for forex trading.
Here are the basic steps involved in forex trading and opening an account with a forex broker in Singapore:
You must take 2-3 months & learn as much as possible about Forex Trading.
It is very important to check the CMS license details of the broker before opening an account. Some fake brokers, salesman, or agents can use fake or cloned licenses to lure clients. The license number and name must be cross-checked for errors from the official website of MAS.
With the MAS-regulated brokers, clients in Singapore are registered under MAS regulation. If the chosen broker is not regulated by MAS, clients will be registered under offshore regulations like Belize, Mauritius, etc. Such brokers are riskier than MAS-regulated brokers but can be chosen to trade forex in Singapore.
The safety ratings and trust factor can be further enhanced if the broker’s Group or its entity is regulated with global top-tier regulatory authorities like FCA, FSCA, or ASIC.
Even though your account is not registered under Tier-1 regulation, but the fact that the broker that you are trading with is well regulated globally makes it less risky for the safety of your deposited funds. Clients must check the regulatory license and check their authenticity from the regulator’s website.
You should also research the different types of accounts provided by the broker. Each account type is ideal for different types of traders. Make sure to choose a suitable account type.
There are certain things that you will need in order to trade forex online. Here are the basics:
Forex trading platforms have transformed the way people interact with the financial markets. These platforms enable traders to gain exposure to hundreds of different markets around the world.
There are several trading platforms available in the market these days. This makes choosing a trading platform difficult.
Choosing the wrong platform can cause you to suffer from slow trade execution, no educational material, no technical indicators or analysis, and so on.
Since each forex broker offers a certain set of trading platforms, the trading platform offered by a forex broker is an important consideration while choosing a forex broker as well.
Trading platforms are offered by forex brokers. A broker can offer a single trading platform or a variety of them. The most common trading platforms offered by brokers are MetaTrader 4, MetaTrader 5, or cTrader. Some brokers also offer their own proprietary trading platform.
As of date, there are several forex brokers licensed by the Monetary Authority of Singapore. Hence, before choosing a broker, you should check whether they are regulated by MAS and other tier-1 financial authorities like the FCA of the UK or the ASIC of Australia.
There are a few top-tier regulated brokers that have local offices in Singapore and offer local deposit methods to clients in Singapore like CMC Markets, Plus500, etc.
You should make sure that the forex broker websites that you visit are genuine. New traders often end up visiting fake look-alike websites and get scammed. There are several scammers operating online that pose as regulated brokers. This makes it risky for retail traders.
Hence, it is important to only register your account on genuine websites. You should also check the licenses held by the broker and cross-check them with the financial regulator’s website.
Online forex trading is a highly risky activity. Here are some of the types of risks that you will face:
|Forex Broker||Typical EUR/USD Spread||Minimum Deposit||Trading Platforms|
Forex trading can be very risky for the beginners. Clients must understand the associated risk factors, learn about forex trading, learn analysis techniques and trading strategies, and use safe leverage. It is always advised to the beginners to trade on a demo account with virtual currencies to gain experience and check suitability of the market.
Yes, any profits earned and withdrawn to bank accounts are liable to capital gain tax in Singapore. The profits on forex trading must be reported and a portion of it has to be paid to the Singapore government as tax.
Yes, forex trading can be started with deposits of as low as $5. The minimum deposit amount differ from broker to broker. It also depends on the method used to deposit at the broker. Clients must check the minimum deposit amount before opening their account.