Spread Betting: Trading AUD/SGD
Currency spread trading on the Australian dollar (Aussie) versus the Singapore dollar (Sing) is considered on of the exotic currency pairs and isn’t a popular choice amongst traders. For one there is the issue of wider spreads and thinner markets. This is despite the fact that the countries are relatively close to each other. It seems likely that this currency pair will be traded more in the future, as there is more trade between the countries.
The Australian dollar is the fifth most traded currency in the world, behind only the US dollar, pound sterling, euro and Yen. It is a popular currency because the interest rates in Australia are relatively high – currency traders are attracted to the idea of “carry”, where they can invest in a currency with high interest rates using currency with a lower interest rate, and to some extent increase their yield. The Australian government doesn’t play much part in manipulating the currency, which can also be an advantage for traders.
The Australian economy is resource rich, and Australia is a large country with a relatively small population. Its main industries include agriculture, exporting wheat and wool, and mining resources such as gold and iron ore. It has enjoyed steady growth over the years, although the global economic crisis of 2008 set it back. It has an increasing amount of trade with Asia and China in particular.
Singapore is a small country, but one of the most densely populated countries in the world, unlike the wide-open spaces of the Australian outback. Malay is the national language, but English has been mandated in all schools, and is widely used in business. It counts as one of the newly industrialized countries, along with Hong Kong, South Korea, and Taiwan. Its economy has been growing rapidly, and although it is supposedly a free-market economy, it also has state intervention, assisting in production, and this combination has proved to be very successful.
This was an economic necessity for Singapore, because given the small domestic market it relies on external markets for most of its trade. The state has provided safeguards against fluctuations in external conditions, allowing industry to thrive. It is also well placed globally, with a natural seaport and a strategic geographic position. Consequently, it has one of the highest gross domestic products (GDP) of any country in the world.
Singapore specializes in exporting electronics and chemicals, and imports natural resources and raw goods which it does not have locally. Unemployment is low, and there is a labour shortfall which is made up with foreign workers. It has comprehensive trade agreements with many of its trading partners.
It is easy to see that the fundamentals of both countries can be very good, with perhaps Singapore having the edge. When you are spread betting on the currency exchange rates, however, you have to look at how the economies are changing. Technical analysis teaches us that all that can be known is already priced into the rates, therefore you will be most interested in what is altering when you come to assess your spread betting. Technical analysis will also give you an indication of the mood of the market, which will lead you to deciding which way to spread bet.
Spread Betting on the AUD/SGD
Less frequently traded, the currency pair Australian dollar versus the Singapore dollar is an out of the ordinary combination. It will repay careful study of the charts for a couple of weeks before you start betting in earnest. The current spread betting price for this Forex pair is 13,349.5 – 13,361.5.
If you think that the Australian dollar will strengthen against that from Singapore, then you would want to place a long forex spreadbet or ‘buy bet’ on this currency pair, staking say £2.50 per point. If the spread betting quote goes up to 13,721.2 – 13,733.2, then you could close your bet and take your winnings. This is the way to work it out: –
- You took out your long forex spreadbet at a price of 13,361.5.
- When you closed it, the selling price was 13,721.2.
- The difference in points is 13,721.2-13,361.5.
- That means you gained 359.7 points.
- Your stake was £2.50 per point.
- Therefore you won 359.7 times £2.50.
- Your total winnings are £899.25.
If on the other hand you were wrong, and the price fell after you took out your bet, you would reach a point where you needed to close your bet and cut your losses. Say this happened when the price quote went to 13,301.2 – 13,313.2. Calculating your losses is similar to the above calculation: –
- You took out your long spreadbet at a price of 13,361.5.
- When you closed it, the selling price was 13,301.2.
- The difference in points is 13,361.5-13,301.2.
- That means you lost a total of 60.3 points.
- Your stake was £2.50 per point.
- Therefore you lost 60.3 times £2.50.
- Your bet has cost you £150.75.
Supposing you wanted to bet on the Singapore dollar, that is you think the Singapore dollar will go up compared to the Australian dollar. Because the Singapore dollar is second in the pairing, this is the same thing as spread betting that the price will go down, that the Australian dollar will weaken. Therefore you would need a short spreadbet on the currency pair. For example, place a sell or short bet for £3.25 per point.
If your bet works out, you might close it and take your winnings when the spread betting quote was 12,986.2 – 12,998.2. You can work out how much this bet made you like this: –
- You took out your short bet at the selling price of 13,349.5.
- Your bet closed at 12,998.2.
- Therefore you made 13,349.5 less 12,998.2 points.
- That’s a profit of 351.3 points.
- Your stake was £3.25 per point.
- Your total winnings are £1141.72.
You could be wrong, and after you place your bet you might find that the market goes up. If it went to 13,391.0 – 13,401.0, you could close your bet and accept your losses. Here’s what you lost: –
- You took out your short bet at the selling price of 13,349.5.
- Your bet closed at 13,401.0.
- Therefore you lost 13,401.0 less 13,349.5 points.
- That amounts to 51.5 points.
- Your stake was £3.25 per point.
- You lost a total of £167.37.
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