Trading forex and looking to access lower margins? This could be the solution for you.
As an experienced forex trader in Singapore, you would know by now that the Monetary Authority of Singapore (MAS) has been tightening its regulations on retail investors trading unlisted margined derivatives.
Since Oct 8, 2019, retail investors trading FX saw an increase in minimum margin requirements from 2% to 5% of the value of the trade. A margin requirement is the equity that is required to be maintained in a trading account in order to perform a leveraged trade. It is used to cover losses from open positions, and is not a transaction fee.
These changes were made in a bid to protect retail investors who may not fully understand the risks from such investment products. On the other hand, Accredited Investors (AI) – who are assumed to be better informed and more experienced – are exempt from the new margin regulations.
If you wish to trade FX and enjoy a higher leverage, perhaps it is time to consider if you are eligible to be an accredited Investor. Here’s what you need to know.
How do I qualify to be an Accredited Investor?
In order to qualify as an accredited Investor, you will need to fulfil one of the criteria stipulated by MAS below:
- Your net personal assets exceed S$2 million with your net equity of primary residence capped at S$1 million (or its equivalent in a foreign currency)
- Your financial assets, net of any related liabilities, exceed S$1 million in value (or its equivalent in a foreign currency)
- You have an annual income of S$300,000 or more over the last 12 months
Your accredited Investor status gets reassessed annually, to ensure you remain eligible based on your circumstances at the time.
Differences between an Accredited Investor vs retail investor
The table below shows the difference in margin requirements and leverage offered to different investors when trading major FX pairs with City Index.
|Market||Minimum Accredited Investor Margin Rate||Accredited Investor leverage||Minimum Retail margin rate||Retail Leverage|
|Major FX pairs||2%||50:1||5%||20:1|
This is how it works in practice when trading FX with City Index.
|Market||Trade size||Opening Price||Margin required for|
for Retail Clients
|EUR/USD||1 mini lot||1.12500||S$301 (50:1)||S$754 (20:1)|
|AUD/USD||1 mini lot||0.70300||S$189 (50:1)||S$471 (20:1)|
|USD/JPY||1 mini lot||108.00||S$279 (50:1)||S$698 (20:1)|
Let’s say you want to trade 1 mini lot (or 10,000 units) of the EUR/USD currency pair. With the opening price at US$1.125, the value of your trade will be US$11,250.
As a retail investor, your required margin will be US$562.50, or S$754. But as an accredited investor, your required margin will be US$225, or S$301.
Potential risks to note
You should also be aware of the potential risks that are associated with an accredited investor status.
For one thing, having access to greater leverage on your FX trades can translate to greater potential financial losses when markets move against you.
On top of that, since an accredited investor is assumed to have a better access to information and a greater ability to protect their own interests, they are also assumed to require less regulatory oversight. As such, investors who agree to be treated as Accredited Investors will also give up the benefit of certain regulatory safeguards.
For instance, issuers of securities are exempted from issuing a full prospectus registered with the Monetary Authority of Singapore when the offers are made only to Accredited Investors. On top of that, intermediaries are exempted from a number of business conduct requirements when dealing with Accredited Investors.
If you are unsure of what those exemptions would mean for you and your investments, then do seek a professional adviser before you make the decision to opt for the accredited investor status.
Additional benefits for Accredited Investors
If you have decided to apply to become an accredited Investor, here are some other benefits you stand to enjoy from City Index, beyond the 2% margin rates for your trades on 84 global FX pairs.
- A sign-up bonus of S$150 that will be credited to your account upon the approval of your accredited investor status
- Generous cash rebates on your trades
- A dedicated Client Relationship Manager
Steps to become an Accredited Investor
To become an accredited investor with City Index, you must first be a City Index customer by following the steps below:
- Open your City Index trading account
- Go to “My Account” and select the “Accredited Investor” banner
- Complete a simple application form.
If you are already an existing City Index customer, you can apply to be an accredited investor here.