Singapore an attractive destination for forex trading
Singapore is cementing its position as a financial hub even as London’s reputation as a financial center continues to take a beating post-Brexit. A small but wealthy city-state with an open and trade-driven economy, Singapore has emerged as an attractive destination, especially in forex trading. A stable government and an effective regulatory system are some of the prime reasons for the phenomenal growth of the forex trading market in Singapore. Singapore is also benefiting from a more favourable economic environment compared with Europe and the US. Further, the increasing recognition gained by the Singapore dollar in the global forex market has resulted in an increased level of liquidity and has provided impetus to its forex market.
The numbers tell an eloquent tale of vibrant growth
Singapore trade statistics validate the story of prodigious growth of the city-state’s forex market. A report by the Monetary Authority of Singapore (MAS) reveals that Singapore has been able to pip Japan to the title of Asia’s largest foreign exchange center and it emerged as the third-largest forex hub after London and New York. This reflects Singapore’s rising importance as a global trading center. Based on the 2016 Triennial Central Bank Survey by the Bank of International Settlements (BIS), average trading volume on the Singapore forex market jumped 35% to US$517 billion in April 2016 versus US$383 billion in the year-ago period. Growth in Singapore’s forex market was largely driven by growth in G10 and Asian currencies. The largest traded foreign exchange product class comprised foreign exchange swaps, which accounted for 48% of all trades followed by spot trades at 24% and forex forwards at 20%, the MAS report reveals.
There’s more growth to come
The dominance of the UK as the world's financial hub is eroding in the wake of Brexit, leading to prolonged angst in the UK capital markets. Singapore has done well to capitalise on this scenario by creating favourable regulatory and tax regimes and through active adoption of technologies, including fintech. Nevertheless, Singapore seems to have no room for complacency and it is not satisfied that it is number three in the pecking order in the forex market globally. Instead, the city-state thinks that it has barely captured 8% of the global forex market turnover compared with the global forex trading volume of 37% of the UK and 20% of the US, and it eyes a larger pie.
Fintech will be the key driver of growth
MAS is making Singapore’s forex market more future-ready by developing an ecosystem that entails adopting new technologies and building infrastructure that will improve liquidity, strengthen execution, and create a more transparent marketplace for forex trading in the region. This entails change across the value chain, from the front-end to the middle office and the back office. Such an enabling environment would encourage inter-dealer and multi-dealer platforms and liquidity providers to base their matching and pricing engines in Singapore, especially since most forex traders of banks are already based here. Further, Singapore is already a major hub for buy-side players such as asset managers and corporate treasury centers. Thus, having local servers would save execution and transaction cost time and provide a fillip to Singapore’s already bustling forex market.
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