Spread Betting: Trading GBP/JPY
When your spread betting on the GBP/JPY, you are betting on the relationship between the British pound and the Japanese yen, and this is highly dependent on the state of each country’s economy. This is a major currency pairing, as there is a lot of trade between the UK and Japan, but the countries are run very differently.
Japan experienced a high growth rate from the 1960s through the 1980s, and its economy collapsed in the 1990s. Recently, it has turned around, but was affected by the global economic conditions of 2008 because it is so heavily reliant on exports which weren’t selling when the Western economies shrank. The earthquake and tsunami in March 2011 were another setback.
A further complication for Japan is that it has to import most of its food and oil, because it does not have the natural resources or size of country to be self sustained. Any time commodities increase in cost, it presents a problem to Japan. Its response to the global collapse was to instigate stimulus programs, and that has resulted in a national debt that is twice as large as its annual production, which is a built-in handicap. On the other hand, the debt crisis in the US and Europe resulted in a strengthening of the yen, making it easier for Japan to afford essential imports, but also much more difficult to sell exports.
There is no doubt that the UK economy is also in a state of crisis. In fact, the UK is being overtaken by countries such as Russia and India, and it is likely that the UK will sink to number eight in overall size of the economy. In comparison, Japan is number three. Quantitative easing, the process of printing more money to stimulate the economy, has the negative effect of devaluing the currency and causing inflation. Even the low interest rates are doing little to encourage spending.
In summary, these are the main items of comparison between Japan and the UK and the economic outlook; but this does not necessarily translate into tradable information in the short term. While you should have the overall picture in mind when you are spread betting, you need a better indication from day-to-day and week to week of when and in which way to place your bets.
One method used by some traders is to follow economic announcements, the dates and times of which are usually well known in advance. Typically, the most significant announcements are those detailing job losses or gains, industrial output, overall employment, and inflation tendencies. It should be noted that if you take a position just prior to one of these announcements, the market can move quickly and you may be caught out on the wrong side. Some traders therefore prefer to wait until half an hour or an hour after the announcement, and then trade with the trend that has emerged. Others prefer to stay away from trading on these days, and simply follow technical analysis to increase their profitability.
Spread Betting on the GBP/JPY
The UK and Japan are major international trading countries, and the GBP/JPY is an important currency pairing. Nonetheless, it can be derived from the major Forex pairs GBP/EUR combined with EUR/JPY, or GBP/USD and USD/JPY, and major trading will usually take place on those. If you want to spread bet on the GBP/JPY directly, IG Index is currently quoting the daily rolling bet as 12,138.9 – 12,141.7.
Perhaps you favour the Japanese yen, in the belief that the Japanese economy is recovering more quickly than the UK’s. As the yen is the second named currency, you would have to take a short position on the currency pair for this bet. Say you staked £6.50 per point for this pairing to go down in value.
After time, you might find that the quote was 11,976.2 – 11,979.0, and decide to close your bet and collect your winnings. The way you work it out is by multiplying the points gained by the stake per point. The only trick to this is to use the right number from the spread bet quote. If you are opening a long bet or closing a short bet, you must use the higher number, also called the buying number; to open a short bet or close a long bet, you use the other, selling number.
So you opened your short bet at 12,138.9, and it closes at 11,979.0. That means you gained 159.9 points. At £6.50 per point, you have won a total of £1039.35.
Any time you are betting on the financial markets, you must allow for the fact that the bet may not win. Say the price went up to 12,173.4 – 12,176.2 after you placed this bet, and you decided to close your bet to minimize your loss. You can work out what you lost in the same way as above. The short bet opened at 12,138.9, and closed at 12,176.2. That means you lost 37.3 points. This amounts to £242.45 loss.
Consider now the opposite case, where you think that the Japanese yen is going to lose value and/or the pound sterling increase relatively. For this you would place a long or buy bet. Perhaps you would stake £12 per point at the price of 12,141.7.
Once again, we’ll go through a winning bet first. Say the price went to 12,322.6 – 12,325.4, and you closed your bet for a win. Your bet was placed at 12,141.7, and closed at 12,322.6. That means you won 180.9 points. At £12 per point, that is £2170.80.
If the bet did not win, and the price went down, you would want to close it quickly as soon as you realized it was not going to work. Say it dropped to 12,096.9 – 12,099.7, and you closed your bet to cut your losses. Unless you keep your losses down, you cannot make a success of spread betting as you will run out of capital.
The bet was placed at 12,141.7, and closed at 12,096.9. Therefore you lost 44.8 points. As the wager was £12 per point, you lost a total of £537.60.
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