Forex
(foreign exchange) is trading of one currency for another for tons of reasons
but are usually for trading, tourism, and commerce. All the foreign exchange
transactions take place on the foreign exchange market known as the Forex
market. Same as stock, the end goal of Forex trading is to get net profit. For this, you need a high-speed internet
connection (to access online trading platforms), computer, and trading
knowledge.
Forex trades
happen over the counter that means all the trades are performed between
institutions and investors directly. Forex trading in Singapore is famous among Singapore residents because it helps
them to mint huge profits. Moreover, the Forex market is the largest market in
the entire world, and due to high trading volume; there are plenty of risks
too.
How does Forex Trading UK Work?
To change
money, you need to go to a bank or money changer. But this is not the case in
Forex trading. People usually trade Forex in currency pairs like EUR/USD or
SGD/USD. Invest often notice fluctuations in exchange rates between different
currency pairs and jump inside when they think that there are high chances of
selling at a high price and buying at a low rate. Every time you do Forex trading in Singapore, you need
to pay the spread (it is the difference between ask and bid rates).
But in
comparison to the stock trading, there is no other commission. In fact, Forex
trading in Singapore is a lot faster, and investors usually hold on their
currencies for a short time and monitor the market very closely. In fact, Forex
market stays open 24*7 and you also do not have to concern about different time
zones. It means that anyone can freely trade their currencies at any time of
the day without any worry.
Risks:
a) Leverage Risks: Leverage needs a tiny initial
investment known as margin to get access to huge trades in foreign currencies.
Small price fluctuations usually result in margin calls where investors need to
pay an extra margin. Investors typically use leverage to boost return on
investment. But sometimes during tense market conditions, rigorous use of
leverage will lead to huge losses. This is especially the case with novices.
b) Interest Rate Risks: When any country interest rates
hike, it will also pose a big effect on exchange rates.
c) Transaction Risks: Transaction risk during Forex trading in Singapore is associated with time differences between starting of
contract and when it settles. As you know, trading occurs 24*7, and this can
lead to a change in exchange rates before trades have settled. Due to this,
currencies may be traded at different prices at different times. Just note that
greater is the time difference between starting and settling of contract,
higher is the transactional risk. Thus, it’s a good idea to hire a licensed and
loyal Forex broker in UK so that you
feel more confident while trading.
d) Country Risk: Country risk occurs due to a big
deficiency in payment balance, political uncertainty, and devaluation of the
currency of a country. This cause currency to crash fast and even traders
holding opposite positions may not be able to exit in time, and this often
leads to credit risk.
e) Liquidity Risk: When a market is liquid, it’s quite
easy to open and close trading positions at the rate you want. But it also
means any changes in demand and supply relationship of an asset will have a
tiny impact on its rate. During Forex trading in Singapore, there are also
chances of low liquidity mainly outside of European and American trading
sessions or during weekends.
f) Counterparty Risk: Counterparty is the person with
which you open and close trading positions i.e., your broker. Counterparty risk
occurs when a broker in a particular transaction could end up defaulting. For example, during volatile market
conditions in United Kingdom, the counterparty i.e, Forex broker in UK may deny or not in a position to cater to rules
of contracts.
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