Using a synthetic cross-pair can be the most efficient way to gain exposure and generate income for those who trade cross-pairs. A synthetic cross-pair is a currency pair (or any other asset) that has the same return as another pair but at a lower cost. You automatically create a synthetic version of the second currency by selling one currency and buying another on an exchange.
Here’s how synthetic cross-pairs work
Computer software such as Metatrader 4 (MT4) allows traders to go long or short on these pairs. For example, if we want to sell GBP/JPY, we would place a sell stop below the support level of 141.79 and our buy limit above 141.28, automatically creating a long position in EUR/GBP. Conversely, if we wanted to buy GBP/JPY, we would place a buy stop above the resistance level of 142.24 and our sell limit below 141.76, automatically creating a short position in EUR/GBP.
To trade a synthetic cross-pair in Singapore, you will need to use an online foreign exchange platform that offers CFDs (contracts for difference). One such platform is the IG Index, which allows traders to speculate on the price movements of over 11,000 global markets, including dozens of currency pairs.
How to trade a synthetic cross-pair?
Let’s look at trading EUR/USD and USD/JPY using IG Index.
Firstly, we need to open an IG Index account and verify our identity. Next, we would deposit funds into our account; we can choose from different payment methods such as credit/debit card or bank transfer.
Under the “Trade” section of the platform, we will click on “CFDs”, select EUR/USD and set a sell limit order with a stop loss. The price is displayed in a decimal format, so for simplicity sake, let’s say it’s 1.293, which means that each pip is worth $0.0001293
We then repeat the process for USD/JPY, placing a buy limit order and stopping loss and setting the order size to $1 per pip.
When the order is filled, our trade automatically generates a long position in EUR/USD and a short position in USD/JPY. We can now sit back and wait for the markets to move in our favour.
Benefits of trading a synthetic cross-pair in Singapore
There are several benefits of trading a synthetic cross-pair in Singapore. Firstly, this allows traders to gain exposure to new markets without purchasing the underlying cryptocurrency. In addition, the use of a cryptocurrency regulated exchange ensures that traders funds are safe and secure.
Secondly, by using a regulated exchange like Coinhako, traders can be assured that their funds are safe and secure. Finally, trading a synthetic pair can avoid slippage and trade with lower spreads.
Risks associated with trading a synthetic cross-pair in Singapore
The risks of trading a synthetic cross-pair in Singapore can be significant. When trading with synthetic cross-pair, you are essentially taking a position in two different assets simultaneously. This can lead to higher risk and volatility than traditional trading strategies.
There are a few key things to keep in mind when trading a synthetic cross-pair:
Understand the underlying assets
First and foremost, always make sure you understand the underlying assets involved in the trade. This is especially important when trading exotic pairs, as the underlying assets may be less familiar to you.
Be aware of the correlations between assets
Be aware of the correlations between the different assets involved in the trade. If one asset moves significantly against your position, it can quickly offset any profits made on the other asset.
Finally
Trading a synthetic cross-pair is not without risk, and you must understand the mechanics of the trade before placing your order. Always use stop losses to protect your capital and remember that past performance does not indicate future results. New traders interested in forex trading should use a reputable online broker from Saxo Bank and practise their trading strategies on a demo account.