Spread Betting: Trading GBP/CHF
When you spread bet on the currency pair GBP/CHF (the British pound sterling versus the Swiss franc) you are betting on two major long-standing currencies. Both the UK and Switzerland decided for their own reasons not to join the European monetary union and convert to the euro, and kept control of their own currencies. Although England has had financial difficulties which are still working through, this means that the British Parliament has had control in trying to resolve the problems. On the Swiss side, the Swiss economy has always been under tight control as this is the nature of the country, and indeed the reason that the term “gnomes of Zürich” was originally coined.
The pound sterling has been around since the “year dot”, and has been a major standard around the world because of the British Empire. While the empirical days are over, Britain still has influence worldwide, and there are many Commonwealth countries with allegiance to the monarchy. London is a major financial centre, and despite the US dollar being recognized as the number one international currency, there are few who would not recognize the strength of the British pound.
This does not mean that the pound will always be valued in currency exchange. The global financial crisis hit the UK hard, and is still being worked through, with various austerity measures imposed and planned to bring back economic strength.
The Swiss chose to keep control of their own currency, also, when the European Union voted to adopt the euro. In fact, the Swiss are the only country in Europe to still issue what is called a “franc”, despite it being common nomenclature for European currency prior to the adoption of the euro. The principality of Liechtenstein shares the same currency with Switzerland. As a small landlocked country, Switzerland has always tightly controlled its economy, and depends on its imports and exports. Swiss quality of manufacturing is a hallmark that helps it succeed in the worldwide markets.
With that backdrop, the major factors that you need to keep up to date on so that you can form a judgment of the strength of the currencies include economic indicators, such as the balance of trade and whether the country trades at a deficit with its trading partners. If so, you can expect measures to be taken to try and redress the balance.
Measures that can be taken by the government include the central banks changing the benchmark interest rates. If these are lowered, it can stimulate the economy by making it cheaper to borrow, which helps companies borrowing money and also consumers wanting to buy things. If interest rates go up, it can slow the rate of inflation and discourage further spending. The relationship between interest rates in the two countries, the UK and Switzerland, will also put pressure on the currency pair.
Further items that you need to consider are things such as the unemployment rate, and on this Switzerland has always scored well because of its tight economy. You should employ technical analysis on the charts to determine the timing for placing a spread bet, and refer to the fundamentals to understand the pressures that are moving the market.
Spread Betting on the GBP/CHF
From being in the 20s a few years ago, the value of the pound sterling has sunk significantly against the Swiss franc, and the current quote with IG Index for a daily rolling bet is 14,347.5 – 14,366.5. The fall in value of the pound is a direct result of the global economic crisis, which Switzerland was better able to survive.
Suppose you think that the UK is getting stronger compared with the Swiss franc, you might place a long bet for £5.50 per point. As a rolling daily bet, each evening the bet is closed and reopened for the next day, which will probably result in a small amount of interest charged to your account. If your bet is good, you might find that the price of the currency rises to 14,628.2 – 14,647.2, and decide then to close your bet and take your profit.
You opened your long bet at 14,366.5. It closes at the selling price, 14,628.2, which means that you have gained 14,628.2 less 14,366.5 points. That works out to 261.7 points. You chose to place a reasonably large bet of £5.50 per point on this volatile currency so the total you have won is £1439.35.
When you place a bet, you must always consider the possibility that it will not win. Say in this example that the quotation fell to 14,298.6 – 14,317.6, you might close the bet to protect the rest of your capital. You can work out how much you lost as simply as you worked out how much you won. The bet was opened at 14,366.5, and closed at 14,298.6, which means you lost 67.9 points. Multiplying that out by your stake gives a total loss of £373.45.
It is just as easy to place a bet if you think that the Swiss franc is going to increase in value, compared to the pound sterling. You simply have to make it a sell or short bet, and it would go on at the lower price of 14,347.5. Say you bet £2.50 per point. This time you’re looking for the numbers to go down, as this shows you need less Swiss francs to buy the pounds, in other words the franc got stronger.
Perhaps the price drops to 14,123.2 – 14,142.2, and you decide to close your bet while it is winning. Your bet opened at the price of 14,347.5, and it must close at the higher buying price, which is 14,142.2. 14,347.5-14,142.2 is 205.3 points, so your bet wins you £513.25.
When you place your bet, it is a good idea to work out how much you can afford to lose if it goes the wrong way, and have a losing price level in mind. Say you decide to close your bet for a loss when the price reaches 14,389.6 – 14,408.6.
Your bet went on at 14,347.5, and it closed at the buying price of 14,408.6. That’s a gain of 61.1 points, which unfortunately is against you as you placed a short bet. Multiplying this times your stake, you find that you have lost £152.75.
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