Spread Betting: Trading USD/SGD
One of the lesser spread traded currency pairs is the US dollar versus the Singapore dollar (USD/SGD). The Singapore dollar is the 13th most popular currency on the Forex market, and Singapore has a lot to recommend it as a growing and thriving economy. It is strategically located and has the busiest seaport in the world, more than other majors such as Rotterdam and Hong Kong.
Singapore is small, with a working population of just over 2 million people, and it has minimal unemployment. Trade is largely on the lines of importing raw commodities which are refined and exported with the country enjoying strong economic growth. Singapore has only had its own currency since 1967, since independence from Malaysia, and the currency was pegged to the British pound for the first few years. Meanwhile, the country’s finance minister seems to believe that allowing the country’s currency to strengthen will help curb inflation.
While the economy is capitalist based, the state has funded many of the companies through an investment fund. It has one of the highest gross domestic products (GDP) in the world per capita, and the people enjoy a relatively low tax rate. In many ways, it is an example to which many other countries would aspire, with excellent education and standard of living. It is fastest growing economy in the world.
In contrast to this, the USA dollar has been hard hit by the global economic recession, and despite industrial bailouts and quantitative easing, or printing of money, looks to have some years before recovery. The national debt is still increasing, as to do otherwise would submit the economy to a deepening depression.
The unique factor that the United States has in its favour is that the US dollar is the international standard, and can be produced in any quantity required to stimulate spending, as it is not pegged to any physical commodity value, such as the gold standard. While printing too much money may cause the dollar to lose value and cause inflation locally, it provides temporary respite from difficulties.
With both countries, you need to look at the fundamental factors that drive the economy to see in which direction the currency will be headed. The governments of both countries appear to be relatively stable, and this is of course a factor in deciding if investment is a worthwhile risk. The large deficit of the United States is still under review, but it is likely that government actions will be taken to reduce it as soon as deemed advisable, given the still fragile recovery from the global crisis.
Other important factor for currency is the employment status. Singapore would appear to be far better off than the United States, with low unemployment and high-tech well-paid jobs given to an educated workforce, but this is an existing condition and already priced into the market. The trader should keep an eye on any reports about economic conditions and employment that could impact the exchange rates.
While it is important to know the fundamentals when spread betting on Forex, you also need to study technical analysis so that you can time your bets. The various indicators of technical analysis will give you a good indication of the mood of traders, and whether a currency is overvalued or undervalued.
Spread Betting on the USD/SGD
The currency pair US dollar versus Singapore dollar (USD/SGD) is considered one of the minor currency pairs, and not often traded by individual traders. The current quote for a rolling daily spread bet is 12,509.9 – 12,516.9. That means that the US dollar is worth about 1.25 Singapore dollars, the level to which the currencies have slipped from about 1.80 a few years ago. This is a reflection on continued strength of the Singapore economy.
If you think that the Singapore dollar is going to increase in value against the US dollar, then you need to take a short bet on this currency pair, betting that the value will go down, and you might stake £6.25 per point at the price of 12,509.9. Assuming that the price goes down to 12,256.2 – 12,263.2, you could close your bet for a win. Here is how you calculate how much you have made: –
- You placed your bet at 12,509.9
- Your bet was closed at 12,263.2
- Therefore you gained 12,509.9 less 12,263.2
- A total of 246.7 points
- Your stake was £6.25 per point
- You have won a total of £1541.87
If your bet didn’t work, and the currency pair went up, then you would have to close your bet to minimize your potential loss. Say the price went up to 12,562.5 – 12,569.5 by the time you close your bet.
- You placed your bet at 12,509.9
- Your bet was closed at 12569.5
- Therefore you lost 12,569.5-12,509.9
- A total of 59.6 points
- Your stake was £6.25 per point
- Your total losses were £372.50
If you wanted to bet the other way instead, perhaps taking the Singapore economy as stable and the US as improving and therefore the US dollar increasing in relative value, then you would take out a long bet. You could place a buy bet for £4 at the original quote of 12,516.9.
Once again consider first that your bet has won, with the spread betting quote going up to 12,752.0 – 12,759.0. As it was a long bet, it closed at the lower selling price of 12,752.0. That means you have won 12,750.0-12,516.9, which works out to 235.1 points. With a stake of £4 per point, you made a total of £940.40.
One of the secrets of successful spread betting, and of trading in general, is that you do not want to be hit too hard when you have a loss. If you lose too much capital then that cripples your subsequent trades and makes recovery hard. That is why traders urge you to “Cut your losses”.
So if the quote went down from its original level, you should close the bet as soon as you realize that it is not going to work out. Say it went down to 12,468.2 – 12,475.2, and you closed your bet to cut your losses.
Your bet went on at 12,516.9, and was closed at 12,468.2. That means you lost 48.7 points. With your given stake, this has cost you £194.80.
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