Spread Betting: Trading EUR/SEK
For a change from the usual, why not look at spread betting on the euro versus Swedish krona currency pair (EUR/SEK)? The krona can be quite volatile, particularly at illiquid times, making it a pet currency for some sharp spread betters. And are some fascinating details to the Eurozone and Swedish economies which make them stand out from the usual currency trading. Of course, Sweden is perhaps the most interesting and least understood economy.
Sweden has been through many changes, especially in the last century. It is now one of the most technologically advanced countries in the world, and also one of the richest. It started out as an agricultural economy a couple of centuries ago, but found its way through heavy manufacturing to a leading position in global business, with companies such as Volvo and IKEA being well known around the world.
One of the keys to this was maintaining neutrality during the wars of the 20th century, and some have credited the generous welfare state with engendering the right climate for its entrepreneurs. Certainly, it is near the top for innovation and standard of living. The workforce is skilled and highly educated.
Incidentally, Sweden is committed to join the euro, a commitment made in 1995. However, it doesn’t look as though this will happen any time soon, as an election in 2003 confirms that the citizens want to retain the Swedish krona. Sweden is able to avoid the commitment apparently indefinitely on a technicality.
Sweden has ready access to hydroelectric power, and has large forestry, automotive, and pharmaceutical industries. One of its latest inventions is Spotify, a file sharing Internet-based company that allows free music and is rapidly expanding. As Sweden has some of the best Internet access in the world, perhaps it is not surprising.
Perhaps because Sweden has not adopted the euro, the economy was not so painfully hurt by the global financial crisis. It had its own issues with the economy in the 1980s, but it seems these are generally behind it. Nowadays it is prospering with a large increase in the export of iron ore to China. The gross domestic product is increasing, and the balance of trade is good. As Sweden depends on international trade it cannot be immune from global effects, and the Krona is still strongly correlated to both the European markets and America particularly the S&P 500 and oil prices. In fact, the SEK tends to strengthen when risk sentiment improves and to weaken during times of economic turmoil. This is because any persistent wider economic malaise is likely to hit Sweden’s exports.
However, the euro is many ways in worse shape, with the currency seeming to limp from one crisis to another. It is very difficult for the European Central Bank to provide coherent control on the currency when it is used in countries as diverse as Greece with its failing economy and Germany whose strength has been used to prop up the rest of Europe, somewhat to the individual German’s chagrin, one would think. However, Riksbank, which controls Sweden’s repo rate has been known to occasionally intervene to stop the SEK from continuing to strenghten and this creates a degree of unpredictability.
It is little wonder that the charts for this currency pair show a steady weakening and a down trend, signifying an overall strengthening of the Swedish currency against the euro. While this is the overall trend, when you are spread betting on this currency pair you need to pay attention to the technical analysis in order to time your entries and exits. If you look at the chart for this Forex pair, you will see that it responds well to technical indicators.
Having said that, the Krona is till strongly correlated to both the European markets and America particularly the S&P 500 and oil prices. The SEK tends to strengthen when risk sentiment improves and to weaken during times of economic turmoil. This is because any persistent wider economic malaise is likely to hit Sweden’s exports which tend to have high price elasticity, meaning that a change in demand can trigger a much bigger change in the price of goods.
Spread Betting on the EUR/SEK
When you spread bet on the EUR/SEK, you are betting on the exchange rate between the euro and the Swedish krona. As this currency pair is not one of the heavily traded ones, you may find that you have little advice available from others and have to make your own decisions on when and in what direction to bet. It is always better to have your own trading plan so that you have a clear idea why you’re making the bets. The current price for the EUR/SEK on a rolling daily bet is 88,629.0 – 88,669.0.
If you think that the Swedish krona is going to strengthen against the euro, then you want to take a short spreadbet out, as the euro is the first currency named. Say you decided to bet £1.20 per point for the price to go down. Because the actual number is so large, you will find that it changes by hundreds of points. Say in this case it went down to 87,826.5 – 87,866.5, and you closed your bet and took your profit.
Even though your spread betting company will do it for you, it is easy for you to work out how much you have won. You took out your short bet when the quote was 88,629.0, and then closed it when it dropped to 87,866.5. Taking one from the other, you find that you have made 762.5 points on this bet. As you bet at the level of £1.20 per point, your total profit is £915.
Any time you place a spreadbet, it may lose instead of winning. Say the price went up to 88,705.2 – 88,745.2, and you decided that it was not going to get any better, so you closed the bet to minimize your losses. In this case your bet was closed at 88,745.2, up from the 88,629.0 that it was initially. The difference in points is now 116.2, which means you lost £139.44.
Looking now at a spreadbet in the other direction, say that in the first place you wanted to place a long currency bet for £1.50 per point as you believe that the euro is going to strengthen and/or the Swiss krona is going to weaken. Your bet would go on at the buying price of 88,669.0.
Again, first we’ll assume that the price moves in your direction, say to 89,356.5 – 89,396.5. You close your forex spread bet for a win. You simply work out how much by multiplying together the number of points you gained and your stake. This time your bet closes at the selling price, which is 89,356.5. The difference between 88,669.0 and 89,356.5 is 687.5 points. As you staked £1.50 per point, you have made £1031.25.
If the price didn’t move in your direction, and you had to cut your losses by closing your forex bet when it was down, you might have close it when the spread bet quote was 88,515.9 – 88,555.9. In this case, you have lost 88,669.0 minus 88,515.9, which is 153.1 points. For your chosen stake this works out to £229.65.
Join the discussion