Spread Betting: Trading EUR/CAD
There are several influences on the exchange rate between the euro and the Canadian dollar (EUR/CAD), and it is a volatile pair to spread bet, with moves of several hundred points sometimes occurring. The economies are very different, and you can expect the rate of exchange to change over time. The rate has been below 13,000 and above 17,000 in the space of a few years.
The euro is the established currency for a majority of the European common market countries, though not all of them. In particular the UK and Switzerland kept their own currencies when the euro was adopted over 10 years ago. Because it is used by many countries, fundamental analysis is complicated. Each country has its own issues with its economy so even though the European Central Bank is in control of the interest rates of the euro, individual countries cannot be individually served with an optimum interest rate to encourage full employment and stimulate the economy. In the end, the ECB has to choose a compromise level.
However, the countries using the euro are dominated by four major international trading centres, with Germany being the largest, so analysis can be simplified by concentrating on these. Each country will have its own jobless rates, balance of trade, and inflation rates, and the effect of these is averaged out by using a single currency.
The Canadian dollar (CAD) or “loonie” represents a very different economy. Canada is a large country which is sparsely populated, and which is rich in natural resources, most notably timber and oil. The majority of Canadian trade takes place with the United States, its southern neighbour. Canada ranks number nine in worldwide oil production, and may climb higher with the increased production from oil sands. In fact, of all oil producing countries Canada supplies the most oil to the United States. It is also reckoned that Canada’s oil reserves are second only in size to those of Saudi Arabia.
In practice, this means that the value of the Canadian dollar is highly correlated to oil prices, and some experts put the level of correlation as high as 80%. As the price of oil seems destined to rise, because of the finite nature of the reserves, so the Canadian dollar will become more valuable.
Other fundamental factors that affect the value of the Canadian dollar include those already mentioned for the euro. Employment figures, cost of living, and industrial output can be easily researched online, together with the various dates when the numbers are updated when you might expect some movement in the currency.
For spread trading purposes, you will also need to consider technical analysis and its application to the price charts. By looking at historic price movements, technical analysis provides an indication of market sentiment and can help identify developing trends. There are several different types of indicators which can be imposed on the charts, and each has their place. By using them, you will be better able to time your entries and exits to maximize your profit potential.
Spread Betting on the EUR/CAD
The EUR/CAD gives you the opportunity to spread bet on the fortunes of the euro against the Canadian dollar, a pair of dissimilar economies. The euro is used by a combination of developed Western economies that are fairly familiar, and Canada is a vast country with many resources, so its economy is strongly affected by the price of raw commodities, such as oil and timber. The current spread betting price for the EUR/CAD is 13,176.8 – 13,186.8.
When you are strong on the Canadian economy, and think it is going to increase in value compared with the European one, you will need to place a short or sell bet on this currency pair. In other words, a strong Canadian dollar is the same as the weak euro for spread trading this pair. You might bet £6.50 per point that the euro will go down.
If you are correct and the quotation goes down, you will take your profit when you believe it has maxed out, say at a level of 12,952.1 – 12,962.1. If you want to check your spread betting company’s calculation, this is how you work out your winnings.
- Your sell currency spreadbet opened at 13,176.8
- Your spreadbet closed at 12,962.1
- The difference in points is 13,176.8-12,962.1
- Therefore you have gained 214.7 points
- Your stake was £6.50 per point
- You have won a total of £1395.55
Some of the time, your bet will not win, so you need to be able to figure out how much you are losing. If the price went up to say 13,215.6 – 13,225.6, and you decided to close the bet and accept your losses, this is how you would work it out.
- Your sell spread bet opened at 13,176.8
- Your currency spreadbet closed at 13,225.6
- The difference in points is 13,225.6-13,176.8, this time against you.
- Therefore you have lost 48.8 points
- Your stake was £6.50 per point
- You have lost a total of £317.20
Note that when you are in a losing forex spreadbet, you should close the bet as quickly as possible to minimize your losses. Although having said that, you should also give the forex trade room for normal everyday fluctuations – but do close the trade if it turns against you.
You can also place a futures based spreadbet on the EUR/CAD. The quote for futures based bets usually has a larger spread, this covers the spread betting broker’s costs and allows you to hang onto the bet without further charges until expiration date. The current quote is 13,214.9 – 13,234.9. Take out a long bet for £2.50 per point, betting that the price will go up, in other words that the euro will strengthen against the Canadian dollar.
The market goes up to 13,362.1 – 13,382.1, and you close your bet for a win. You have gained 13,362.1-13,234.9 points, that is 127.2 points, which at your chosen stake is a win of £318.
If instead the market goes down, once again you must close your bet quickly and accept your losses. Say it goes to 13,193.2 – 13,213.2, you have lost 13,234.9 less 15,193.2, which is 41.7 points. At your chosen stake, this bet has cost you £104.25.
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