This article looks at the different methods of trading on the forex Singapore market.
There are various considerations to make when becoming a foreign exchange trader beyond a trading strategy and forex broker. In order to trade you must also decide on the currency pair you will be trading and which market you will be trading on. There are various markets available to foreign exchange traders and you must be aware of each.
1. The forex Singapore market
The majority of foreign currency trading takes place on the spot market. It is known as the spot market because trades are executed in real time and ‘on the spot.’ In this market, large corporations and banks will generally trade among themselves for either immediate transactions or for commodity settlements at a later date (forward market). However, the introduction of individual traders into the forex Singapore market developed a new retail market where individual investors and smaller institutions could trade smaller quantities over the counter – something that was unavailable previously.
The currencies traded on the forex Singapore market are divided into two categories, the major and the obscure. The major currencies, such as the US dollar and GB pound, are traded more frequently during high levels of market liquidity with narrow spreads. The forex brokers will also offer greater levels of leverage on these currencies. It is important to note that leverage should be used with caution as it amplifies the level of risk in a trade. While it can be highly beneficial if the trade is good, it can also cause exceedingly detrimental losses if the trade turns bad.
2. The derivatives market
The derivatives category includes the futures, options and exotic, customisable contracts. However, the futures and options markets are the markets targeted to foreign exchange traders.
The futures and options contracts are generally used when trading with the major currency pairs. This contract will track the currency pair’s movements (futures contract) and the place options on these futures contracts. These contracts generally boast good liquidity, transparent pricing and moderate capital requirements.
When utilising futures or options contracts, it is vital to consider the different risks involved. As will the spot market, there is the chance of loss when trading on this type of market. It should be noted that the futures contract carries the chance of unlimited losses; therefore a trader must conduct risk management before entering into any agreements.
3. The exchange traded funds (EFTs)
The latest addition to currency trading markets is the exchange traded fund (EFT). These types of funds have been incredibly popular in the equities market for some time; however, it is only recently that they have begun tracking currency movements.
A currency trading EFT can be purchased and sold similar to the stock market. Those who feel the currency is about to rise should purchase an EFT; however, if one feels the currency is about to fall then the EFT should be sold.
A benefit of this type of fund is that they are more familiar to individual traders than the futures or options contracts. Another benefit is that the EFT has stricter margin requirements making it attractive to the risk-averse trader.