Investors going big on derivatives, forex trading

Investors are turning to derivatives and foreign exchange trading in a big way, with a surge in the number of traders and deals being struck.

There were 24,500 traders involved in forex deals and contracts for difference (CFD) - a complex derivatives product - in the 12 months to August, a 21 per cent rise on the 20,200 in the same period a year ago.

The jump in trader numbers made Singapore the leader among seven markets in an annual survey released by market research specialist Investment Trends yesterday.

Forex trading led the way, with the number of traders increasing from 13,000 in September last year to 15,000 in August this year. That is the first increase since the report began in 2010.

One reason behind the increase could be the move in January by the Swiss central bank to remove the cap on the franc's exchange rate against the euro. The report found 9 per cent of forex traders here say the event was a catalyst that got them started on currency trading, while only 6 per cent of French forex traders and 2 per cent of German ones cited it as a reason.

Dr Irene Guiamatsia, senior analyst at Investment Trends, said the rise in forex and CFD traders was a much-needed boost for an industry in steady decline for several years.

IG Singapore head Tony Lim said CFDs are a flexible way to trade in the financial markets as traders can either go long or short on a wide range of products, including forex, shares and commodities.

Mr Dickson Woon, senior forex manager at Phillip Futures, said investors find forex trading more appealing as they can start investing with lower capital, particularly because of the smaller contract sizes of products he refers to as "mini forex".

The report found an estimated 21,000 investors - up from 17,000 last year - plan to start trading either CFDs or forex over the next year.

Mr Karol Piovarcsy, Saxo Capital Markets' regional head of private client trading, noted that low interest rates and a relatively lacklustre local stock market are motivating investors to trade more in short-term trends. "The increased volatility in the third quarter ... created an attractive environment for shorting emerging stocks as well as emerging currencies," he added.

The ease of mobile trading could also be another contributing factor.

The report found that 89 per cent of traders here used a mobile device when trading CFDs or forex, ahead of the 76 per cent level in Britain as at July and the 69 per cent in Germany and France as at April.

Mr Piovarcsy said sophisticated investors tend to seek destinations like Singapore, "due to its structurally sound, transparent and tight monetary regulations and consumer safeguards".

CMC Singapore head Jason Hughes said: "Singaporean traders had the foresight to recognise that volatile and falling markets offer trading opportunities to capitalise on. Traders here are very clear-sighted, however much haze we sometimes have to deal with."

A version of this article appeared in the print edition of The Straits Times on November 12, 2015, with the headline 'Investors going big on derivatives, forex trading'. Print Edition | Subscribe