Forex is one of the most important markets in the world due to its characteristics and the volume of money that moves every day in it. However, there are still many investors who do not know in depth what this market consists of. Therefore, this time we want to offer you detailed information about it.
Forex Trading in Singapore, also known by the abbreviation FX, is a currency market. This means that those who operate in it focus on converting some currencies or currencies into others. Although it is true that in some cases currency exchange is done as a practical maneuver, in the vast majority it is a method to obtain profits.
An interesting fact is that Forex trading is the largest financial market in the world, since every day it moves around 5 trillion dollars. The large movement of money is one of the reasons for its volatility, which in turn is one of the main incentives for investors.
Thanks to this volatility, investors can provide greater opportunities to maximize profit. However, this also implies an increased risk.
The transaction in Forex and the foreign exchange (currency exchange)
The first thing you should be clear about the foreign exchange market is that all transactions are guided based on the foreign exchange (currency exchange). To the extent that the exchange rate is more or less beneficial, gains or losses will be obtained when carrying out operations.
The exchange rate is the value that a currency has in another currency. It is usually represented in pairs; for example, the euro to US dollar exchange rate is represented as “EUR / USD”. These exchange rates typically fluctuate from day to day, although there are some currencies in which they are tied to a fixed rate.
According to the above, based on these fluctuations it is possible to earn money buying currencies.
For example, if you buy a euro in dollars, you would have more dollars than euros, but if the euro fell in price and you bought euros in dollars, in the end you would have made a profit in your country’s currency.
In short, this is what Singapore Forex Trading transactions are based on, although it is necessary to know the market well in order to obtain significant profits.
This is one of the reasons why every day more investors seek to operate with solvency in Forex trading a course that allows them to understand the ins and outs of this market and maximize their profits.
Trading Forex is not an easy and quick activity to learn, especially for those who want to know what Forex is and how it works to generate profits in the shortest possible time, which is a very unrealistic hope. What happens is that it is never this way, in most cases it is a long process, in which you will not become a millionaire overnight.
First of all, if you want to enter the world of Forex there are a series of concepts that you need to be clear about, that is why we must first define these terms:
On the one hand, we have “Trading”, this term refers to the purchase and sale of assets which have a lot of market liquidity (currencies, shares, raw materials and futures) through a completely electronic and regulated market.
On the other hand, there is the “Forex”, which in a simple way we can say that it focuses on the exchange of a certain currency for another at a set price. This is a completely decentralized market in which currencies are traded back and forth as in an OTC market, so all operations are extremely fast, cheap and without the need for supervision.
From the meeting of the aforementioned terms, Forex Trading arises, which is nothing more than the process of buying and selling a specific currency in order to generate a profit. It must be borne in mind that, in this action, the price of a currency at all times will be related to the price of another currency in a certain operation, and we must not forget that at all times you will be working with two currencies at the same time.
In these cases it is the first currency that is going to be reflected in the price of a pair, followed by the quote currency. The difference that arises between the prices of these currencies will result in the profit or loss obtained.
The most outstanding point in this activity is that it is available to all types of people anywhere in the world. The essential thing is to have a computer, access to the internet and have the desire to learn, because it must be borne in mind that this is a type of daily and international trading, so consistency is essential.
The individuals, corporations, and institutions trade Forex in Singapore through three markets – spot market, forward market and futures market. Forex in the spot market is always the largest since it is the real “underlying” asset on which futures and forwards market is based upon. In the past, the most preferred and famous place for traders was the futures market because its availability to individual investors was maximum. However, the arrival of electronic trading and emergence of numerous brokers has brought a huge increase in activity of the spot market and it has now surpassed futures market as the most preferred trading platform for individuals. Today, when people talk about the Forex market, they mean the spot market. Futures and Forwards markets are more preferred by companies that hedge their risks of foreign exchange in future.
In the Spot market, the currencies are purchased and sold on the basis of their current price. This price is determined by the demand and supply. This price is also impacted by many things, like economic performance, interest rates, sentiments towards current political situations (both local and international), and the perception of the upcoming performance of a currency over another. When finalized, a deal called a “spot deal” takes place. The transaction is bilateral where one party gives an agreed-upon amount in a currency to another party and receives a specific amount in other currency. This transaction occurs at an exchange rate value which was previously agreed-upon. After the closing of position, the settlement happens in cash. The spot market is usually known as the market which deals with the transactions occurring in the present (instead of future), the trades actually settle in two days.
Futures and forwards market
Unlike spot markets, the futures and forwards market don’t trade in real currencies. The dealing is in contracts which represent claims of a certain type of currency, a particular price, and a future settlement date.
In forwards market, the buying and selling of contracts happen OTC in between two individuals or parties who themselves finalise the agreement terms.
In the futures market, the buying and selling of contracts happen depending on the settlement date and standard size on the public commodity markets, like CME (Chicago Mercantile Exchange). In the US, the Futures market is regulated by the National Futures Association. The specific details of Futures contract, like number of units traded, delivery date, settlement date, and minimum price increment can’t be customized. The exchange behaves like a counterpart to the trader and provides clearance as well as settlement.
Both kinds of contracts are irrevocable and are usually matured for cash at the time of expiry. A notable thing is that the contracts can be sold and brought before the expiry as well. The futures and forwards markets offer protection against the risk while trading currencies. These contracts are often used by big corporations that want to hedge against the future fluctuations of the exchange rate.
When trading in currencies, you will find that they are traded in pairs. The prime currency in paris is always the directional one on the price chart. For example, on a chart of EUR/USD, if the price movement is upwards then it signifies EUR is going higher in comparison to USD.
