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A Comparison Of The Spreads Offered By Forex Brokers in Singapore

 

Global trade volumes in 2017 stood at a staggering US$17 trillion. In addition to this, world commercial services exports accounted for another US$5.25 trillion. All these transactions involve the exchange of one currency for another. Consequently, banks and corporations enter into a large volume of foreign exchange trades.

This has led to the development of a huge forex market. According to a recent report, foreign exchange trades of a volume of US$3 trillion take place every day.

Why is there so much activity on the FX market? The amount that is traded far exceeds global trade transactions. Volumes are high primarily because of speculative activity. While banks buy and sell forex to meet the needs of their customers, they also enter into trades with a profit motive.

This presents an opportunity for the retail investor.

You can open an account with a forex broker in Singapore to trade on the FX market. The initial investment that you have to make is minimal. You can start with just a few hundred dollars. Another advantage with forex trading is that you can leverage your trades. This facility allows you to put up a small initial margin, say 2% of the position amount, to enter into a trade. Your profits could be 50X the sum that you would have made if you had to invest the entire amount. Of course, your losses can also be magnified by a similar proportion.

In actual practice, an individual trader usually enters into multiple trades based on a well-thought-out forex trading strategy. You will probably lose on some trades and come out ahead in others. The idea is to make a profit on a cumulative basis.

One crucial factor that will influence your returns is the spread that the broker will charge. Let’s understand what this is.

 

How forex bid-ask spreads work

Every time that you enter into a forex trade, you will have to bear a spread. This is the difference between the bid and ask prices.

⇨ Bid: the price at which the forex buyer will buy from you.

⇨ Ask: the price at which you can buy.

Remember that these prices are from the standpoint of the broker. The bid price is the amount the broker is willing to pay and, the ask price is the sum that you will need to pay.

Consider a situation where the EUR/USD pair is trading at 1.1616. This means that one Euro is equal to 1.1616 USD. The forex quote that the broker provides may look like this:

EUR/USD = 1.1616/21.

The bid price is 1.1616, and the ask is 1.1621.

Why are the two prices different? The spread represents the broker’s profit. A higher spread implies a greater cost for you. The amount may not seem like much, but the difference can add up to a significant sum for large currency volumes and over multiple trades.

So, it makes sense to open an account with a broker who offers low spreads. Here is a brief description of the spreads provided by some of Singapore’s top forex brokers.

 

Phillip Futures

Phillip Futures has a history of operating as a forex broker that stretches back to 1983. It is one of the oldest and most well-respected names in Singapore.

The firm offers over 40 FX pairs. The spreads on the major currency pairs (with a minimum account deposit of $500) are:

⇨ EUR/USD: 0.6 pips

⇨ USD/JPY: 0.7 pips

⇨ AUD/USD: 0.7 pips

⇨ GBP/USD: 0.8 pips

⇨ USD/SGD: 0.8 pips

A pip is a percentage in point, and it refers to the fourth decimal place of a currency unit. That’s 1/10,000 of the currency unit.

 

CMC Markets

CMC Markets started operations in 1989. It is highly regarded in Singapore and offers competitive spreads:

⇨ EUR/USD: 0.7 pips

⇨ USD/JPY: 0.7 pips

⇨ AUD/USD: 0.7 pips

⇨ GBP/USD: 0.9 pips

⇨ USD/SGD: 6.0 pips

(Minimum spreads)

The firm is registered with the Monetary Authority of Singapore (MAS). In fact, all the brokers listed here hold a valid license that has been issued by Singapore’s regulator.

Before you open a forex trading account, you should ensure that the firm is authorised by MAS. How can you do that? All you have to do is to search in the Financial Institutions Directory.

 

IG

IG was established over four decades ago. It has offices in 15 countries and serves almost 200,000 customers. Here are the minimum spreads that it offers Singapore’s forex traders:

⇨ EUR/USD: 0.6 pips

⇨ USD/JPY: 0.7 pips

⇨ AUD/USD: 0.6 pips

⇨ GBP/USD: 0.9 pips

⇨ USD/SGD: 3.0 pips

IG offers active forex traders a “forex volume rebate.” This is provided in a tiered manner. A higher number of contracts leads to a more substantial rebate. For instance, if you trade 2,000 standard lots in a month, you can earn a rebate of US$1,500.

 

Oanda

Oanda has offices in eight countries and has had a well-established presence in the Singapore market for many years. In 2017, it received the “Best Forex Trading Technology Award” in the UK.

The spreads that it offers its clients are updated on a real-time basis. On 1 October 2018, the spread on the EUR/USD pair was in the range of 1.2 to 1.4. USD/JPY was in a similar range. The USD/SGD pair’s spread was at 1.8 – 2.0. It’s important to remember that these are not minimum spreads, but are the actual live spreads on a particular date.

 

The bottom line

When you are choosing a forex broker, reviewing the spreads that are on offer is crucial. Low spreads mean higher profits for you.

However, as you may have noted, there isn’t much to choose between as far as Singapore’s top brokers are concerned. Their spreads for most currency pairs are in a similar range.

The main noteworthy exception lies in the USD/SGD spreads, of whom Phillip Futures offers a far narrower spread compared to all the other brokers. That is something all forex traders should pay close attention to for their next USD/SGD trades.