Choosing retail forex brokers in Singapore

Any retail investor considering forex trading will have wondered why there are so many online forex brokers. And of course they all advertise how competitive their own pricing is!

The very fact that there are so many online retail forex brokers suggests that most of them make money - otherwise they would not be there.

Since the vast majority of their customer traders lose money, it is simple to conclude that forex brokers make money at the expense of their customers.

Indeed, most estimates show that only around 10% of retail forex traders are consistently profitable.

Therefore, if you want to be in that group, it is absolutely crucial that you spend some time looking at the various offerings of retail forex brokers before you do anything else.

You can start by eliminating any non-Singapore based forex brokers – offshore offerings may appear enticing, but there is no recourse should there be a problem in the future. At the very least, you want to be dealing with a regulated domestic entity.

The next, and very important step, is to get on top of all the different types of charging structures. Without this basic knowledge, you have no chance at joining the 10% of profitable forex traders!

Just as there are numerous financial institutions, there are various retail forex broker types, ranging from market maker, to dealing desk, STP, and ECN brokers. You will need to understand how each type operates and charges. This particular article will discuss the most common fee structures and charges, but you will need to do additional research to fully understand the specifics of each type of online retail forex broker.

Spread

As with many financial products and commodities, there is usually a spread between the bid and ask price. Any spread will immediately reduce the profit potential, and obviously the bigger the spread, the harder it is for you to profit. The spread can be fixed or variable, and forex brokers calculate a variable spread in multiple ways.

Commissions

Most brokers that advertise a low spread or no spread will charge a commission per trade. This can be a flat fee, or a percentage, or a combination of both. As to which structure is best, it all depends on your trading frequency and volume. For high volume trading, flat fees tend to be more appealing.

Financing and Interest

Forex trading is almost always leveraged and with that comes the cost of leverage. A financing cost for holding overnight positions will normally be levied.

Platform Fees

The fee for using a trading platform can be charged in a multitude of ways. Some brokers charge an annual fee. Some brokers charge on a monthly basis. Some brokers offer a fee waiver, or a reduction assuming certain conditions are met, for example meeting a minimum trading volume or commission amount. Some brokers charge inactivity fees for accounts which do not meet the minimum number of trades, or which incur the minimum amount of commission.

Virtually all brokers will offer a trial or demo account where you can perform paper trading on their platform, so this is helpful in calculating the kind of platform fees you might be charged.

Top-Up and Withdrawal Cost

Most traders will keep SGD in their account, and this will commonly attract currency conversion costs. Ironically, forex brokers rarely give you the best forex rate. There may also be additional charges for an account top-up and/or withdrawal.

So now you know a little more about the various fees and charging structures of forex brokers. Even if you remain highly confident of your trading abilities, it is always worth remembering that successful forex trading is notoriously difficult, and the costs involved will make it that much trickier.

(By Hazel Yew)

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