Spread Betting: Trading GBP/ZAR
When you spread bet on the GBP/ZAR, you are placing a bet on the currency exchange rate between the pound sterling and South African rand. To be able to make a sound judgement on how this is going to fluctuate, you need first to understand the economies involved.
Firstly the British economy. Since 2008 and the global recession, the UK has struggled to recover. Quantitative easing, the spending of amounts of cash on goods and services to try and stimulate the supply, has some effect but has not restored the economy to its previous condition. The Bank of England lending rate, the official way to try and stimulate and control economies, is at an extremely low level of 0.5%. This means that money is cheap to borrow, which should help spending it in the economy, but also that the pound sterling is not very attractive for foreign investors, simply because it does not pay much interest.
However, the UK economy is the second-largest in the European Union, behind only Germany, and the UK is the second biggest exporter of services in the world, and eighth largest exporter of goods. The global economic crisis came after a couple of decades of growth. The balance of trade is not good, with a large trade deficit, but Great Britain is still such a major power in the world that it seems inconceivable that Britain will fail to pull out of its current problems.
The South African economy is very different. For instance, it suffered for a long time under apartheid, and there are still many racial issues in practice, even though those times are supposed to be over. South Africa is one of the best economies on the African subcontinent, but this does not mean that it is working well for all its citizens. There are still large divisions between the wealthier population who live in major cities, and those who living in poverty out in the country.
Viewed from a macroeconomic perspective, South Africa is in a great economic position. It is a country replete with rich natural resources, which include not only gold and other precious materials, but also fossil fuels such as oil and gas. But natural resources accounted for only about a third of the growth of the last 10 years, with the remainder coming from other industries such as transportation, telecommunications and manufacturing.
One of the issues is that South Africa depends on its export trade, and of course with the global economic recession this has hit deeply at its economic growth. Couple this with civil unrest, and you have an economy with all the makings of sound and expanding growth, but with a number of question marks concerning whether it can actually take place as it should.
Spread trading on the GBP/ZAR requires you to look at the fundamentals, but also to consider technical analysis to determine the sentiment of the market, and find out when you should be entering and exiting your bets.
Spread Betting on the GBP/ZAR
When you spread bet on the GBP/ZAR (the pound sterling versus the South African rand), you have a choice of “buying” or “selling” the bet, and it is important that you are clear what each bet means. Because Forex bets are always on two currencies, you have to pay attention to which currency is named first. As the pound is named first in this pair, a long or buy bet means that you think the pound is going to increase in value, and a short or sell bet means it is going to decline. But because the values are relative, a short or sell bet means you think the South African rand is increasing in value, and a long bet is against the South African rand.
The current quote for a daily rolling bet is 120,565.1 – 120,765.1. This means that 1 pound sterling can buy just over R12 on the market. If you think the pound is going to increase then you would place a long bet, staking perhaps £.50 per point. Because the numbers on this Forex pair are so large, you should be careful not to bet too much per point.
Say that you are right, and the price goes up to 122,863.2 – 123,063.2, you could close your bet for a win. The long bet would go on at the higher price of 120,765.1, and close at the lower second price of 122,863.2. That means you have won a total of 2098.1 points, the difference between the two prices. At your chosen stake that is worth £1049.05.
Of course, your bet could have gone the wrong way, in which case you would be wise to close the bet quickly before you lose too much. Say the price dropped 120,292.1 – 120,492.1, and you closed the bet. Your bet still started 120,765.1, but this time it finished at 120,292.1, meaning that you lost 473 points. Multiplying that out, you have lost a total of £236.50.
Now look at an example of betting on the South African rand to increase in value. As mentioned above, this is a short bet on the currency pair. Perhaps you would stake £.40 per point, and the bet would go on at the original lowest or selling price which was 120,565.1.
Suppose after time that the price dropped to 118,362.7 – 118,562.7, and you decided to close the bet and collect your winnings. The difference in the number of points is 120,565.1 less 118,562.7, as a short bet closes on the higher price. That amounts to £2002.40, your profit on the bet.
It is a fact that a fair proportion of bets do not win. Say in this case the quote went up instead of down, and you were soon facing a spread betting quote of 120,852.6 – 121,052.6, so you closed your bet to minimize your losses. The bet went on at 120,565.1, but this time closed at 121,052.6. The difference in points is 487.5, which is against you because you bet that the number would go down. Therefore at your chosen stake you lost £195.
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