How to Trade USD/SGD
There are plenty of foreign currencies that a trader can choose to trade and hopefully make a profit. The US dollar, the pound, the yen, the Australian dollar, the Swiss franc, the Euro, and the New Zealand dollar are the popular currencies.
Speaking of popularity, it’s generally the popular folks that get invited to parties. Think about high school and college, wasn’t that the case? What if foreign currencies decided to have an “exchange party”.
You probably think we are crazy writing this sort of stuff but just hold on. What if the US dollar invites the Singapore dollar to that party? The SGD might be a “sing”-ificantly valuable addition to the energy.
There is plenty to like about Singapore. Besides the incredible buildings like the Marina Bay Sands Hotel and the booming tourism, Singapore is an important economy in south-east Asia. It also serves as an important hub in the maritime shipping industry.
A lot of expats and foreign workers also like living in Singapore and managing the Asian headquarters of multinational companies. Singapore also has no foreign debt and high government revenue. It is a stable economy.
So, trading the Singapore dollar may not necessarily be such a bad idea after all. It may be ok to let the SGD join the currency party. Not many people would be trading the SGD and therefore there may be pricing anomalies to look for.
In this article, we will take a closer look at some basics of forex trading. We will also discuss the US and Singapore economies briefly. Then, we will explore ways in which traders can conceptualize trading strategies.
Sounds ok to you lah? Then let’s go!
Currency Trading, Pips, and Understanding Ratios
When you buy or sell a currency, you use another currency to execute the transaction. For example, if you want to buy the Singapore dollar, you may use the Japanese yen, the US dollar, or whatever currency you hold.
So, trading one currency involves the use of another currency. It is why whenever the price of one currency is quoted, it is an exchange rate. To buy one pound, you may need 1.2 Euros.
Forex traders often talk about price changes in terms of pips. One pip is 0.01% or 1/100th of a percent. So, for example, if the exchange rate of EUR/USD goes up from 1.2010 to 1.2011, then the exchange rate rises by 1 pip. If the exchange rate goes from 1.2010 to 1.2110, and if you were long EUR, then 100 pips are your gain.
Going long or short a currency is like trading a ratio. As explained above, forex trading involves two currencies. You buy one by selling another. So, if you want to buy EUR, you might use your USD to buy. Therefore, you are hoping that the EUR strengthens versus the USD. This can happen if EUR goes up more than USD or if USD stays constant while the EUR rises or if the EUR stays stable while the USD devalues.
Therefore, when trading foreign currency, it is important to understand how one currency is behaving with respect to the other. For USD/SGD trades, you will have to track all the developments in the US and Singapore and how USD will move relative to SGD.
Economic Snapshot Of The American And Singaporean Economies
While plenty of discussion revolved around how the fast increases in interest rates will lead the US to an inevitable recession, that still has not happened. The most talked about metric has been inflation and it has interestingly stabilized if not slowed down.
Unemployment has been at relatively low levels of around 3.6% and payroll growth in June 2023 was 209,000 which was a relatively healthy number as compared to historical data. The US treasury 10Y yield was inching up above 4% while the dollar index looks like it would drop below 100.
A falling dollar index is usually a positive sign for global equity markets. The US stock market has been in an uptrend in 2023. So, overall, there seem to be no recession prospects in the near term.
Singapore, meanwhile, avoided a recession narrowly after its economy grew 0.7% in the second quarter of 2023. The first quarter witnessed a negative growth of 0.4%. Singapore’s central bank has warned of an uncertain future as far as the economy is concerned.
The travel and tourism sector is an important one for Singapore. The sector has been on an uptrend globally and Singapore was no exception. The future prospects for travel and tourism continue to remain bright.
Interest rates for Singapore’s 10Y government bond have risen from around 2.7% in April 2023 to over 3%. The general trend has been up since 2020. The Singapore dollar has strengthened versus the US dollar since peaking in October 2022.
Thinking About USD/SGD Trades
There are two main approaches to trading. One is a systematic style where rules are pre-defined. The other is more subjective and discretionary. It involves the trader making a judgment on whether to trade or not. The rules are loosely defined and they can be flexible in the second approach.
No one approach is better than the other. It all depends on what works for a trader. Discretionary trades can involve technical and fundamental analysis or an event-based opportunity.
Systematic trades are generally strategies that have been backtested and statistically analyzed. The rules of entry and exit are pre-determined. There is no hunch or gut feeling as a trader blindly follows the system.
In the age of algo trading, the rules are fed to a computer and the machine automates the trading. Regardless of the approach used, the use of technical indicators can be one way of identifying trades.
For example, support and resistance levels can be estimated using trend lines and Fibonacci retracement levels. Moving averages may also be used to find reversal points or generate entry/exit signals.
Traders also tend to use Bollinger bands or oscillator indicators to identify trades. There is no dearth of indicators available to analyze the price action.
Ultimately, instead of hunting for the perfect indicator combination, simply try to use what works for you. Even one indicator, if used effectively, can make you money.
Final Words And Capital Preservation
Trading is a business and profit is not a guarantee. Every trade has a risk-reward equation. In order to attempt to earn a profit, a trader has to risk losing some capital. If things go well, there are profits to be enjoyed.
However, if things don’t go your way, a loss has to be booked. The key, therefore, is to ensure that when you win, you win big and when you lose, you lose small. Risk management is a must for trading currencies or any asset.
In this article, we discussed the basics of forex, touched upon the current scenarios of the American and Singaporean economies, and looked at ways that traders conceptualize trades.
If you are ready to trade USD/SGD, then open a new account with Cerus Markets. The ongoing 100% welcome bonus offer is a good way to begin trading.