Spread Betting: Trading GBP/AUD
You can see from this chart that the pound sterling versus the Australian dollar is a stable and predictable currency pair, giving good “doji” (candlestick) signs for reversals and following the Bollinger bands. The two economies are very different in the way that they work, which would tend to inspire changes in value of the exchange rate.
The pound sterling is one of the oldest anchor currencies, and London is one of the largest financial centres. Although a small island country, the UK has had widespread influence around the world through its previous colonization and the British Empire. It benefits from North Sea oil, but otherwise does not have many untapped natural resources. Most of the economy outside of the financial field has been built-up therefore by the industrial section, and even though this is in decline it is still dominant.
Australia is a much larger country, and vast areas of it are undeveloped. Australia has many resources such as gold, uranium, coal, natural gas, copper, and iron ore, but its service sector contributes the most to its gross domestic product (GDP). Other exports include agricultural goods, such as cattle, sheep, and poultry, wheat, barley, sugarcane, and fruit. It also ranks well for quality-of-life.
Australia is well-placed for long-term economic growth, as it has a favourable economic environment with freedom of trade and diversity. The chart above shows how the Australian dollar has been steadily growing in value against the British pound – the falling line signifies a strengthening dollar. It exports a great deal to Asia, and thus benefits from the emerging economies of China and India.
The economy is experiencing rising output, and is helped by a relative lack of intervention of the government in terms of regulations. The lack of international demand during the global economic recession caused some concern, as does rising housing prices, but the Australian dollar on the whole appears to be undervalued relative to the resources that can be accessed. As commodity prices typically seem to rise, this can only work to the advantage of Australia.
In the context of a strengthening Australian dollar, it is best on the whole to look for shorting opportunities for this currency pair, though this does not preclude you betting on pullbacks. Technical analysis works well, as noted above, but you should keep an eye on the impending news releases, such as interest rate changes, unemployment, and inflation. It often works out best not to be in the market when the announcements are made, as there may be some initial overreaction.
The benchmark interest rate in Australia is 4.25%, and this may go higher to try and dissuade the property bubble from developing further. Compare this to the Bank of England’s record low base rate of 0.5%, and it is easy to see that the Australian dollar remained very attractive to currency speculators. Therefore simple supply and demand, based even on just this gauge, should ensure steady growth in the value of the dollar and the sinking of this currency pair.
Spread Betting on the GBP/AUD
The GBP/AUD, the pound sterling versus the Australian dollar, is currently trading at 14,764.8 – 14,775.8 for a rolling daily spread bet. If you think that the Australian dollar is going to continue to strengthen against the pound, then you would need to place a sell or short bet on this pairing, as the Australian dollar is the second currency named.
Say you bet £5 per point on the Australian dollar, that is a short bet at a price of 14,764.8. Over the next few days, the value dropped to 14,582.6 – 14,593.6, and you decided to close the bet and take your winnings. Your spread betting dealer may have given your account a small credit each night when the bet was rolled over, as it was a short bet, but this is usually insignificant. You can work out the profits on your bet like this: –
- your short bet was placed at 14,764.8
- the bet closed at the selling price of 14,593.6
- the number of points you gained was 14,764.8-14,593.6
- and that works out to 171.2 points.
- Your stake was £5 per point
- therefore you won 171.2 times £5
- which is £856.
It is usual to have a share of losing bets as well as winning ones when you are spread betting, and therefore you may need to work out how much you lose if the bet goes against you. Say the price went up to 14,815.1 – 14,826.1, and you decided to cut your losses and close your bet. Here’s how much you lost: –
- your short bet was placed at 14,764.8
- the bet closed at the selling price of 14,826.1
- the number of points you lost was 14,826.1-14,764.8
- and that works out to 61.3 points.
- With your chosen stake of £5 per point
- you have lost a total of £306.50.
You might also be interested in taking out a futures style bet. The current quote for a bet that is five months away is 14,958.4 – 14,984.4. Perhaps this time you want to bet on the GB pound strengthening, and against the Australian dollar, so you place a long bet at £2.50 per point. Because this is a futures style bet, there is no daily adjustment and you can hold onto the bet until expiration without paying any more. However, if it goes to a win you can close it at any time and collect.
Say the price goes to 15,283.6 – 15,309.6, and you decide to collect your winnings. The calculation is simple: –
- Your long bet was placed at 14,984.4
- and the bet closed at 15,283.6.
- You have won 15,283.6 less 14,984.4 points
- which is 299.2 points.
- With your stake of £2.50 per point
- you have won a total of £748
Suppose instead that the price stayed low, and only crept up to 14,852.8 – 14,870.8 in the first few months. You might want to close the bet and accept your losses.
- Your long bet was placed at 14,984.4
- and the bet closed at 14,852.8.
- You have lost 14,984.4 less 14,852.8 points
- which is 131.6 points.
- With your stake of £2.50 per point
- you have lost £329.
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