Spread Betting: Trading EUR/NZD
When you first start trading the Forex currency pairs, you are taught that there are really six main pairs that everyone spread bets on. The euro versus the New Zealand dollar is certainly not one of them, but there are some interesting aspects to the way this pair behaves, and it’s worth a look.
First, when you look at any currency pair that is new to you, you need to find out about what makes the countries’ economies work. That way, you’ll be able to anticipate changes when you hear the news. Taking first the euro, this is a currency shared between many countries in Europe, the most notable exceptions being the UK and Switzerland which decided to stay with their native currencies when everyone else converted a few years ago.
This immediately causes a complication. There are both weak and strong economies in the euro currency system. Typically, Germany is named as the strongest, with France, Italy, and a couple of others close behind. But even Italy has allowed some bad decisions to damage its economy. On the other end of the spectrum, you have countries like Greece, Slovenia, Estonia and others which are not contributing so much to the health of the euro. There have even been suggestions that Greece could leave the European monetary system altogether, reverting to the drachma, but as this option was not even included in the original treaty, nobody knows how that would turn out.
Given the size of Germany and Greece, it is unlikely that such an action by Greece would bring down the euro, and the German economy will tend to dominate how the euro performs. There is no clear route yet for full recovery of Europe, but in that position they are no worse off than many other of the world economies.
In contrast, New Zealand is trying hard to come out of its financial problems, when it was running increasing debt a few years ago. For the people of New Zealand, quality of life in all respects is improving and at a very good level. New Zealand had its problems when its special trading relationship with the UK was negated by the United Kingdom joining the European Community, and now it has much more trade with Australia and Asia. Its economy is based heavily in agriculture, exporting meat and dairy products as well as wool and other items. It is a commodity producer, and its economy is affected by the way commodity prices change.
With rising energy costs, New Zealand is in the enviable position of having much of its electric power generated from hydroelectric plants, reducing the need for importing energy. If you want to spread bet on the EUR/NZD, you should pay attention to the regular economic indicators such as rate of inflation, unemployment figures, and gross domestic product, and take care with your betting when new figures are due, as they can tend to make the market move quickly. In order to time your bets, you must watch technical indicators such as the MACD on the charts.
Spread Betting on the EUR/NZD
The current price for a daily rolling spread bet on the EUR/NZD is 16,025.4 – 16,039.4. The spread of 14 points is an indication that this currency pairing is not popular or heavily traded, however it can easily move more than 100 points in a day, as you can see from looking at the charts, which gives you a good opportunity for profit.
If you believe that the euro will increase in value over the New Zealand dollar, then you would want to take a long position on this currency pair, buying at 16,039.4 with a stake of, say, £4 per point. If the price does go up as you hope, you could close the bet for a win when the quote reaches 16,256.3 – 16,270.3.
This is the calculation of how much you won –
- your currency bet was opened at 16,039.4
- your forex bet closed at 16,256.3
- which means you gained 16,256.3-16,039.4
- a winner of 216.9 points
- your stake was £4 per point
- which means you won £867.60.
With a daily rolling currency bet, you may have been charged a small amount of interest every evening when the bet was rolled over, but this usually does not impact your profit too much.
Sometimes your bet will not go in the direction that you had hoped, and you must accept that and allow for it when deciding how large a spreadbet to make. Say that the price went down to 15,996.2 – 16,010.2, and you had to close your bet to minimize your loss.
Here is how much you lost –
- your spreadbet was opened at 16,039.4
- your bet closed at 15,996.2
- which means you lost 16,039.4 less 15,996.2
- which works out to 43.2 points
- your stake was £4 per point
- which means you lost £172.80.
For another example, suppose you believe that the New Zealand dollar is stronger than the euro and will go up. For this pairing, the New Zealand dollar rising in value is the same as the euro sinking, and therefore you can place a short or sell bet on the currency pair to bet that the dollar rises. Perhaps you might stake £2.50 per point, and this would go on at the selling price of 16,025.4.
If you are right and the price falls, you could take your winnings when the spread bet quote drops to 15,832.1 – 15,846.1. As it is a short bet, it closes at the higher price of 15,846.1.
- Your bet was opened at 16,025.4
- Your bet closed at 15,846.1
- You won 16,025.4-15,846.1 points
- This is 179.3 points
- For a stake of £2.50 per point, you have won £448.25.
If you are wrong on this second spread bet, and the spread quote rises instead of falling, you will have to close your currency bet and accept your losses. Say it goes up to 16,062.0 – 16,076.0, and you decide to close your bet.
- Your bet was opened at 16,025.4
- Your bet closed at 16,076.0
- You lost 16,076.0 minus 16,025.4 points
- that is 50.6 points
- For a stake of £2.50 per point, you have lost £126.50.
Join the discussion