Finance of International Trade

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  • Topic: Foreign exchange market, Exchange rate, United States dollar
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Foreign Exchange in International Trade

Article:
Ups and downs of forex trading
(Straits Times, 5 Jun 2011 )

Ups and downs of forex trading
Lorna Tan, Senior Correspondent
1704 words
5 June 2011
Straits Times
STIMES
English
(c) 2011 Singapore Press Holdings Limited
There is plenty of potential in the market but be aware of the pitfalls The pursuit of financial freedom has led many retail investors to consider foreign exchange trading. Online forex trading has seen a tremendous growth in popularity and its appeal is easy to understand. The forex market is the largest and most liquid of financial markets. It is available 24 hours a day, seven days a week. It is recession-proof and requires a small cash outlay and easy execution. Ms Marion Lang, head of sales and marketing at forex trading services Oanda Asia Pacific, highlighted that global activity in the sector often exceeds US$4 trillion (S$5 trillion) a day. Over US$1.5 trillion of the total involves spot trading, which refers to the buying of one currency with a different currency for immediate delivery. Although there are numerous currency pairs in the forex market, the more liquid and active pairs are EUR/USD, USD/JPY and GBP/USD. Currently, Singapore is the fourth-largest forex market in the world. It is easy to spot advertisements here marketing forex seminars and workshops. The danger arises when retail investors are taken in by the hyped-up promotions that characterise forex trading as a get-rich-quick activity, said financial experts and the Consumers Association of Singapore (Case). Mr Seah Seng Choon, Case's executive director, said it has received inquiries and complaints about forex programmes. There were 13 last year and as of the end of April, it has received six cases so far this year. They range from complaints about pressure selling to alleged misrepresentation on the cost and benefits of the programmes as well as the existence of a particular overseas forex training programme. Forex is not suitable for everyone, said Mr Ben Fok, chief executive of Grandtag Financial Consultancy. He suggests asking these questions: Do you have time to monitor macroeconomic events that could affect your trading? Do you understand when to cut your losses? Do you worry after you have taken an open position? Here's what experts say about the pros and cons of forex trading: Accessibility

> Pro: You can start trading forex just by having access to the Internet. This means you can be anywhere, working or otherwise. Time is also not a problem as forex is traded 24 hours a day. Con: Many traders stay up late into the night to observe small movements in the currencies so as to generate potential profits. If forex trading becomes an addiction, it will distract you from your daily life, affecting your sleep and work time, said Forex Asia Academy founder Choo Khoon Lip, a full-time foreign exchange trader. Leverage

Pro: To start trading, you need a small margin deposit ranging from a few hundred dollars to $1,000. Based on this deposit, the trading platform is willing to effectively 'lend' you a larger sum for trading purposes. Just how much depends on the 'leverage ratio' offered by the trading platform. It can range from a low 10:1 to as high as 500:1. There is a potential for huge profits with a small cash outlay. Con: But leverage is a double-edge sword. There is a corresponding danger of taking on open positions that pose too much risk in relation to the size of the account. If you do not have money-management skills, this can spell disaster, said Mr Fok. Market sensitivity

Pro: The forex market is sensitive to the current economic situation. Many traders keep themselves updated on upcoming news events, such as unemployment rates, so that they can profit from the currency movements. Con: But if there is bad economic news, the forex market can react unfavourably, said Mr Fok. So if you do not guard your position in the market, it will affect your position...
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