This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, June 2019). All views expressed in the article are the independent opinion of DollarsAndSense.sg
When it comes to trading, there are many different platforms that traders can use to make their trades. Depending on the markets that you wish to trade and the types of products you want to use, you would want to choose a trading provider, whether local or overseas, which is able to meet your requirements.
There are a few reasons why some traders may prefer to choose an overseas provider over a local one. Some of these reasons include:
Access to specific markets you want to trade: Not all brokers in Singapore offer an extensive range of markets for you to trade. However, there are overseas providers that offer access to markets that are not available in Singapore. For example, a platform like IG offers flexible access to more than 16,000 global markets.
Potentially cheaper: Traders could potentially incur less cost when trading with an overseas provider. For example, if you trade CFDs for Singapore shares with IG, you will incur a minimum charge of $15, which is lower when compared to some local brokers that charge a minimum of $25. However, the amount of fees largely depends on the number of transactions you make, as well as the size of your transactions.
Access to more products: Overseas providers might offer tools and products which are not available in the Singapore market. For example, IG recently introduced Knock-outs, a limited-risk CFD product that is relatively new to the Singapore market but not to global markets.
Trading platform: Different people have different preferences when it comes to trading platforms. This is not just dependent on getting market data, but it is also dependent on finer aspects such as the layout, speed, tools available, customer support and ease of using the platform.
However, trading using overseas providers does also come with its own set of risks. Here are 4 areas that you should first look out for when considering an overseas trading provider.
#1 Are They Regulated In Singapore?
Overseas providers are regulated by their respective overseas markets. Similarly, trading platforms in Singapore are regulated by the Monetary Authority of Singapore (MAS). In order to operate in Singapore, trading providers are required to follow the regulations that govern the Singapore market. For example, as of 8 October 2019, the MAS increased margin requirements for Foreign Exchange (Forex) trading from 2% to 5%. Providers which offer Forex trading are required to adhere to the new regulation.
If you use an overseas provider, the provider may not be regulated by MAS. This means that if anything goes wrong, your chances of seeking recourse is substantially lower.
#2 Size Of The Trading Provider
The size of the trading platform provider matters.
Larger, well-established companies that have been around for a longer period tend to enjoy stronger backing in terms of financial resources and technology. Your trades could face higher risk when you trade through a smaller and lesser-known trading provider.
Trading using a reputable trading platform with a strong brand name provides not just reassurance, but also additional tools that could prove useful.
For example, international trading platforms such as IG is on the FTSE 250 index and is listed on the London Stock Exchange, and has been serving clients all over the world, from sales offices in 16 countries and have been the world’s No.1 choice for CFD trading*. IG also have their own IG Academy available for their traders, providing webinars, seminars and other online education materials such as videos, quizzes and other exercises.
#3 What Is The Trading Provider Using Your Money For?
Whenever we trade, we need to deposit our trading funds to the trading provider that we are using. It’s important to ask ourselves what the funds that we deposit into our account will be used for.
Ideally, our funds should not be used by the trading provider to cover their operational requirements, or to be used as working capital. Rather, our funds should be segregated and not to be mixed with the funds of the trading provider that we are using.
For example, from the time a client deposits his funds to IG, it’s ‘ring-fenced’ in separate bank accounts which are held in trust with the clients as the beneficiaries, and is not mixed with IG’s own funds. IG uses only its own funds for hedging and does not pass client money to hedging counterparties or to any part of the business as working capital.
Such measures are important because it ensures that in the event that anything happens to the trading provider, our funds are not affected since the money was held separate to the trading provider in the first place.
#4 How Will You Send Your Money Across?
Trading through a local brokerage house could be more convenient for traders in Singapore as the transfer of cash into the trading account can be done with ease across local banks. Having a direct link to your bank account allows for easier payment, withdrawal and other transactions.
When using overseas providers, one of the things you will have to consider is how to fund your account and how to withdraw the cash from the account. Besides having to ensure that the money is sent into the overseas account, you also have to take into account the impact of currency conversion.
Find A Platform That Suits Your Preferences
With so many different providers available for traders, it takes time to try out the different platforms and figure out for yourself which platform suits your trading needs best.
You can opt to test out the platform first using a demo account. For example, platforms such as IG allow you to open a demo trading account to practise trading with $200,000 virtual funds. A demo account not only lets you test out the platform interface and tools, it also gives you an opportunity to test your trading with virtual cash.
You will also need to do a check to see if the platform you intend to use has access to the markets you want to trade. For example, IG provides access to over 16,000 markets, across various asset classes such as indices, forex, commodities, shares, options, cryptocurrencies and more.