Spread Betting: Trading AUD/JPY
If you want to spread bet on the Forex pair AUD/JPY (Australian dollar versus Japanese yen), then you should do some research into what moves each of these currencies. The currencies are moved by fundamental factors of the countries’ economies, as well as by rumours and speculation.
The Japanese yen is very popular as an Asian Pacific currency and this is particularly true when paired against the Australian dollar. One way to look at these currency pairs is to examine where the countries get their income and expenditure. Australia, for instance, is now heavily committed to the Asian market. It used to be that many of the exports and imports were with Europe and America, but that has changed in the face of booming eastern economies, and a large amount of Australia’s trade is now with China. Australia has significant reserves of a number of commodities, including base and precious metals, and coupled with a vigorous manufacturing industry tends to have a healthy balance of trade. Perhaps its only weakness is a lack of oil, most of which is imported.
Japan on the other hand has to import a great number of goods, but its manufacturing is generally strong. Again, over the last few decades it has changed its focus and is now a powerhouse of the industrial nations.
This is not to say that these countries have not suffered setbacks. Japan went through substantial decline in the 1990s and is only now rebuilding to the levels previously enjoyed. Because of its dependency on exports for a thriving balance of payments, Australia was caught, along with Japan, in the global economic downturn a couple of years ago. However, as Australia is largely self-sufficient for food, it is less sensitive to global conditions than some other countries.
That is the background from which these countries now operate. To take account of current conditions, you need to be aware of the present value of fundamental factors, such as the rate of inflation, and the consumer price index. For most countries, the national banks try to control inflation as well as stimulate the economy by regulating the official rate of interest, which is reflected through most of the private loans and home mortgages. However, the rate of interest is only one variable in the economy, and is sometimes a balance between doing good in one direction at the expense of another. For instance, if a change in the rate of interest increases the value of the currency, then it means imports are cheaper, which controls the consumer spending; however exports are more expensive to other countries, which might lead to a decline in demand for manufactured goods, reducing employment and wages.
Between the two currencies there is a large yield which is a strong indicator of risk appetite. As a risk asset, the Australian dollar can be played against the Japanese yen. When the economic climate worsens, the high yielding Australian dollar normally comes under pressure while the low-yielding yen moves higher which correlates clostely to movements in the equity markets. On the other hand when investors appetite for risk improves, they tend to buy the high yielding Aussie dollar and short (borrow) the low-yielding yen. Having said that, any time you are looking at short-term trading, such as the spread betting on the currencies, you can only do so much from looking at fundamentals. If you want to bet for a few days or a few weeks, you need to examine the price charts using technical analysis, which can help reveal whether prices are continuing in the same direction, or about to change. Combined with candlestick charting techniques, you have some powerful tools to enable you to pick and time your bets appropriately.
Spread Betting on the AUD/JPY
A forward spread bet on the AUD/JPY is currently is priced at 8087.6 – 8098.1. Whenever you spread bet, you should be aware of the spread between the selling and the buying prices, and in this case it is 10.5 points. A lower spread means that you do not need the price to go so far in your direction before you start winning. The spread tends to be higher on a futures contract, but there are no ongoing costs for holding the bet, such as are applied to the daily rolling long bet.
Perhaps you favour the Australian dollar against the Japanese yen. If commodity prices are rising, and Japan is buying more goods from Australia, then that sets the scene for a long bet on this currency pair. Perhaps you would stake £3.50 per point on the Australian dollar with a buy bet at 8098.1. If it works out, the price could be 8263.2 – 8273.7 in a few weeks, when you can close a long bet and take your winnings.
To see how much you’ve won: –
- Your long forex spread bet was placed on at 8098.1
- Your spreadbet was closed at 8263.2, the selling price
- The difference between these is 165.1 points, which is your gain
- As you bet £3.50 per point, you won a total of £495.30.
Spread betting and trading are not sure things, and sometimes the price will go the other way. Say it dropped, and you decided to close your bet and accept your losses when it reached 8043.4 – 8053.9, instead of waiting in the bet and watching the losses mount up.
In this case you lost: –
- Your long bet was put on at 8098.1
- Your forex spreadbet was closed at 8043.4, the selling price
- The difference between these is 54.7 points, the amount you lost
- As you bet £3.50 per point, you lost a total of £191.45.
If instead of favouring the Australian dollar, you thought that the Japanese yen was going to be the stronger currency, then you would place a short spreadbet. The Australian dollar going down is the same thing as the Japanese yen going up. You might risk £5 per point on this bet. The short or selling bet would be placed at the lower price of 8087.6.
Not so long ago, the price was around 7600, and this time it dropped to 7765.8 – 7776.3, when you decided to close your bet and take your winnings.
- Your bet was placed at 8087.6
- Your bet closed at 7776.3, the higher price as it was a short bet
- This means you gained 311.3 points
- You bet £5 per point
- Your total winnings are 311.3 times £5, which is £1556.50.
Once again, you might have found that your bet did not win, and you would have to close it quickly and cut your losses. Say it went to 8123.0 – 8133.5, and you decided to close the bet and accept a small loss.
- Your spreadbet was placed at 8087.6
- Your bet closed at 8133.5
- This means you lost 45.9 points
- You bet £5 per point
- So you lost £229.50
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