Currency trading happens in different sized lots. A micro lot involves 1,000 units of base currency. For instance, if your account has US dollars, then your micro lot will be $1,000. There are 10,000 units of the base currency in one mini lot whereas one standard lot has 100,000 units.
The forces behind the movement of currency markets are similar to the forces which move stock markets. The largest one is demand and supply. When the world requires more dollars, its value increases and when the dollar is too much in circulation, its price drops. Other factors which affect the currency prices are economic data of big countries, geopolitical tensions and interest rates.
If you are looking forward to being a trader in Singapore, you should understand that learning trading in the Forex market is not that difficult but much practice is required to get that real success with currencies.
Pair and Pip
All trading in currencies takes place in pairs, you should buy a currency and sell another one in the forex market. The price of almost all currencies is up to the fourth decimal place. A “percentage in point” or pip is the smallest trade increment. One pip is usually equal to 1/100 of 1%.*
Micro lots are what retail traders usually prefer for trading Forex because a single pip in a micro lot means only 10 cents movement in price. This way, any losses can be easily managed. This pip is equal to $1 in the mini lot and $10 in the standard lot. There are some currencies which move up to 100 pips in one trading session. The potential losses of small investors are more manageable when trading is done in micro and mini lots.
The major volume of currency trading takes place majorly in 18 pairs of currency. There are also more pairs other than these 18 pairs, but a majority of trading happens in them. A less number of trading options means that portfolio management and trading will be carried out easily.
With forex tradinfg, beginners can begin with simple investment strategies and then as you get more experienced and learn more strategies, you can take on more risks for more potential rewards. Hence, forex investments are great for a new investor.
The most common trading pairs are the popular currencies such as USD/EUR, though you can also trade dozens of other currencies on most forex markets. The simplest form of trading is buying low and selling high. You will also need to account for brokerage fees. There are also other options such as short sale and futures contracts which can be used to make a profit even if the exchange rate is falling.
Your success will depend on your trading technique. Be advised that it is not uncommon to lose some money, especially at the beginning, since after all, you are taking a risk. It is not necessary to come up with a sophisticated trading technique outright. You can use simple ones such as going with the trend. If you see the exchange rate of a certain pair rising for a while, you can expect it to continue for at least a while. Long-term investments can also reduce the need to apply complex strategies.
One of the important skills that you will need in order to make successful investments and trades is reading the charts. Charts are commonly used for currency and asset trading to represent the price history of a particular instrument over a period of time. While the price of the underlying instrument such as currency exchange rate depends on a vast number of economic and political factors, it is completely possible to trade based on the information gained from the charts and price history alone. This way, you can make trades without needing exhaustive economic study.
Analysis of charts is known as technical analysis. The aim of technical analysis is to determine the general trend of the market and make investment or trade decisions based on them. A basic requirement for this is to understand what information is presented in a typical forex chart or any other trading price history chart. Let us take a brief look at some of the common types of charts used for trading.
The line chart is one of the simplest charts and is often useful for novices. In this chart, time is plotted on the Y-axis and the price is plotted on the X-axis. A line chart can be generated by simply plotting the closing price of the trade for a specific time. The closing price is the exchange rate at which the last transaction of that interval occurred. For example, consider an hour by hour day trading chart. For 1300 on the Y-axis, the price at which the last trade was conducted, say at 1259, is plotted. Then all these points can be connected to get a line chart. This is a simple chart and does not tell much details.
This is a much more useful chart and can convey a lot more information to those who can read it. This chart consists of candlestick shaped objects, which are bars with wick-like line extrusions on top and bottom. Continuous time on the Y-axis is divided into finite intervals. Each candlestick represents all the trade occurring within a particular interval. These candlesticks are usually spaced out for ease of reading.
These candlesticks are either green or red in colour. If the candlestick is green, the bottom of the bar represents the opening price and the top of the bar represents the closing price of the interval. The green colour represents that there was a net increase in price in that interval. The inverse is true for the red bar. The top is the opening price, the bottom is the closing price and the red represents a net fall in price. For monochrome charts, green may be replaced by a white shading and red may be replaced by dark or black shading.
The line extrusions, also called wick or tail, represent volatility of price fluctuation. The wick on the top represents the highest price reached during the interval. The bottom wick or tail represents the lowest value reached during the interval. If there is no wick or tail, then that end of the bar was also the extreme. For example, if there is no top wick, then the opening price was the highest price during that interval.
A demo account can be a very good idea for new traders to learn how trading forex actually works without losing any real money. IQ Option Singapore has a great demo account, with $10,000 in start capital. With this you can trade all you want, completely risk free. This way you can be prepared for real money forex trading.
A demo forex account will allow you to fully explore the interface. You can take guided tours and understand the platform or the software in order to build your understanding. You can also look up explanations about some basic terms or basic courses on some fundamental trading tactics online. You can learn things like reading the charts and then take a look at the actual charts in the platform generated from the real world and real-time data. This allows you to quickly translate the knowledge you gain by reading into an experience.
If you lose the practice cash, there are no consequences as most platforms will simply issue some more for free. You can try out any tactics you have learnt and then examine the profitability. You can keep trading with practice money as long as you like. You may even choose to perfect your trading tactic with practice cash. This will help you not just familiarize with the platform, but also make you comfortable with trading. Then you can simply make a deposit and substitute the practice money with real money and continue to get more or less similar results as you were getting while trading with the practice money.
In conclusion, Singapore Forex trading is an excellent activity that anyone can perform, so if you are just entering the forex world, it is best to open a demo account at a recognized and reliable broker, so that you can start collecting knowledge without worrying about making or losing money, simply your only concern will be to learn and practice as much as possible.