Spread Betting: Trading CAD/CHF
The Forex currency pair Canadian dollar and Swiss franc is one of the less traded combinations and this is reflected in the spread betting world. Both countries have some fascinating fundamentals, which makes this pair fun to follow. Once you understand the fundamentals, then you are better placed to know which way to bet.
Firstly, look at Canada. Canada is enormous, the second-largest country in the world, and it has a host of natural resources which make it a wealthy nation. Although in many ways it plays second fiddle to its neighbour the United States, it is probably better placed to have a thriving economy. For instance, it has extensive deposits of lead, aluminium, zinc, nickel, copper, gold, and even uranium.
On the energy front, Canada is well supplied with natural gas and oil, with tar oil sands being discovered and hitting the headlines in recent years. It is a major supplier of timber to the United States, its nearby and obvious trading partner.
And the list does not stop there. Canada is the third largest supplier of automotive products, behind only Japan and the United States. It is the fourth largest agricultural supplier, growing cereals, fruits, vegetables, meat, etc.
The government supplies various services, Canadian healthcare being one of especial note when compared to its southerly neighbour, the US. In many ways, that the economy of Canada resembles that of the US, but it is slightly better. For instance unemployment following the global financial crisis is around 7%, compared to the nearly 9% of the USA.
The economy of Switzerland is in stark contrast to this. Switzerland is regarded as one of the world’s most stable economies, and has been well known for international banking for many years. Its neutrality through the world wars helped keep the economy on an even keel, and it has an outstanding worldwide reputation for quality of manufacturing, leading buyers to insist on Swiss made products even when the same companies have manufacturing facilities in other countries.
Switzerland has no natural resources to speak of, apart from its mountains and scenery which you may regard as a resource to attract the tourist trade. Everything must be done by importing and exporting to this landlocked country. The Swiss maintain a tight control on the economy, which does not always work in the country’s favour. For instance, the central bank has fought to maintain an exchange rate of about 1.20 with the euro by lowering interest rates to discourage investment in the country. This was needed because of the European financial crisis in the euro, which resulted in the Swiss franc becoming “overvalued”.
Overall, the Swiss economy has remained one of the strongest in Europe, and without intervention this means that Swiss products would become more expensive, which would hit the export trade. It remains to be seen how this situation will resolve, and it is possible that the Swiss economy will become weakened over time.
If you are interested in spread trading on the Canadian dollar and the Swiss franc, then you need to have these underlying principles of the economies in mind, and also in take into account technical analysis of the price charts in order to time your entries and exits into the bets.
Spread Betting on the CAD/CHF
If you are spread betting on the Canadian dollar versus the Swiss franc, you should first study the charts to get an idea of how these currencies move. Currently, you can see that this pair is trending over the long-term, but each day does not display excessive volatility, and there are many short candlesticks which denotes that the closing price is very similar to the opening price. The current price for a daily bet is 9237.7 – 9242.7.
Consider first that you may think that the Canadian dollar is going to increase against the Swiss franc. In this case, you would place a long or buy spreadbet on the pair, which would go on at the buying price of 9242.7. Say you bet £3.50 per point. You might close this a few days later when the price had risen to 9815.2 – 9821.2. It is straightforward to work out how much you won.
The opening price for your long forex spread bet was 9242.7, and it closed at the selling price of 9815.2. That means you gained 9815.2 less 9242.7 points, which is 572.5 points. Your stake was £3.50 per point, so you can work out your win to be £2003.75. As this is a long bet on a rolling daily basis, your account will be charged a small amount of interest every night when the bet is rolled over, but this is usually not very large.
If you are wrong, and the Canadian dollar weakens, then you lose your bet. You will need to close your bet quickly to avoid losing too much. Say the price drops to 9192.5 – 9197.5, and you close your bet to protect your capital. Working out how much you lost is just as straightforward.
You opened your long spreadbet at 9242.7, and it went down to close at the selling price of 9192.5. That means you lost 9242.7-9192.5, which works out to 50.2 points. Multiplying by your stake, your total losses are £175.70.
Consider the other case, that you think the Swiss franc is going to strengthen against the Canadian dollar. This is the same as saying that the Canadian dollar will weaken against the franc, and as the Canadian dollar is first in the pair you must take out a short or sell bet. Perhaps you would stake £4.25 per point. The short bet will be placed at the lower price of 9237.7.
If the price goes down as you hope, you might close the forex spreadbet for a win when the quote is 9015.2 – 9020.2. A short bet closes on the higher price, in this case 9020.2. That means you have won 9237.7 less 9020.2 points, or 217.5 points. You staked £4.25 per point, so multiplying this out you have won £924.37.
Once again, you must allow for the fact that your currency spread bet might be wrong, and the price might rise. Say it went up to 9256.8 – 9261.8, and you closed the bet to limit your losses. The bet closed at 9261.8, which means you lost 24.1 points. For the same stake, you will have lost £102.42.
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