Spread Betting: Trading EUR/JPY
Spread betting on the EUR/JPY is very popular, because these are active currencies with which most people can relate. The value of the currency is a reflection of the country’s economy, and most people know about Japanese trade and probably own several high dollar products from Japan, such as cars, motorcycles, or electronics equipment. The fact is that Japan thrives and survives on exporting manufactured goods and importing essentials, including food and commodities as well as the raw materials for the manufacturing process.
As a major exporter, Japan, which had only just got over its economic collapse about a decade ago, has been hit again by the global economic crisis, which means that consumers in other countries are less able to afford its goods. However, it is at least on the way back up, whereas the future of the euro and the partner countries in the European common currency is still in doubt.
As a large importer, you can expect Japan to be affected by commodity price changes. It currently has increased in value in recent years compared with others, which is both a good and bad thing. It is good because Japan is more easily able to buy the necessary imports, but it is bad for its trade with other countries as the exports now cost more.
The Euro/Yen cross has been one of the best indicators of risk and stock market direction for the past few years. It is now trading at lower levels since its peak in 2007
Any analysis of the euro is difficult. While you can see overall trends, because it is tied to 17 countries which vary from “near bankruptcy” to “recovering nicely thank you” it can be difficult to know which countries will have the greatest effect on the value. Certainly, Germany is a major player in the euro currency market, so some traders tend to concentrate on the health of that economy. Add in the fact that many of the countries have a limited amount of trading with the rest of the world, and you can pin the fortunes of the euro down to about four Western European countries, which account for about 75% of the gross domestic product of the euro zone.
But to concentrate purely on fundamentals is to miss the point of short-term trading and spread betting on the Forex market. Spread trading is not intended to replace investment, or to be planned for a long time horizon. In fact to qualify for spread betting, there must always be an end date to every bet you place, even though the daily rolling bet is automatically renewed and rolled over at the end of each day to a new bet.
Therefore, to time your bets and put the odds on your side you need to study technical analysis. Technical analysis is the study of price action, and how it can be used to project “market sentiment” and future actions of traders. Analysts use moving averages, support and resistance levels, and derived tools such as indicators which can show whether the price movement is expected to continue or to reverse in the near future. By combining these techniques with the fundamental factors on the economies, you should be able to improve your chances of success.
‘If we are about to enter a period of currency wars, with a race to the bottom between the yen, sterling and possibly now the euro, it’s only a brave trader who’d try to find some upside. A currency war will result in rather a bloody battle field where the short term investor may certainly take advantage of volatility, but the long term investor and institutions are in for a long and uncertain outcome; there will be casualties on both sides’
Spread Betting on the EUR/JPY
When you spread bet on Forex currency pairs, you can just as easily bet for or against a particular currency increasing in value. Because the meaning of the bet can be completely changed by the order of the currencies listed, you have to pay particular attention to the quote. For the EUR/JPY, the current spread betting quote is 10,120.1 – 10,121.8. The euro is the primary currency, which means a long bet on this pair is looking for the euro to go up in value relative to the yen. If you want to bet on the yen increasing in value, you have to place a short bet.
Suppose you think the euro will increase in value, you can take out a buy bet or long bet on the upper or buying price of 10,121.8, and might stake for instance £4.50 per point. Suppose the quotation goes up to 10,353.2 – 10,354.9, and you decide to close your bet and take your profit. Your spread betting company will work out how much you have won for you, but if you want to check it here’s the calculation: –
- You opened the bet at 10,121.8
- You closed the bet at 10,353.2
- The amount you won was 10,353.2-10,121.8
- That’s a total of 231.4 points
- Your stake was £4.50 per point
- Multiplying together, you have won a total of £1041.30
If your bet did not win, and the price started going down, you would have to decide at what price level you would close your bet and accept your loss, before it became any greater. Say this was when the price quote was 10,083.2 – 10,084.9.
- You opened the bet at 10,121.8
- You closed the bet at 10,083.2
- The amount you lost is 10,121.8-10,083.2
- That’s a total of 38.6 points
- Your stake was £4.50 per point
- Multiplying together, you have lost £173.70
Taking now the other case, where you think that the yen will increase in value, you want to take a short bet on the currency pair. You can do this on the selling price, which is 10,120.1, and this time you stake £6.25 per point. If the yen does increase in value, which corresponds to the euro going down, the spread bet quote will go down say to 9953.7 – 9955.4. As this is a short bet, it closes on the higher, or buying price.
- You opened the bet at 10,120.1
- The bet closes on 9955.4
- You have won 10,120.1 less 9955.4 points
- That is 164.7 points
- Your stake was £6.25 per point
- Therefore you won 164.7 times £6.25
- For a total win of £1029.37
Once again, you have to watch out that you do not lose too much of your capital if the price goes against your bet. Say it rose to 10,153.4 – 10,155.1, and you decided to close your bet.
- You opened the bet at 10,120.1
- The bet closes on 10,155.1
- You have lost 10,155.1 minus 10,120.1 points
- That is 35 points
- Your stake was £6.25 per point
- Therefore you lost a total of £218.75
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