Is CFD Trading Legal in Singapore?

The Republic of Singapore is a singular success story in the Asia Pacific region, arising from the dramatic influences of globalization and the determination of the local populace to become a base for financial action. Singapore is a modern financial hub for international trade, and its citizens have the second-highest GDP per capita in the world. Educated, professional, and wealthy, Singaporeans gravitate to forex trading, and the brokerage industry has taken note.

The Singapore Dollar (SGD) is strong and one of the most stable currencies in the region, benefiting from the country’s AAA credit rating and the enormous influx of investment capital. Major global banks and financial service institutions have swarmed the island community to serve the interests of its 6 million inhabitants. Centrally located in the region, Singapore has flourished as a financial hub and focal point for high-tech development firms as well.

Local citizens have a broad landscape of forex brokerage firms from which to select a business partner for accessing financial markets, especially foreign exchange. Trading forex is legal in Singapore, and local regulators have not placed restrictions on the use of Contracts For Difference (CFDs) or the use of foreign-based brokers. Citizens are free to choose their personal preference, but it is highly recommended that residents deal with a locally licensed firm or an overseas broker with heavy regulatory compliance from a major regulatory agency.

In this article, you will learn more about forex trading in Singapore, the legality and background of trading with CFDs, the local regulatory bodies, and how to choose a safe broker in Singapore. Finally, we will provide a list of the safest brokers in Singapore for your review and consideration.

What are CFDs?

A Contract For Difference is a financial derivative in the sense that it derives its value from the action of its underlying asset in the marketplace. However, it is not a market instrument. Instead, it is a deal between you and your broker where you speculate on the direction that prices will take for your chosen asset. It is similar to an option in the sense that you do not need to purchase the underlying asset, thereby reducing your upfront investment commitment.

CFDs do not have expiration dates, and your downside risk is wide open for a CFD. Options typically have unlimited upside potential, but if you do not exercise them, your only loss is your cost for the option. Margin calls are a real possibility with CFDs. Regulators have become concerned about this aspect due to client losses and market volatility. Many major agencies have demanded that brokers provide negative balance protection to prevent consumers from losing more than their account balance.

CFDs have their origins in the 1970s in the UK, when professional traders used them as one more tool to hedge the risk in their portfolios. When retail forex trading took off in the ‘90s and after the turn of the century, retail traders became familiar with the concept. Unfortunately, binary/digital options were pushed by the shadier edges of the industry, causing consumers to lose billions of dollars and prompting regulators to take dramatic action.

Prohibitions of these trading instruments were instituted, and the industry gradually shifted to an old form of instrument, the CFD. This contract is based on a market/maker, dealing-desk type of business model where the rules are set for how rewards and losses will be determined between you and your broker. There is no standard form like that found in options.

Loss rates can run high. Studies from the Financial Control Authority (FCA) in the UK and other industry participants establish a range of losses per broker that runs from 54% to 83%, with an average rate of 74% and an average loss amount of £2,200. The good news is that even though casualty rates are high at 74%, there are 26% of trades on the winning side of the ledger. Trading CFDs can be profitable if you approach the market in a disciplined fashion.

Since brokers profit from the “net” of winning and losing trades, as long as they effectively hedge their risk exposures, they have been more willing to waive commissions on CFDs in recent years. A trader will still be assessed a Bid/Ask spread on both the front and back end of the transaction. A CFD can deliver large returns on invested capital, but winning is not about luck in a gambling sense. To win, you must have a plan that creates an edge over time. Fine-tune this strategy and treat trading CFDs as if it were a business if you want to succeed.

Who regulates CFD trading in Singapore?

A casual visitor to Singapore will quickly notice that the local society is very rules-conscious and that everyone adheres to a very strict code of behaviour. Non-compliance is not tolerated. This overly strict infrastructure is often cited when the success of the country is discussed, but government officials also promote independence of choice. When it comes to financial services, Singapore has chosen to align all compliance activities under one roof. The Monetary Authority of Singapore (MAS) serves as both the central bank and the regulator for all financial-related services.

On one hand, the MAS establishes fiscal policy as the Central Bank of Singapore; on the other, it regulates the compliance of banks, insurance companies and all other financial service providers, including forex and investment brokers. In this capacity, it has established rules for registration, licensing, operating behaviour, and the protection of consumer rights. Citizens of Singapore are free to choose a foreign-based broker, but the agency also recommends that its residents consider only heavily regulated brokerage firms, whether foreign or domestic.

Is CFD trading legal in Singapore? Yes, Singapore residents may legally use Contracts For Difference when trading currency pairs or other financial assets offered by their broker. Brokers who wish to comply with local laws when offering CFDs must obtain a Capital Market Services (CMS) license. A CFD on its own is not regulated and is not a recognized security because it is not bought and sold on an exchange. While the MAS has taken a relaxed approach to CFDs, it is currently reviewing leverage levels and the possibility of tightening its rules, especially those related to the trading of cryptocurrency CFDs.

How to choose a safe CFD broker in Singapore

Selecting a safe CFD broker in Singapore is not difficult if you carry out proper research. There are many excellent possibilities, but the decision-making process will depend largely on your personal tastes as a trader. Your trading style will determine which broker is aligned with your needs, and a quick run through a free demo system will tell you if the trading platform is user-friendly and easy to understand.

Some factors to consider include:

• Regulation: Is the broker heavily regulated by a major agency? Offshore brokers may have very tempting offers and higher leverage levels, but can you trust them? Safety must be a primary concern for any trader, especially one from Singapore. Publicly traded companies also comply with a higher standard of transparency.
• Product portfolio: Does the broker offer the assets that you will want to trade?
• Trading costs: Are the fees, commissions, and spreads competitive for the style of trading you wish to pursue? Are you required to make a large deposit to get low fees?
• Trading platform: Is MT4 or MT5 supported? Do you want an effective mobile trading app? Is it user-friendly? Has it won industry awards?
• Support and research: What are your needs in this area? Does the broker get high marks for both areas?

It is recommended that you start with a minimum of three candidates and compare their offerings with your needs. Take advantage of access to a demo system, and after your selection, monitor your broker’s performance. You may need to change at some point, and the list of top-of-the-line brokers below will help you save time in your search.

The safest CFD brokers in Singapore

There are hundreds of brokers worldwide who will solicit your patronage, but you can save a great deal of time by starting with the list of brokers shown below. We have reviewed these brokers on a continual basis and can attest to their trustworthiness, competency and reputation in the industry for excellent support and service.

Is CFD trading in Singapore legal? Yes, you may trade forex pairs via CFDs in Singapore with the assurance that the local regulator approves of your actions. The MAS may be considering a tighter regulatory regimen for CFDs due to the volatility in the market for cryptos and the actions taken by other major regulators, but for now, no rule revisions have been announced. If you are looking for a safe CFD broker in Singapore, we can assist you in your search. The names provided above are the best in the industry and should serve you well in your trading pursuits.