Forex Trading in Singapore

What is Forex Trading?

Forex, also known as foreign exchange, is the conversion of one currency into another. To put it simply, Forex Trading can be understood as a network of buyers and sellers, who transfer a specified currency, e.g., USD between each other at an agreed price. If you have ever traveled overseas, it is then likely that you have made a forex transaction when you exchange your local currency to that of your destination country.

While a lot of forex transactions are performed for practical purposes like the abovementioned example, the vast majority of currency conversions are done with the aim of earning a profit. The volume of currencies exchanged daily can be huge enough to bring volatility to exchange rates. This volatility makes forex market attractive to potential investors. As a matter of fact, forex market is one of the most actively traded markets in the world, with an average daily trading volume of S$5 trillion.

When it comes to forex trading, the currency movement is measured in pips, which is defined as the smallest change in currency price and depends on the currency pair. These movements are usually in fractions of a cent. For instance, when a currency pair moves 100 pips from 1.8000 to 1.8100, it is in fact only a 1-cent movement of the exchange rate.

This is the exact reason why forex transactions should be performed in sizable amounts, whereby these small price movements can be translated into larger profits. If a trader does not have a huge capital to trade on the forex market, the appropriate use of leverage may expand the trader's capacity trade.

Use of Leverage in Forex Trading

Specific to forex trading, leverage refers to the use of borrowed funds to invest into a specific currency. The use of leverage is a very common strategy in forex trading. By borrowing money from a bank/brokerage, investors can trade at a larger position in a currency. The reason for doing that is so that it magnifies the returns from favourable movements in a currency's exchange rate.

In the forex market, leverage is usually as high as 100:1. While in moomoo SG, we allow 20 times leverage adhering to MAS regulations. This suggests that for every $1,000 in your account, you can trade up to $20,000 in value. Should the market move in your favour, this will mean that you might be able to make a larger profit.

However, leverage strategy is a double-edged sword. While it increases an investor's potential returns, the reverse is also true when the market does not move in favour of the investor's position. Hence, it is imperative that forex traders learn how to manage their risks and employ appropriate risk management strategies to mitigate their potential losses.

Factors Affecting Strength of Currencies

There are various forces behind exchange rate movements and it is important for us to have a basic understanding of these factors when it comes to forex trading. Here are four primary factors that can cause fluctuations in a currency's exchange rate:

1. Inflation Rate: A change in the rate of inflation will cause the currency exchange rate to change. Generally, a country with a relatively lower rate of inflation often has their value of currency appreciating.

2. Interest Rate: Interest rates, inflation and exchange rates are all correlated. A country's central bank can often influence both the inflation and exchange rates by manipulating the interest rates. A higher interest rate relative to other countries generally means a higher return to the lenders. This attracts more foreign capital, which leads to a stronger currency.

3. Political Stability and Performance: A country's political state and economic performance directly affects the strength of a currency. A country with lower likelihood of civil unrest injects more confidence in foreign investors on the country's long-term development. An increase in foreign capital leads to the appreciation in the value of the country's currency.

4. Terms of Trade: This relates to a ratio which compares export prices to import prices. Suppose a country is able to increase the price of its exports by a higher rate than its imports, the country is said to have increased its terms of trade. Increasing terms of trade suggests a greater demand for a country's exports. As a result, the strength of the currency will appreciate as the exports revenue has increased.

Commonly Traded Currency Pairs

Currencies are always traded in pairs because when you buy or sell a currency, you automatically sell or buy another. For example, Euro against the U.S. dollar is read as EUR/USD. In this case, EUR is the base currency and USD is the quote currency. A quotation of EUR/USD = 1.2500 means that 1 Euro is exchanged for 1.2500 U.S. dollar.

There are over 190 countries in the world and this would mean that there exists a high permutation when it comes to trading a currency pair. With hundreds of currency pairs, forex market undoubtedly becomes the largest market.

Based on the triennial survey produced by the Bank of International Settlements (BIS) which was taken in April 2019, here are the top 10 most traded currency pairs:

1. EUR/USD

2. USD/JPY

3. GBP/USD

4. AUD/USD

5. USD/CAD

6. USD/CNY

7. USD/CHF

8. USD/HKD

9. EUR/GBP

10. USD/KRW

While this may seem outdated in today's context, it is believed that the figures are still the most authoritative available for a global view on the forex market.

Forex Trading Information via moomoo

You will be able to gain information about forex trading via moomoo by simply clicking on the 'Markets' tab, and choosing the 'Forex' section. You will then be presented with a list of various currency pairs that you will be able to trade on. These currency pairs will be categorised by region, and you will be able to get a general overview of each pair's current exchange rate as well as its price movements. To get more details on specific currency pairs, you can click on them to view charts of its historical price movements, which can allow you to better understand how the exchange rate for a specific currency pair fluctuates. Sign up and download the moomoo app today to get the comprehensive information about the forex trading.

Images provided are not current and any securities are shown for illustrative purposes only.

Now moomoo SG offers you up to US$200* monthly rebates when you trade forex on moomoo. You can also enjoy 0 commission and tight spreads from just 0.6 pips.

*T&Cs apply.