This article is about the fees charged by Singapore forex brokers.
Singapore forex brokers attract the attention of potential clients by the promise of no exchange fees, regulatory fees or commissions. Most new traders accept these promises and do not take the time to read the fine print related to the broker’s payment structure. It is vital that you read through the entire contract before you sign it.
Singapore forex brokers work on three fee structure types. You have to choose from a variable spread, fixed spread or commission based on a percentage of the spread.
The spread is calculated as the variance between the price the broker is willing to sell a currency for and the price the broker is willing to buy the currency for. The format of the quotes from your broker take on a distinct format, such as EURUSD=1.5850-1.5852. This implies that there is a spread of two pips, being the difference between 1.5850 and 1.5852.
In the case where you have been offered a fixed spread of say three pips rather than a variable spread, the variance will always be indicated as three pips. This has no relation to the volatility of the market at all.
In the instance where you have been offered a variable spread, your fee liability will vary. It could be anything from two pips to six pips, depending on the broker’s calculation. The calculation of the variable will depend on your currency pair and the market volatility.
There are brokers who choose to charge their clients a small commission. This may be a percentage of a pip. This often happens in cases where your broker forwards your orders to a larger brokerage that it normally deals with. In this case you may benefit from tighter spreads that are normally available through the larger providers.
Singapore Forex Brokers Service Levels
Making a decision as to the most suitable forex broker for your needs is quite a difficult task to undertake. There are many factors you have to consider. Forex brokers do not all offer you the same service levels.
This financial market operates via the interbank system. On this system the large banks undertake trades with other banks and online brokers. These relationships are based on the creditworthiness of each entity. Your potential forex broker’s trading relationship will depend on its creditworthiness and the level of trade it undertakes with these larger institutions. If your broker feeds through high trading volumes, it is possible that it will receive tighter spreads which can be passed on to you.
This means that you should consider your potential broker’s liquidity and size. It is better to opt for the larger brokerages as they are normally the ones that deal directly with the larger financial institutions and obtain tighter spreads. The benefit of the tighter spreads will be passed on to you. They may not pass on the entire benefit to you and may add a small percentage to the spread, but this may still be beneficial to your bottom line.
You should ensure that your broker is willing to provide you with assurance that your trades will be carried out at the real-time rate. If this is the case, you should consider opting for a fixed spread. This way you will avoid the cost of slippage. Slippage occurs when your trades are not executed at the price your broker first quotes you. In the event that you are offered additional services by your broker, such as specialised software, you may want to consider a fee based on commission.