Technology

A review on Forex options trading in Singapore

The FX market has always been one of the most challenging arenas for Financial traders. Its significant volatility makes it even more appealing to many traders willing to take on this challenge.

Aside from being a lucrative trading platform, conventional currency pairs have their fair share of problems that leave room for improvement regarding better performing financial instruments. For example, high levels of volatility can be experienced in many forms, such as sudden flashes, crashes and market gaps which threaten the stability of traders’ accounts.

Recently, however, new kinds of volatile products have emerged in the form of options contracts developed by FX brokers catering specifically for those looking for more risk management control over their trading accounts. These products are known as “option types”, and there are currently two main types that could be opted for by traders in the Singapore market: the Put and Call.

Keep maintaining a Put option.

Maintaining a Put options provides a trader with the right to sell a particular currency pair at a predetermined rate within a certain period. In contrast, Call options provide a trader with the right to buy a specific currency pair at a predefined price during a given time frame.

Despite these being tools designed to reduce traders’ risks from upwards spiralling volatility, they have not been widely adopted in Singapore yet due to unfavourable conditions that might deem them too risky or lacking flexibility for even experienced traders.

Let’s discuss some of these ideas further while also providing a simple explanation of how options contracts work so that you will understand them better and hopefully be encouraged to try them out yourself.

Buying Call and Put options

Traders seeking to buy Call and Put options must remember that while these instruments provide more control over market volatility, their risks are often higher than conventional trading products such as futures due to the short terms in which they operate (generally within 5-30 minutes). It means that your success or failure in such cases depends mainly on your experience and ability to identify trends quickly before they fade away.

Although this instrument might not be suited for beginner traders, the Forex options market has recently gained significant momentum in Singapore. Several prosperous traders are using it effectively for risk management purposes.

Most recognised and respected retail forex brokers   

Some of the most recognised and respected retail forex brokers include IG, Oanda, Saxo Capital Markets, ThinkMarkets and Xtrade. When it comes to choosing a broker, everyone has something, from low-volume scalpers to high net worth individuals with hundreds of millions in capital. For example, IG (a London listed company) has over USD 1 trillion in average daily traded volume, while Xtrade processed USD 9 billion in trades in 2016.

As well as offering advanced trading platforms that can be utilised on desktop and mobile devices, there are several other factors at play when choosing a particular broker for an individual trader. These include regulation and licensing, country location, asset class (forex is different from CFDs, for example), security of funds, withdrawal fees, deposit fees, and minimum balance requirements. 

Each broker must be registered with one or more regulators to operate legally within their respective jurisdictions. Regulation can also impact the availability of certain trading accounts that an individual may prefer to use; for example, residents in China cannot trade FX margin instruments with Oanda.

One thing that most retail forex brokers will offer, regardless of where they are based, is some form of educational support. It comes in many forms, such as free live webinars, demo accounts, etc. Retail traders’ most popular learning method seems to be learning via articles on a broker’s website or a third-party trading education site.

To conclude

It is safe to say that while many brokers charge very high fees for these products, they are still worth checking out since only you can determine how much risk your capital can afford to take on in your trading strategy. With the growing status of the Far East as one of the world’s leading financial hubs, Singapore’s forex options market should be kept under observation or, even better, trade it yourself!

 

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