The currency trading market in Singapore is vast and complex, with a wide range of currency pairs available to traders. It’s essential to understand the nuances of each pair and the risks associated with them and be aware of the typical cliches that people use when discussing currency pairs. This article will discuss these cliches and explain why it’s best to avoid using them.
The USD/SGD is a low-risk option
This phrase is generally used by inexperienced traders who believe that because this pair includes two currencies from stable economies, it would present a lower-risk option than other pairs. The reality is that the USD/SGD rate is subject to many different factors, including global economic trends and geopolitical events. Therefore, evaluating all aspects of the pair is essential before investing in it. Moreover, this pair is typically highly volatile, meaning prices can change quickly and unexpectedly.
The EUR/USD moves in the same direction all the time
The EUR/USD pair is often referred to as correlating with itself, meaning that it tends to move in the same general direction at any given time. While this may be true for short periods, there are no guarantees regarding how this pair will behave over more extended periods. As a result, traders must remain vigilant about market conditions and changes and adjust their strategies accordingly. Additionally, they should back up any assumptions about the pair’s movements with research and analysis.
Currencies always move in pairs
This cliche is another common misconception amongst inexperienced traders who believe that whenever a currency pair moves, it is only going in one direction. The reality is that no two currencies ever truly move in tandem, as many external factors influence their prices at any given time. Traders must study both countries’ economic and current climates before they can start to understand how each currency may perform differently.
A currency will always behave in a certain way
Although predicting how a currency pair will react according to general patterns is tempting, these assumptions are too broad and lack real depth. The behaviour of each pair is determined by numerous variables that can change over time, so traders should expect the unexpected rather than rely on generalisations when trading. Additionally, it’s crucial to stay informed about the latest news and current events that could affect the performance of a currency pair.
The Yen is always a safe bet
The Japanese Yen (JPY) is often seen as the safer currency due to its stability and low volatility compared with other currencies. However, this does not make it immune to fluctuations in the global market, meaning that it can still be subject to losses if traded incorrectly. Additionally, traders should also bear in mind that Japan’s economy is heavily dependent on exports, meaning that changes in global demand for Japanese goods can impact the JPY exchange rate. As such, the JPY should never be viewed as a guaranteed route to success.
Currency trading risks
While there are several benefits to forex trading, traders should always know the risks to make informed decisions. As with any investment, it’s essential to have a thorough understanding of the markets and the different currency pairs being traded.
Leverage allows traders to increase their exposure in the markets by borrowing from a broker and using the borrowed funds to open more significant positions. While it can help to amplify returns, it can also lead to significant losses if trades don’t go as planned. As such, traders should use leverage cautiously and within sensible risk parameters.
Volatility refers to how quickly prices can change in the forex market and is often caused by particular current events or economic news releases. This volatility can mean that price movements are unpredictable and difficult to predict, especially for novice traders. It’s essential to be aware of potential changes in pricing before entering into a trade so they can minimise any losses.
Liquidity refers to the ease with which a currency pair can be bought or sold. The number of buyers and sellers in the market determines it. Lower liquidity means it’s harder to enter and exit trades; however, higher liquidity means traders can fill orders more quickly at better prices. Therefore, traders need to research the liquidity of any potential pairs before investing.