Is forex for you?
WITH cooling measures tightening their grip on the local property market, what options are there for investors who wish to seek alternative investments?
Trading in the foreign-exchange market - or forex - could be the answer.
After all, this is the biggest market in the world. Based on April figures this year, a staggering US$5.3 trillion (S$6.7 trillion) is traded on average each day.
Unlike real estate, where gains are locked in for weeks and months, forex trading has time on its side.
Online forex transactions can be made 24 hours a day, and it is very likely there is always someone who is willing to buy from or sell to you.
Unlike property transactions, you do not have to meet buyers or sellers. You can trade in currencies in your bedroom before you sleep, and the transaction will be completed even before your head hits the pillow.
Above all, you do not need much to get started. There are no stamp duties, no hefty cash downpayments and complicated loan rules to deal with.
Getting started in forex requires a cash outlay of as little as $3,000.
But the market is as volatile as it is lucrative, said Ms Yap Hui Sze, an experienced dealer from Phillip Futures. The key is to make informed decisions, by gathering as much data as possible about the currencies you want to trade in.
FOREX IN A NUTSHELL
Forex refers to the foreign-exchange market where international currencies are bought and sold.
Forex prices are quoted in currency pairs.
The US dollar, the world's reserve currency, is commonly traded against other currencies.
Other commonly traded currencies include the euro, the British pound, the Japanese yen and, increasingly, the Chinese yuan.
HOW THE FOREX MARKET WORKS
The market is active from 6am on Mondays to 5am on Saturdays (Singapore time). It is closed on weekends.
The amount used to trade is just a small portion of the total contract value, as the market works on the principle of margin trading.
Ms Yap explained: "The contract size of a standard USDSGD lot is 100,000. If the initial margin required is US$4,000 - the leverage is 25 times."
But investors looking for an even smaller outlay can go for a mini contract, in which the contract size is 10 times smaller than the standard contract, she said.
Investors can choose to sell or buy currencies anytime, usually basing their decisions on changes in the political and economic climate in the countries concerned.
When the market is doing well, the demand for commodities currencies like the New Zealand dollar, Australian dollar and Canadian dollar increases, Ms Yap added.
However, in a downturn, investors move their assets to "safe haven" currencies like the US dollar, Japanese yen and Swiss franc.
THE GOOD AND THE BAD
The market reacts almost instantaneously to good and bad news, so keep an eye on breaking news that could affect the currencies in your basket.
With the market's frantic pace, one bad trade could be all it takes to wipe out an account. But it also means there are quick potential gains which few investment tools can rival.
"The market allows investors to either buy ("long'') or sell ("short'') currency pairs with ease, offering trading opportunities in rising and falling markets," said Ms Yap.
HOW TO GET STARTED
Trading is done through brokerages, and investors may need to shop around for an ideal one.
While there are brokerages and even automated forex programs online, it is hard to ascertain how reliable they are.
With just $3,000 in an account with Phillip Futures, which has over 30 years of experience in derivatives and currency brokering, even rookies can get started in forex.
Said Ms Yap: "With our multi-bank price feeds for forex, we offer a competitive tight spread, which is a smaller difference between the bid and offer prices."