Trading the USD/KRW Currency Pair
The USD/KRW (US dollar versus South Korean won) is a volatile index, and challenging for spread betting. The South Korean won has had a lot of changes in the 20th century, including having fixed exchange rates at various times, but the current floating value was instigated 1997 and followed immediately by a sharp devaluation.
There used to be 580 won to a US dollar, but as you can see from the chart above of recent years, there are now just over 1000 won to the US dollar.
However, commentators say that the won is undervalued, as it suffered significantly during the global financial crisis of 2008. Using the Big Mac index, which compares the price of a Big Mac in different countries, the won is more than 20% undervalued.
The fall in the chart during 2012 is the equivalent of a strengthening in the value of the won, which would tend to make South Korean exports more problematic. However it helps the domestic economy, as South Koreans have greater purchasing power. The strengthening of the currency coincides with a general recovery in the South Korean economy, with slowing inflation and reducing debt.
You can see there has been a sharp upturn in the chart at the beginning of 2013, which may be a simple retracement in a continued downtrend, or could signify some great economic impacts. Certainly, the US economy has showed continued strength, particularly with various political achievements concerning the “fiscal cliff”, and this would tend to push the price back up, in other words you can buy more South Korean won for the US dollar.
From a spread betting perspective, it is healthy to see the amount of volatility in this chart as this represents opportunities for profit; as always, you should study the charts for a time to develop and test a trading strategy that appears to work before you stake any money on it.
USD/KRW Rolling Daily Spread Bet
The South Korean won appears at the moment to be range trading sideways, but for the sake of example assume you believe that there will be a weakening of the currency, or a strengthening in the US dollar which is the equivalent for this chart. In other words, you expect the price to increase. The current quote for a daily rolling bet is 110,050 – 110,250, so say you place a bet for £.50 per point at the buying price of 110,250.
If it works out, you may choose to close your trade and collect your winnings when the price goes up to 111,750 – 111,950. Your long bet would close at 111,750, which is 1500 points more than the opening price of 110,250. Multiplying your 1500 point gain by £.50 stake, your total win would be £750.
When you are trading, you must realize that successful traders do not always place winning bets, but strive to keep their losses small so that they win overall. In this case, suppose instead the price drops to 109,200 – 109,400, and you decide to cut your losses and exit the bet. Your opening price was 110,250, as before, and your closing price is 109,200, a loss of 1050 points. For your chosen stake of £.50 per point, this would work out to a loss of £525.
It is not always possible to keep track of the market all day long, so many spread betters decide to use stoploss orders to cover themselves against excessive losses. The spread betting provider will close a losing trade if it reaches the stoploss level you set, whether or not you are aware of the prices. Say with a stoploss order this losing bet was closed at a quote of 109,540 – 109,740. This time you would have lost 110,250 minus 109,540, which works out to 710 points. With a £.50 stake, that’s a loss of £355.
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