Continuing our series of analyses in which we look at the retail Forex (FX) and contracts for difference (CFD) industries in individual countries, this time we visit the Asian continent, taking a look at Singapore. This culturally and linguistically diverse country, which has enjoyed complete independence since the 1960s, is developing rapidly and has an exciting and advanced financial market.
Singapore, One of Asia's Four Tigers
Modern Singapore was founded in 1819 by Stamford Raffles as one of the trading posts of the British Empire. Singapore became an independent state in 1959, a few years later becoming a member of the federation of Malaysia. Two years later, it was expelled for ideological reasons, becoming a completely independent country.
Despite initial turbulence, the sovereign island city-state in maritime Southeast Asia grew rapidly and became one of the Four Asian Tigers, building its strength on foreign trade. It is currently ranked ninth in the world by the UN Human Development Index (HDI) and has the second-highest gross domestic product per capita (PPP) globally, projected to reach almost $108,000 in 2021.
At the same time, it is worth noting that Singapore is the only Asian country currently rated AAA by foreign rating agencies worldwide. It stands out as an important financial hub and tax haven, attracting many foreign investors and companies.
Among them are Forex brokers and trading platforms that offer retail clients investing in contracts for difference.
Monetary Authority of Singapore (MAS) Regulates the FX/CFD Industry
Retail CFD trading in Singapore is fully legal, and local investors can use any broker of their choice, not just those located directly in the country. However, those who wish to provide their services locally must be accredited and licensed by the Monetary Authority of Singapore (MAS).
The regulator is one of the most active financial watchdogs in the world and is highly respected in the industry. This is why most big brokerage brands have their own MAS licenses. Among them are IC Markets, IG, Saxo Bank, CMC Markets, Interactive Brokers, Plus500, etc. At the moment, there are 39 different entities licensed as "Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading" in the country. Their complete list is available here.
Like many other jurisdictions around the world, Singapore has campaigned against high leverage in recent years. Eventually, the leverage level for FX instruments for retail investors was limited to 20:1 as decided in October 2019. Although accredited investors still have access to higher leverage (50:1), qualification is not easy.
A trader must have personal assets over $1.5 million or must hold more than SGD1 million in his pocket or earn more than SGD300,000 per year.
Singapore an Important Market for International Brokers
Financial figures released by major brokerage brands operating in markets around the world show that Singapore has been an important base in recent years in terms of both active client numbers and generated revenues.
This is confirmed, among others, by IG Group's latest report summarizing its financial results for the first half of fiscal 2022 which ended 30 November 2021. While the UK, EU, EMEA and Australian markets dominate in terms of financial numbers, Singapore ranks fifth, delivering £36.7 million in revenue for the reported period (by comparison, the UK business brought the broker £157.2 million in revenue). This was quite a leap from the results for the first half of fiscal 2020 when revenue was £21.5 million.
At a time when profits generated by IG Group in Singapore are around four times smaller than those in the UK, the client base between the two jurisdictions is already more than five times smaller. IG Group served 51,800 clients in leveraged OTC markets in the UK, while in Singapore, 10,000 was served.
As a result, the Singapore market presents an excellent profit per client statistic of £3687, which only compares better with the EMEA non-EU category at £4060.
According to Finance Magnates Intelligence, based on data from major FX/CFD brokers, over 50,000 retail investors actively speculated in the Singapore FX/CFD market in Q4 of last year.
“In recent years, turnovers of Foreign Exchange (FX) trading in Singapore have outweighed those of Japan and other ASEAN Countries. Additionally, a number of treasury departments of overseas financial/non-financial firms are attracted to Singapore, contributing to the increasing trading of Asian currencies in tandem with expanding goods and services trades between China and the ASEAN countries,” said Muthu Kumaran, the Chief Product Officer at FYNXT.
Staying on the topic of revenue per single client, let's also take a look at the average deposits, withdrawals and the value of average first deposits into brokerage accounts.
The Average Singaporean Trader Deposits $1,700 on First Transaction
Data released by cPattern on deposits and withdrawals made by Singapore-based retail traders shows that for almost all of 2021, deposits remained at high levels and far exceeded average withdrawals.
Between January and October 2021, the average trader deposited more than $2,800 into his account each month. The average size of a single deposit during this period was almost $900, meaning that accounts were credited an average of three times each month.
On the other hand, the distribution of monthly total withdrawals and the average single withdrawal in a given month is very similar, staying at $930 and $960, respectively. It suggests that the average trader made only one withdrawal from his account for every three deposits.
"A few competitive asset management companies targeting the high-income customers are based in Singapore. From the perspective of the best execution practice, FX transactions pertaining to the asset management business have shifted to electronic trading to enhance transparency. This trend also contributes to increased FX turnover in Singapore," Kumaran added.
The average first deposits (FTD) category, i.e., the first deposit into a new account for a single trader, also ranks high. The average over the reporting period was USD 1,743, while in some months, it reached almost USD 3,000.
For comparison, another economic tiger (from the European market) presents much worse FTD numbers. We are talking about Poland, described in a separate article, where the first deposit value averaged USD 268, and the median stood at USD 228.
