There is a myriad of reasons why investors prefer Foreign Exchange (Forex) trading over stock trading. One of the main reasons is that the forex market is open 24 hours a day, and is the world’s largest market in terms of daily transactional volume. These 2 factors make forex trading extremely accessible and liquid!
Before you plunge right into Forex (FX) CFD trading, please read this article to understand the basic fundamentals of Forex trading and how you can start trading Forex (FX) CFD with us.
What is FX CFD?
FX or Forex, is commonly referred to as the foreign exchange market. In layman terms, forex trading is the exchange of one currency for another at a predetermined exchange rate.
Forex CFD (FX CFD) is a form of Contract For Differences (CFD) that allows you to participate in the price movements of the underlying forex pair. The main objective of FX CFD is to exchange one currency for another in the expectation that the currency pair will appreciate / depreciate depending on the position taken.
How to Read a Currency Pair?
FX CFD is always traded in currency pairs. Let us use a commonly traded currency pair, the USD/SGD CFD to illustrate an example of currency pairs.
USD, the first currency appearing in the currency pair is known as the base currency. The base currency is the currency against which exchange rates are generally quoted. SGD, the second currency appearing in the pair is known as the quote currency. If USD/SGD = 1.37000, it means that every 1 US Dollar is worth 1.37 SGD. Based on this quotation, Profit and Loss will be reflected in the quote currency.
Another key term to understand is Pip. Pip is a standardized unit used in forex to track price movement.
0.1 pip is the smallest amount by which the price may fluctuate. A currency pair such as USD/SGD has 5 decimal places for which a pip refers to a 0.0001 movement. For currency pair of USD/JPY that has 3 decimal places, a pip refers to a 0.01 movement. For example, 1 pip on a 100k contract is about 10 USD, while 1 pip on a 10k contract is about 1 USD.
To make forex trading more manageable, you can trade FX CFD from a minimum contract size of 10k with CFD on POEMS 2.0.
Lastly, spread in trading terminology refers to the difference in the bid and ask price of the currency pair. A tighter spread means a lower difference between the bid and ask prices. In the case for the image above, the spread for the USD/SGD CFD currency pair is 1.5 pips.
Going Long and Short in FX CFD
One of the key reasons for the popularity of CFD trading is that it allows you to go long and short with up to 20 times leverage. That essentially means that one is able to participate in both bullish and bearish markets while having to deposit only a small percentage of the contract value in order to open a CFD position.
GOING LONG IN CFD:
Long = Buying base currency and selling quote currency
In this example, we use the currency pair USD/SGD CFD. If you expect the USD (Base Currency) to rise against the SGD (Quote Currency), you will go Long on USD/SGD CFD by buying the pair at 1.38 and selling the pair in the future when the exchange rate increases.
Working Example:
George goes long on 1 FX CFD contract on USD/SGD @ 1.38000.
Margin Requirements for FX CFD: 5%.
Value of 1 FX CFD contract of USD/SGD: USD 10,000.
Margin Required: 1.38 X 5% X 10,000 = SGD 690.
USD/SGD rises.
He subsequently closes his FX CFD position on USD/SGD @ 1.53000.
He earns a profit of:
(1.53000 – 1.38000) x 10,000 = 0.15000 X 10,000 = SGD 1,500
However, if USD/SGD falls below 1.38000, he will make a loss.
GOING SHORT IN CFD:
Shorting = Selling base currency and buying quote currency
Conversely, using the same counter USD/SGD CFD, you go short by selling the USD (Base Currency) and buying the SGD (Quote Currency). If you expect the USD to fall against SGD, you will sell the pair at 1.38000, and subsequently buy the pair when the rate drops below 1.38000.
Working Example:
George goes short on 1 FX CFD contract on USD/SGD @ 1.38000.
Margin Requirements for FX CFD: 5%.
Value of 1 FX CFD contract of USD/SGD: USD 10,000.
Margin Required: 1.38 X 5% X 10,000 = SGD 690.
USD/SGD falls.
He subsequently closes his FX CFD position on USD/SGD @ 1.23000.
He earns a profit of:
(1.38000 – 1.23000) x 10,000 = 0.15000 X 10,000 = SGD 1,500
However, should USD/SGD rise above 1.38000, he will make a loss.
Top 5 Reasons to Trade FX CFD with Us!
Enjoy zero commission and no finance charge for all currency pairs available with FX CFD! Trade your favourite currency pairs without worrying about any commission.
Utilize various order types such as Limit Orders or Stop Limit Orders to minimize your risks and trade FX CFD with confidence.
