Within any exchange, various factors can affect an asset’s buying and selling prices. This holds true when it comes to foreign exchange (forex). Singapore traders need to be aware of how these different factors influence their trading decisions to avoid losing out on opportunities or incurring unnecessary losses while managing their risk profile.
What are PIPS and LOTS when trading FX in Singapore?
Pip stands for price interest point. It is the smallest unit by which the price of a security change against another currency pair at any given time – precisely four decimal points, e.g. 0.0001 per NZD/SGD. Pip value is significant because it reflects the changes in a currency’s market price and can be used to determine how an investor’s trade fares against other currencies or assets.
When trading forex in Singapore, traders should know that one pip roughly corresponds to $10 per lot traded (notional value). For instance, a five pip movement of a high-yielding GBP/AUD exchange rate will increase the SGD cost of AUD by 0.50%, which translates into SGD 50 per AUD traded times 100 units for each standard lot SGD 500 for 50 standard lots.
Since different currency pairs have varying pips values, always check with your dealer on what they consider a pip when trading forex in Singapore.
What are the characteristics of a trading lot?
When trading Forex in Singapore, traders use standard lot sizes to make a single transaction for their currency pair. What is a standard lot size? This refers to the number of base currency units available for purchase or sale with one unit of a quote currency.
For instance, it will require 100 USD as the quote currency to buy/sell one standard lot EUR/USD. In other words, buying/selling 100000 US dollars’ worth of Euros requires one standard lot. Know that trading lots are not capitalised as much as they significantly affect cash flow and margin requirements when trading forex in Singapore.
How do volume and value affect trading?
Here is a fundamental equation you can use to determine your trading volume
Value of one lot = price per pip x number of pips / 100 (equals to approx. value in USD)
Volume (in lots) = Value per lot x Number of Lots
When trading forex in Singapore, traders should know that the higher the number of lots traded, the greater the exposure is to market volatility. On the other hand, lower volumes mean less risk and lower potential returns on investment when they achieve their goals.
Since Forex traders in Singapore employ various strategies, they need to understand how each trading strategy affects their portfolio performance before making specific decisions. By understanding why they are taking certain positions, they will make the best decisions when trading Forex in Singapore.
Risks associated with using PIPS and LOTS in FX trading
When you start your trading journey, it is essential to decide how much risk you are comfortable with and if point/pips sizing when buying or selling financial instruments is right for you. You could always calculate how much can be bought or sold based on denominations such as US$25 (Decimal), one standard LOTS (Fractional) or 0.1 Standard LOTS (Decimal).
Conclusion
If you are looking to introduce forex trading or perhaps want to brush up on your knowledge of what is involved, use a reputable online broker like Saxo Bank. Traders do not need to worry about the complicated aspect of price quoting dealing with pips. With a Saxo broker, you will only pay commission when you enter your order, so you will never need to worry that the price for your trade will go beyond what you wanted. A Saxo Forex Broker also provides users with access to many liquidity providers, thereby ensuring that traders always get reasonable prices when they are placing trades.
