Spread Betting: Trading NZD/CAD
If you want to make a profit from spread betting on the New Zealand dollar versus the Canadian dollar (NZD/CAD) then you need to understand firstly the fundamentals of how their economies run. Both countries have a number of natural resources, but obviously Canada is far larger than New Zealand.
Typically New Zealand thrived on exporting goods from its agricultural system, though there was a setback to the status quo when in 1973 the special relationship with the UK ceased. Government subsidies were eliminated in the 80s, and financial controls slackened. The current account deficit grew in the early part of this century, but is now being tackled. In fact, the trade is in surplus with milk, butter and cheese being major exports.
New Zealand has the natural advantage that it has large agricultural possibilities, and also supplies a lot of its power from hydroelectricity and natural gas. Its primary trading partner is Australia because of the proximity, but it has expanded its outlook and now looks to Asia for substantial markets. But there is some concern about an inflated housing market which could lead to economic problems.
Just as New Zealand has Australia as its trading neighbour, Canada has the vast country of United States to export and import with. Canada supplies substantial resources such as timber and oil, and the exploration and extraction of oil sands can only add to this. Canada is already the largest single supplier of oil to the United States, contributing some 16% of all oil and 14% of natural gas to the US economy.
Canada exports to the UK and China, and in return China is a major supplier to Canada, providing about 10% of imports, second only to the US. Canada’s focus has shifted from timber and fishing, and it is now more concerned with mining mineral and energy resources for export. In fact, Canada has the second largest proven reserves of oil in the world, a factor which will be of increasing importance in coming years.
Regardless of how they got here, and both New Zealand and Canada have had substantial changes in the last few decades, the currency exchange rate is dependent on where they go from here, and how much Canada and New Zealand can exploit their resources and increase their manufactured exports. If you have studied any technical analysis, you will know that one of the basic principles is that all previous known conditions are fully incorporated in the present pricing, so whether there are limitless resources or very few, that is already allowed into the exchange rate that exists.
In this respect, you must look for changes in rates of inflation, unemployment figures, industrial output, and other factors that might affect the economies. Such changes are usually not directly actionable with spread betting, as they imply a pressure for a price trend rather than an imminent change. To determine when the values are changing, you need to analyze the price charts using technical analysis, and use this as the basis for your betting.
Spread Betting on the NZD/CAD
You will find that the New Zealand dollar versus the Canadian dollar is not a popular currency pair to bet on. In fact, you may find some spread betting companies that do not provide you a quote for this pairing. Of course, if you particularly wanted to bet on the NZD/CAD and could not do so directly, you could bet on the NZD/USD and the USD/CAD simultaneously, to make up your own Forex pair, with the US dollar cancelling out. If you do this, you must make sure that you place your bets in appropriate values in the right directions.
The current quote for the NZD/CAD is 8308.2 – 8316.2 for a daily bet. If you think that the New Zealand dollar is going to increase in value against the Canadian dollar, then you would want to take out a long bet. Say you bet £4.50 per point. If you’re correct, then you might close your bet when the quote had gone up to 8532.1 – 8540.1.
You can work out for yourself how much this bet was worth. You placed the bet at the buying price of 8316.2, and it closed at the selling price of 8532.1. That means you gained 8532.1 less 8316.2 points. That’s a total of 215.9 points. As you bet £4.50 per point, that gives you a profit of £971.55.
Sometimes when you place a bet, the numbers will turn against you and you will be faced with closing the bet for a loss. It is usually best to close the bet quickly, rather than waiting to see if it turns around, as doing that can cripple your account. Say the price went to 8273.7 – 8281.7, and you closed the bet to cut your losses.
Again you placed the bet at 8316.2, and this time it closed at 8273.7. That’s a loss of 42.5 points, which amounts to £191.25.
If instead of the New Zealand dollar, you think that the Canadian dollar is going to increase in value, relatively to the other currency, then you need to place a short or sell bet. That’s because the Canadian dollar is second in the currency pair, so bet for the Canadian dollar increasing is a bet for the New Zealand dollar to fall. Say you bet £2.50 per point, this bet would go on at 8308.2, at current prices.
If you are right, you might close the bet when the quote had gone down to 8052.9 – 8060.9. As it is a short bet, it closes at the buying or higher price of 8060.9. That means you gained 8308.2-8060.9 points, which is 247.3 points. Your bet was for £2.50 per point, so you made £618.25.
Once again, you should be prepared to take a loss quickly if the price turns against you. Say the quote went up to 8351.4 – 8359.4, and you closed the bet, this time at the buying price of 8359.4. The point difference is 8359.4-8308.2, which is 51.2 points against you. Multiplying this by your stake, you have lost £128 even.
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