Spread Betting: Trading CAD/JPY
If you want to spread bet on the currency pair, Canadian dollar versus Japanese yen (CAD/JPY), then you must research what it is that drives these very different economies. Canada is large with many natural resources, and Japan is a small crowded country that relies on international trade.
As Canada has so many resources, its currency value is related to commodity prices. When commodities go up, that makes the Canadian economy worth more. Many of the Canadian exports are to its southern neighbour, the United States. In fact, Canada supplies the most crude oil to the US, with the Middle East countries providing smaller portions. Canada has extensive energy resources, including natural gas and recently added oil reserves from the tar sands.
Another major export is timber to the United States, and Canada has extensive agriculture, providing all sorts of food products to the world. This is not to say that Canada does not have industry, as it scores highly in that respect too. It is the third-largest supplier of automotive parts, after the United States and Japan.
Other natural resources that Canada extracts include gold, uranium, copper, zinc, etc. – the list goes on. In fundamental terms, Canada is a very rich country, and has a good balance of private enterprise and state assistance, including healthcare and pension schemes.
Most people know about Japanese workmanship and products. Japanese cars and electronic equipment can be found all over the world, and the Japanese economy ranks only behind China and the USA for the size of gross national product (GNP). The major trading partners of Japan include China and the USA.
Because Japan has limited resources, it imports raw materials such as food, wood, and oil. The earthquake, tsunami, and nuclear issues of March 2011 slowed the economy drastically, and it only picked up to speed again by third quarter of 2011, when the gross domestic product once again increased. However, Japan generally had a trading surplus.
Because of its dependency on international trade, Japan has been affected by the global economic crisis of 2008, but remains strong. In fact some experts say that the strength of the yen may cause the Japanese economy to slow down, as it tends to make exports more expensive for overseas buyers.
These fundamental facts set the scene for the currency pair CAD/JPY, which counts as a minor pair in Forex trading. To go further and prepare your trading strategy for spread betting on these currencies, you need to follow the chart for a few weeks, taking note of the volatility and reaction to technical indicators. Bear in mind that the currency exchange rate does not vary simply because of the fundamentals, but in response to changes in the fundamentals. In other words, simply because one economy is strong and another is weak this does not indicate a trading prospect. Technical analysis teaches us that all known facts are already included in the current pricing, and therefore you need to consider the dynamics of the chart to find your opportunities.
Spread Betting on CAD/JPY
The CAD/JPY, the Canadian dollar versus Japanese yen Forex pair, counts as a minor and consequently less traded couple. It is currently trading in a range, and your trading plan needs to take the current conditions into account. The price is 7703.5 – 7707.5 for a rolling daily bet.
If you see an opportunity for the Canadian dollar to increase in value against the Japanese yen, you would need to take out a buy bet, which is a long bet, on this currency pair. The long bet is placed on the higher number, and closed on the lower number of the future pricing. Suppose that the quotation goes to 7952.1 – 7956.1, and you have placed a long bet of £.50 per point on the Canadian dollar.
You can easily figure out how much you have won when you close the forex position. Your bet went on when the price was 7707.5, and it closed on 7952.1. Taking 7707.5 away from 7952.1, you have gained 244.6 points. With a currency spreadbet of £.50 per point, that amounts to £122.30.
Any trade you place may go the wrong way, and winning traders have the same experience. The way they win is to lose far less on a losing bet than the amount they gain on a winning spreadbet, and that requires a discipline to close the bet quickly once you realize it is not going to work out. Say the price fell to 7683.2 – 7687.2, and you closed your bet to cut your losses.
As before your bet was placed at 7707.5, but this time it closed at 7683.2. That means you lost 7707.5-7683.2 points, or 24.3 points. You managed to keep your total loss down to £12.15.
As you are spread betting on the pair of currencies, if you want to bet that the Japanese yen will increase in value against the Canadian dollar, you must place a sell or short bet on this pair. It is the same as saying that the Canadian dollar will go down against the yen. Say you placed a short bet for £3 per point at the selling price of 7703.5.
If you are right, and the price goes down you could cash in your winnings when it reaches 7542.1 – 7546.1. As a short bet, it closes at the higher price of 7546.1. That means you have gained 7703.5-7546.1 points, which is 157.4 points. You staked £3 per point, so that works out to £472.20.
Once again, you must be prepared for a fair proportion of your bets to go the wrong way, and you need to stay on top of them, and close them just as soon as you realize they won’t succeed. Say the price went up to 7736.9 – 7740.9, and you cut your losses by closing the trade.
You placed your currency CAD/JPY spreadbet at 7703.5, as before, but this time it closed at the losing price of 7740.9. That means you lost 37.4 points on the trade. For the amount you staked, it cost you £112.20.
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