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Humanising Finance
May 2016
     
4 MYTHS ABOUT FOREX YOU NEED TO KNOW
 
Forex is for gamblers
Yes, it is true… but only if you treated forex (FX) as if it was a game of chance! The fact is, forex is just like any other commodity or asset where you aim to buy at a low price and sell at a higher price. And unlike gambling, which is based more on luck than probability, forex investors can rely on technical charts and fundamental analysis to decide on their approach towards buying and selling a currency which may result in higher probability of making a profit.

One thing investors must be mindful of is the spread, which is the difference between the buy (or bid) price and the sell (or ask) price. In order to make a profit, investors must ensure that their sell price has already factored in the spread.
 
FX is highly risky
There are definitely risks involved in investments and FX is no different. Such comments are likely to be from investors who leverage on their deposits to increase their investment value. The advantage of leveraging on an investment is that it allows the investor to pay only a fraction of the value of the investment he or she is making. For example, if you have $10,000 in your account, and you trade a $100,000 position, you will be trading with a 10 times leverage on your account.

In the event that the investment value depreciates by more than the investor’s initial capital outlay, the bank or broker will be forced to sell it. In the worst case scenario, you may be asked to fork out more money than you intend to lose.

In fact, regardless of the type of investment, those with a higher leverage typically translate to higher investment risks. FX has a reputation for being risky as FX margin trading is easily available and comes with leveraged facility of up to 1000 times of the investor’s deposit. If used in an optimal manner, leverage could result in enhanced return for investors. However, it is important to remember that for the advantages it provides, there are downsides to it. Leverage is a double-edged sword and investors should evaluate their risk tolerance before utilising it.
 
You can easily make money with market news releases
While it is possible to set up a trade before any announcements are made, there is still a need to analyse the presented news or statistics to determine the likely effect on the market. Coupled with the fact that information is now so widely available, there may be investors who might anticipate those trades ahead of you, leaving you with an undesirable trade outcome. In addition, there are various factors apart from market news that affect currency movements.

These include the economic health of a country, central bank policies, interest rate differentials deposit rates of various currencies. Investors are advised to do their homework before their foray into FX, much like investments into properties or shares.
 
“Psst…. I have this perfect money-making trading instrument”
Many people have been searching for a “perfect” instrument that will promise returns beyond their wildest dreams. The fact of the matter is that every method has its flaws and weaknesses. Perfection can never be achieved because the forex market, like any other regulated market, has a myriad of investors with different views and perspectives. On top of that, investors have to contend with large orders, unscheduled policy announcements and interventions to thwart any “perfect” strategy.
 
A good starting point to reading more about forex can be from the research undertaken by the various banks or brokers. The bank also supports customers who are interested in forex trades with daily FX research that can be accessed on the Maybank Singapore website.

The bank also offers an exclusive service for its Premier Wealth Clients, with a team of dedicated Treasury and Investment Specialists that will keep clients abreast of forex movements and dual currency investments. Additionally, clients also enjoy preferential forex rates for trades that are SGD30,000 and above. To learn more about Maybank Premier Wealth and the investment opportunities available, please get in touch with us at 1800–536 7888 or via our website here.
 
 
Always wanted to find out more about a finance-related issue? Email us at: corporateaffairs@maybank.com.sg
 
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