Spread Betting: Trading CHF/JPY
The currency pair CHF/JPY compares the Swiss franc with the Japanese yen. Although these countries and economies are very different, there are some similarities that will affect the currency exchange values. For instance, both Switzerland and Japan are small countries with limited resources, and they rely heavily on imports and exports for their economies to thrive.
But Switzerland is a heavily controlled economy, and the Swiss keep tight reins on inflation, the jobless figures and other factors. They deserve their reputation as the bankers of Europe, even if this has been somewhat tarnished by recent events, where clients’ names are to be revealed to foreign taxation authorities. The Swiss also have an excellent and deserved reputation for quality goods, and have maintained this status in the face of cheaper mass produced products.
The Japanese used to be thought of as excellent copiers some decades ago, but have grown their industries to being some of the most progressive and innovative in the world. One has only to look at the hybrid vehicle industry, with the Toyota Prius and other products leading the way, to see the strength of their engineering.
Because both economies depend on exports, they are both affected by the state of the world’s economy, and in particular large customers such as the United States and Europe. The largest Swiss customer is Germany, but the Japanese have almost taken over the US with their vehicles, requiring the indigenous US automobile industry to be “bailed-out” a few years ago.
With this background, how should you play the currency exchange between the two countries? This currency pairing is one of the minors, even though both currencies are major currencies, as the major pairs are more frequently traded with each other than these are. It can be helpful to think of the Swiss franc as being fixed, with other currencies varying around it. To all intents and purposes, this is what the Swiss National Bank tries to do with its market manipulations. One has to particularly careful of central banks here as they may decide to raise or lower the currencies’ value abruptly, leading to spikes in the market that can hurt even experienced trades.
This reduces the major movements of the CHF/JPY to a close examination of how well the Japanese economy is doing. As mentioned above, the Japanese economy is heavily dependent on exports for its income, and on imports for buying raw materials. Therefore the world economic health is the important factor. Even so, reviewing items such as balance of trade deficits, employment figures, and interest rates gives only part of the picture, and can only indicate the general direction of market trends.
Before spread betting on the CHF/JPY, you should pay close attention to the market movements for several weeks, so that you can get some sense of the volatility at different times of the day. You must include volatility in your trading plan, as it is relevant to sizing your bet, particularly in considering where to place your stop losses. The market sentiment towards this currency pair can be determined by using technical analysis, and by plotting various indicators, such as the moving average convergence-divergence (MACD) which works well on this pairing. By being careful with your stop losses, you can avoid losing too much on any one trade that turns bad, and can learn to profit from spread betting the Swiss franc versus the Japanese yen.
Spread Betting the CHF/JPY
The Swiss franc and Japanese yen pairing is one of the lesser used currency rates. Trade between these two countries is not significant, with the majority of Swiss trade being with Europe, and Japan trading with the wider market. The current spread betting quote for a daily rolling bet is 8372.1 – 8376.1.
If you think that the Swiss franc will strengthen against the Japanese yen, in other words that the yen will weaken, then you would place a long bet on the CHF/JPY. Say you stake £8.50 per point that the price will go up. For a long bet, the bet goes on at the higher price, also called the buying price.
Assume that the price goes up, meaning that you can buy more Japanese yen for a Swiss franc, which was your bet. Perhaps the spread betting quote goes to 8551.6 – 8555.6, and you close your bet.
Your bet is simply the product of the number of points you gain, and your stake per point. The bet started at 8376.1, and was closed at 8551.6, the selling price. That means you gained 175.5 points. At your chosen stake, this amounts to £1491.75. As this was a daily bet, rolled over automatically by your dealer each evening, there may be a small interest adjustment charged, too.
If you chose the wrong direction, and the price goes down, you would have to close the bet at some point and accept your losses. Say it went down to 8332.5 – 8336.5, and you decided that you had to end the trade.
Once again, your bet was started 8376.1, and this time it closed at 8332.5. That means you lost 43.6 points. Multiplying this by your stake, you lost £370.60.
You can also take out a futures style bet on the CHF/JPY. With this you are not charged each night for rolling over the bet, and can hold the bet until the expiration date if you wish. It is important to know that you can also close it at any time, if it happens to go “in the money”. The current quote for six months away is 8373.1 – 8385.1. These numbers tell us that the market sentiment is that the price will not move much, as they are close to the daily rolling price. You can also see that the spread has gone up to 12 points from the 4 points charged for the daily bet, but you do not have to pay any interest.
Taking out a long bet for £5 per point, you are pleased to see that the index goes up in a few weeks to 8621.0 – 8633.0. You close your bet for a profit. This time your bet opened at 8385.1, and closed at 8621.0, giving you 235.9 points. At £5 you would have won £1179.50.
If the bet went against you, and the price dropped to 8336.8 – 8348.8, then you could figure out your losses like this. Your bet opened at 8385.1, and you closed it at 8336.8 for a loss. That’s 48.3 points. Multiplying by your stake, you see you have lost £241.50.
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