Spread Betting: Trading USD/NOK
The US dollar vs. the Norwegian krone is a currency pair that is little traded, but can repay study. The Norwegian economy is strong, and includes a high standard of living for its population. This is fuelled by a large amount of natural resources, notably oil in the North Sea off the coast. But even without petroleum exploration, Norway has many other resources including hydroelectric power and an extensive fishing industry.
Norway also has a lot of state ownership, free public healthcare, and other benefits that contribute to the standard of living. It’s estimated that 30% of the jobs are in government related employment, representing the highest government employment in the world. Unemployment is only around 3%, wages are nearly double those of the United States, and it seems that Norway will maintain these standards for the foreseeable future.
Not everything is booming in Norway, as agriculture has been declining along with the manufacturing industry, but as this is on the face of it a result of other industries expanding, it is not something that Norwegians would be worried about. There are concerns about the global economic recession and the European debt crisis because of its adjacency to Norway, but Norway is estimated to be a net creditor, rather than running up the national debt. The wealth in Norway does not come simply from natural resources, as it is also reckoned that the Norwegians have the highest productivity in the world.
All this bears some comparison that to the United States, where the gross national debt is still running at record levels, healthcare costs are increasing in leaps and bounds, and a significant proportion of the population are considered to be in poverty. However, these factors are long-standing and are therefore already priced into the current exchange rate.
Applying the normal standards to consider the health of an economy, such as industrial output, Gross Domestic Product, unemployment, inflation, etc. the economies of Norway and the United States are markedly different. As this is an existing situation, these figures do not need to be directly compared but merely updated with previous values for the same country. For instance, if the Norwegian unemployment rate goes up from 3% to 4% this would be a bad thing for Norway, even though the US unemployment rate is 8+ percent, and it would result in the Norwegian krone coming under pressure.
Oil prices can also impact the Norwegian krona given that Norway is one major export market of the commodity. As such the Norwegian krone will normally gain strenght when prices of oil increase, and vice versa. However, when you are spread trading on forex currency pairs, you are mainly interested in the performance of the economies relative to last week or last year. Technical analysis tells us that all the fundamentals that can be known are already priced into the rate as it is today. In fact, it is necessary to apply technical analysis in order to have some idea of the timing of currency rate changes. You’re not investing in a stock which is expected to grow in value, but merely placing a bet on which economy will do better in the short-term, and technical analysis will help you determine this in the context of the fundamentals.
Spread Betting on the USD/NOK
The Forex pair US dollar and Norwegian krone is one of the less popular pairings, and hidden away on the Scandinavian tab with some spread betting providers. The current quote is 58,639.8 – 58,699.8, and the bet size can be down to 10 pence, because the numbers are much higher than most Forex bets.
After studying the charts, perhaps you think that the Norwegian krone with its sound fundamentals will prove strong in comparison with the US dollar, and decide to place a bet on it of £.80 per point. It is important to note that if you think NOK is going up, that is the same as the USD going down, so you want to place a short or sell bet, and are looking for the quotation to fall.
If you are right, the quote could fall to 57,426.1 – 57,486.1, and you can close the bet and take your profit. To work out the amount you have won, you simply have to calculate the number of points and multiply it by your stake.
As a sell bet, your bet opened on the lower number of the original quote which was 58,639.8, and it will close on the higher number of the second quote, 57,486.1. That means you have gained a total of 1153.7 points. With a bet of £.80 per point, that amounts to £922.96.
But suppose you are wrong, and the number went up. In that case, you need to close the bet before the losses are too great. Say it went up to 58,752.6 – 58,812.6, and you closed the trade. Your bet had the same opening price, but this time it closed at 58,812.6. Taking the original price away from that, you have lost 172.8 points. With your stake, that amounts to £138.24.
For a second example, imagine that you instead think the US dollar will gain in comparison to the Norwegian krone. This time it would be a long bet, placed at the higher quote of 58,699.8, and perhaps you would stake £1.20 per point.
This time, suppose the price goes to 60,029.3 – 60,089.3, and you close your bet and calculate your winnings. The opening price was 58,699.8, and your long bet closed on the selling price of 60,029.3. Therefore you have gained 1329.5 points. As you wagered £1.20 per point, you have won £1595.40.
One of the secrets of successful spread betting is that you do not lose too much when the bet turns out wrong. In fact, you should close your bet as soon as you realize it is not behaving as you had anticipated. Say the price quote goes to 58,556.2 – 58,616.2, and you recognize that your bet has failed and close it rapidly.
Once again, your bet was opened at 58,699.8, but it closed at the selling price of 58,556.2. That means you lost 58,699.8 less 58,556.2, which is 143.6 points. When you multiply this out by your wager of £1.20 per point, you find you have lost £172.32.
Join the discussion