We offer competitive spreads for popular forex currency pairs such as EUR/USD, USD/JPY, GBP/USD, and USD/SGD. To benefit investors like you, we have recently reduced the spreads for some of our other currency pairs more! Be sure to check out our other currency pairs on our FX CFD page for more details.
Did you know that forex is the most actively traded1 market in the world? This means that the Forex market has the highest liquidity with a huge volume of transactions occurring daily. According to the Monetary Authority of Singapore in 2019, the daily average forex turnover in Singapore reached a new high of US$633 Billion2 in April 2019!
You can now trade 24 hours a day, 5 days a week into the world’s largest financial market! Trade from Monday to Friday and find currencies suitable for your time zone to trade.
Enjoy a hassle-free trading experience with a single CFD trading account. There’s no need for you to maintain separate accounts to trade in different underlying asset classes.
Apart from FX CFD, you can also trade in other asset classes such as Equities CFD, Indices CFD and Commodities CFD. Expand your trading portfolio with our variety of CFD asset classes using only 1 trading account!
Open a CFD account for free today! If you are an existing POEMS account holder, you can simply opt-in for CFD Trading on POEMS 2.0 and POEMS Mobile 2.0. If you are new to PhillipCapital, create a new account now!
As per regulatory requirement, all investors are required to complete and pass the Customer Knowledge Assessment (CKA) and acknowledge the Risk Fact Sheet in order to trade CFDs.
How to trade FX CFD on POEMS 2.0 & POEMS Mobile 2.0?
Steps to trade FX CFD on POEMS 2.0:
- Login to POEMS 2.0
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2. Click Trade > CFD > Select FX in the drop-down list
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Steps to trade FX CFD on POEMS Mobile 2.0:
- Download POEMS Mobile 2.0 App on App store and/or Google Play
- Login to POEMS Mobile 2.0
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3. Click Menu on the Top left > Trade
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3. Type FX CFD on the search button and click on the currency pair that you want to trade on:
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How to Fund Your CFD Account?
There are a number of ways to fund your CFD account. The most convenient and popular method is via eNETS.
Steps to Fund your Account with eNETS on POEMS 2.0
To fund using eNETS, refer to the following steps:
- Login to POEMS 2.0
- Click on Acct Mgmt > Deposit Fund
- Select the account (Stocks or CFD) you wish to transfer to and indicate the amount (in SGD) to transfer
- Tick the Terms & Conditions checkbox, then click on the “Continue to eNETS” button
- The eNETS transaction page will appear as a pop-up window
- Select your bank and continue with the transaction. You will see the confirmation page if the transaction is completed successfully.
Kindly refer to the payment instructions on POEMS for other payment methods.
What are the Perks of Opening a CFD Account with Us?
To help you start off your trading journey, here are some exclusive perks that you will enjoy as our client!
- As our client, you will receive exclusive Daily Trend Forecast Reports on Stocks, Indices, Forex, and Commodities. Be updated with the latest market analysis and insights powered by Trading Central.
Be sure to check out our CFD Promotions Page to be updated with the latest deals and rewards!
After reading this article, we hope that you have mastered the basics of forex trading. For more information on our FX CFD, kindly refer to the contract specification page. There are also FREE FX CFD seminars that you can attend to learn more about this derivative product!
Begin your trading journey with us!
References:
[1]https://www.nasdaq.com/articles/forex-market-overview-2019-06-07
[2]https://www.mas.gov.sg/news/media-releases/2019/singapore-bis-fx-survey-2019-results
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Disclaimer
This material is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and not liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.
Investments are subject to investment risks. The risk of loss in leveraged trading can be substantial. You may sustain losses in excess of your initial funds and may be called upon to deposit additional margin funds at short notice. If the required funds are not provided within the prescribed time, your positions may be liquidated. The resulting deficits in your account are subject to penalty charges. The value of investments denominated in foreign currencies may diminish or increase due to changes in the rates of exchange. You should also be aware of the commissions and finance costs involved in trading leveraged products. This product may not be suitable for clients whose investment objective is preservation of capital and/or whose risk tolerance is low. Clients are advised to understand the nature and risks involved in margin trading.
You may wish to obtain advice from a qualified financial adviser, pursuant to a separate engagement, before making a commitment to purchase any of the investment products mentioned herein. In the event that you choose not to obtain advice from a qualifies financial adviser, you should assess and consider whether the investment product is suitable for you before proceeding to invest and we do not offer any advice in this regard unless mandated to do so by way of a separate engagement. You are advised to read the trading account Terms & Conditions and Risk Disclosure Statement (available online at www.poems.com.sg) before trading in this product.
Any CFD offered is not approved or endorsed by the issuer or originator of the underlying securities and the issuer or originator is not privy to the CFD contract. This advertisement has not been reviewed by the Monetary Authority of Singapore.
