Spread Betting: Trading EUR/NOK
When you look at the fortunes of the euro versus Norway’s krone, you can see how Norway has taken advantage of its situation without direct participation in the European economic slide. Certainly, Norway depends on exports, which have been hit by Europe’s debt crisis, but it is sitting on a number of natural resources that ensure its wealth for years to come and the Norwegian government’s strong financial position has turned the Norwegian krone into something of a safe haven currency.
Norway sends more than 60% of its exports into the euro area so it is tied to the health of the 17 European countries that use the euro. The UK is also a good customer for Norway, and any problems with the British economy can impact Norway’s exports.
Norway is the fifth largest oil exporter in the world, and also has extensive fishing, natural gas, paper, and aluminium businesses. Its unemployment is less than 3%, and its social welfare programs including healthcare are part of its success story as one of the best countries in the world to live in. However, economists are still saying that there are a couple of years before Norway returns to steady footing, following the impact of the downturn.
Oil and natural gas revenues constitute about 20% of the GDP, and comprise 45% of the exports. A number of years ago, the government established a fund fed from the oil revenues, and this is set up as a national pension fund, further adding to the desirability of Norway as a place to live.
The euro is beset with problems from the current economic decline. While a country with its own currency can easily make adjustments to control its economy, with so many countries sharing the euro, each in different economic conditions, it is a tough job for the European Central Bank to regulate the currency. Traditional methods such as raising and lowering interest rates are still used, but they must be based on the average performance of the member countries, given that Germany is financially strong and on the other end of the spectrum, Greece has almost been pushed into bankruptcy, or perhaps separating from the euro and going back to the drachma, which would cause tremendous repercussions.
However, because of the strength of Germany and a couple of other countries, the euro can be gauged from their performance, with the other member countries economies having much less effect on the currency as a whole. Certainly, it is worth keeping an eye on the fundamentals that affect currency values, including working statistics such as the number of unemployed, and the amount of production, but averaging the numbers across all the countries that use the euro, including the 17 in Europe and five more which unofficially have the euro as their currency, can lead to difficulties.
Technical analysis tells us that all the fundamental factors that can be known are already included in the current pricing, and therefore the exchange rate should only respond to changes in the numbers. In any case, it is necessary to use technical analysis to determine the timing of your spread betting, and when you should enter and exit any trades.
Spread Betting on the EUR/NOK
The euro versus the Norwegian krone is one of the less popular Forex currency pairs to spread bet on. It is as such considered an exotic currency to trade and there is less liquidity than trading the majors such as EUR/USD or GBP/USD and as such the pair could experience some large movements on thin volumes.
The economies of Norway and the European zone are heavily interlinked, with extensive trading between them, so the currency exchange rate does not change very rapidly. The current rolling daily bet is priced at 76,733.5 – 76,793.5, which means that one euro can buy about 7 1/2 krone.
If you decide that the krone is going to be stronger than the euro in the next few days or weeks, then you might want to place a spread bet on it. As the krone is mentioned second in the currency pair, your bet is for the price to go down, and against the euro. Suppose that you take out a short bet for £3.50 per point.
In a little while, perhaps the price will drop to 76,350.2 – 76,410.2, and you can close the bet and take a profit. This is how you would work out how much you won: –
- You placed your short spreadbet at 76,733.5
- You close your currency bet at 76,410.2
- That means you gained 76,733.5-76,410.2 points
- That works out to 323.3 points
- Your bet was for £3.50 per point
- If you multiply this out, you have won £1131.55.
Suppose instead that the price went up, the euro strengthening against the Norwegian krone, you might have to close your bet for a loss to protect your capital. Say the price went up to 76,822.7 – 76,882.7, and you closed your trade. You can work out your losses like this: –
- You placed your short spreadbet at 76,733.5
- You closed your currency bet at 76,882.7
- That means you lost 76,882.7 minus 76,733.5 points
- That works out to 149.2 points
- Your spreadbet was for £3.50 per point
- If you multiply this out, you lost £522.20.
This example illustrates how quickly losses can mount up, and one of the secrets of successful spread betting is that you close your bets as soon as you realize that they will not work out, thus saving your money.
For a second example, suppose you think that the euro will go up against the Norwegian krone, then you would place a long bet on this pair, perhaps for £4.50 per point. If the price does go up, to perhaps 77,121.0 – 77,181.0, then you can work out how much you won like this: –
- Your long spreadbet was placed at the higher price, 76,793.5
- and closed at the selling price of 77,121.0.
- You gained 77,121.0-76,793.3, which is 327.7 points.
- You forex spread bet £4.50 per point
- 327.7 times £4.50 gives you a win of £1474.65.
Once again, your bet might not work out and you need to close it quickly to prevent losing too much of your capital. Say you closed your bet when the quote 76,662.3 – 76,722.3. Here is how much you lost: –
- Your long currency spreadbet was placed at the higher price, 76,793.5
- and closed at the selling price of 76,662.3.
- You lost 76,793.3 – 76,662.3, which is 131.0 points.
- You forex spreadbet £4.50 per point
- 131 times £4.50 gives you a loss of £589.50.
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