How to Get Exposure on the Yen

Q. Do you have any suggestions as to how the small investor might get exposure to the Yen?


A: This is where spread betting provides a simple solution to get exposure to the Yen without the hassle of opening overseas accounts and paying high percentage conversion fees moving money around the world.

I got my exposure by shorting 'Forward GBP/JPY'... i.e. betting that the futures price for GBP/JPY would fall. You can bet on the daily rolling FX rate, but your position will be closed each night and re-opened for the next day, meaning you lose track of what price you bought in at, and you also pay margin for each close/open. By working the futures you save this hassle but you have to realise that with the 'cost of money' for GBP higher than JPY, the futures price will always be lower, and therefore you lose some of your gains when betting for a fall. (I've made this sound really complex and it's not - sorry!).

Put simply, if you have, say £50,000 in savings you'd like to hedge against GBP falling against the JPY, you could short GBP/JPY by £2.50/point. IG currently quote June GBP/JPY at 19820 ... so by betting £2.50/point you get exposure to 19820 x £2.50 = £49550 ... So if the pound devalues by 10% against the JPY you'll make ~£4955. If it increases you lose by £4955 ... but of course your savings will also have increased (relatively) by 10%.

Of course if you want to move from simple hedging to actually trying to turn a profit, then you could load up and bet (say) £10/point ... effectively exposing you to £200,000 in JPY. You just need to be careful and understand that you're using leverage. IG require £300 be deposited with them for every £1/point you place on GBP/JPY. So if you wanted to go £10/point you *could* do it with just £3000. Of course, if things move against you that £3000 could disappear very quickly, so ideally you need to be able to back it up with liquid funds. My advice: don't be greedy, understand just how much leverage affects things and don't go opening positions which give you holdings of several hundred thousand pounds if you only have £2k in the bank. You *will* get burned up very quickly if you do this.

And remember this is not investment advice - currency trading is risky and should have a health warning on the trading ticket!

 ...Continues here - Spread Betting on Gold

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