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Coping with rising inflation through forex trading

Analysis of economy data on forex earn graph
Analysis of economy data on forex earn graph

In his recent 2022 National Day message¹, among many other pressing matters, Singapore Prime Minister Mr. Lee Hsien Loong addressed the importance of securing our future amid the economic challenges that lie ahead, even as the nation continues to make great strides forward beyond the pandemic. Although a multitude of measures are already being implemented by the government alongside the private sector to help Singaporeans cope with rising prices, the impact of ongoing instabilities on the international front are set to keep inflation and interest rates at high levels.

Due to this cloudy outlook for our future, building a well-diversified investment portfolio has become more crucial than ever – and this could start with looking into the foreign exchange (forex) market. In fact, according to Yeap Jun Rong, Market Strategist at IG, the US dollar, Japanese yen and Swiss franc are generally deemed to be safe-haven currencies.

Although it may seem like a counter-intuitive solution, seeing that global geopolitical events are hard to predict despite growing digitalisation and connectivity, forex trading can help you make the most of volatility as a dynamic income stream, if done smartly and sensibly. Even as stricter COVID-19 approaches in major economies like China continue to influence associated industries, analysts are counting on the advent of Internet-based trading platforms for the tech-savvy generation to boost the forex market, which reached a value of $2.490 quadrillion² in 2021.

While it is not without its risks and may not be for everyone, there are several reasons as to why many novice and experienced investors alike are supplementing their savings, CPF and retirement schemes as well as traditional stocks with foreign currencies. With daily trading volumes of up to US$6.6 trillion³, the forex market is the largest market in the world with trades that move at breakneck speed, allowing investors to close their positions quickly to earn profits. It also has a lower barrier to entry as compared to other markets, so trades can be entered or exited with ease – 24 hours, 5 days a week – at low transaction costs, as investors typically only pay for the spread.

To benefit from forex trading, it is in your interest to get to know the market on top of being aware of the latest developments happening around the globe. As with any other investment, understanding your risk appetite and limits – as well as sticking to them – will guide you in making the right decisions based on your financial circumstances and goals to generate the best returns. What’s more, Jun Rong adds, “You may even look towards incorporating currencies of commodity-exporting countries as a potential hedge to make your portfolio more resilient to inflation risks.”

As forex trading is done in pairs, where the price of one currency hinges on the performance of the other, Singapore’s high inflation rate may seem like a disadvantage. However, through spread betting, you can harness the advantage of rising or falling markets by taking a speculative bet on whether prices will rise or fall without having to own the underlying assets themselves, which means there is no tax to pay. All you will need is a small deposit or margin to open a larger position and access to market opportunities with the right broker that gives you all you need at your fingertips.

There is also the option of forex contracts for differences (CFDs), which are contracts for trading currency pairs via leverage. Similar to spread betting, forex CFDs allow investors to use their margin to forecast and act on price movements in either direction, so they can increase their exposure without putting too much of their funds to go short when they expect the market to fall and vice versa, giving them the leverage that can amplify potential gains when conditions are right.

Kickstart your forex trading journey with IG, the world’s No. 1 CFD provider that offers traders an intuitive platform to grow their funds across 17,000 markets with:

Risk management tools: IG provides you with tools such as guaranteed stops and Knock-Outs so you can manage your maximum risk for each CFD trade.

• Unparalleled market access: IG’s broad network gives you the opportunity to tap into 24-hour indices, forex, shares, commodities and more across the globe.

• Education and skill-building: IG supports you with a wide range of courses and educational materials to develop your trading knowledge and skills via the IG Academy.

New account holders who deposit a minimum of SGD5,000 and place a first trade by 31 October 2022 will receive SGD288, so sign up for an account with IG today.

Sources:

  1. https://www.straitstimes.com/singapore/politics/prime-minister-lee-hsien-loongs-national-day-message-2022-read-his-speech-in-full

  2. https://finance.yahoo.com/news/fair-forex-forex-library-making-184500405.html

  3. https://www.investopedia.com/articles/forex/11/who-trades-forex-and-why.asp

Disclaimer

This advertisement is issued by IG Asia Pte Ltd (Co.Reg.No. 200510021K) for general circulation and informational purposes only. IG Asia Pte Ltd (“IG”) is regulated by the Monetary Authority of Singapore and holds a capital markets services licence for dealing in capital markets products that are over-the-counter derivatives contracts and is an exempt financial adviser.

All forms of investments carry risks and trading CFDs may not be suitable for everyone. CFDs are leveraged instruments and can result in losses that exceed deposits, so please ensure that you fully understand, and are aware of, the risks and costs involved. Refer to the Risk Disclosure Statement and Risk Fact Sheet available at IG.com/sg.

IG provides an execution-only service. The information in this advertisement does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. You should consider your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

This content was produced in partnership with IG Asia Pte Ltd