Spread Betting: Trading GBP/NZD
When you place a bet on the GBP/NZD, you are betting on the number of New Zealand dollars that you can get for one pound sterling. The current value that you will be quoted is around 19,000, and because of the way that Forex is written, you have to move the decimal point four places, which means that one pound sterling will buy you about 1.9 NZ dollars. When you make a bet on this currency pair, you should have a good idea of what drives the economies of the countries to improve your chances of a winning bet.
You probably already know a fair amount about the UK economy. It is still one of the major economies of the world, with London being one of the top financial centres. It has some resources, in particular the discovery of North Sea oil made a large difference to the balance of trades, even though it is a relatively small country for the population. As a leader in the industrial revolution a couple of centuries ago, Great Britain also has a good trade in manufactured goods. However, the global economic crisis of 2008 has not been recovered from, and “quantitative easing”, spending in order to try and stimulate the economy, has had only partial success. The UK still undergoing austerity measures to revive its economy.
New Zealand is another small country, and has a lot of trade with its nearest neighbour, Australia. New Zealand has natural resources including topography that allows a lot of hydroelectric power generation, and natural gas, and apart from trading with Australia has extensive dealings with Asia and in particular with China, which is one of the major economies that has prospered in recent years.
Of course New Zealand is known for its agriculture, as typified by New Zealand lamb which was one of the staple meats in the England in the middle of the last century. The special relationship that New Zealand enjoyed when trading with Great Britain, and Britain in turn enjoyed, went away in the 70s when GB became involved in the European Community, but New Zealand is still known for its meat, dairy, cheese, and butter production.
Another up-and-coming field in which New Zealand is involved is green technology. Apart from the hydroelectric projects, New Zealand has expertise in geothermal and wind power, and is well set to contribute to the world in the reduction of carbon emissions.
With an understanding of the fundamentals of the economies, it is easier to understand the impact of, for example, increasing commodity prices on each country. However, simply knowing the fundamentals does not give you any basis on which to spread bet on the currencies. Certainly, you can follow and track changes in rates of inflation, and in unemployment figures, and better or worse results in these areas can be reflected in the exchange rates.
Similarly, when the central bank decides to raise interest rates, the currency may become more or less favoured by investors. However if you want to time your entry and exit of spread bets, you also need to study technical analysis, and apply it to the charts to take advantage of current opportunities.
Spread Betting on the GBP/NZD
The current quote on the GBP/NZD for a rolling daily spread bet is 18,947.0 – 18,962.0. As the pound sterling comes first in the currency pair, this means that £1 is equal to NZ$1.8947 – NZ$1.8962. The higher price is the buying price, used when you take out a long position, and the lower price is the selling price, for going short. Long and short in this pair are relative to the pound, as this is the first currency named.
So if you want to go long on the New Zealand dollar, you have to relate this back to the pound, and go short on the Forex pair. Say you placed a short bet for £2.50 per point, believing that the New Zealand dollar will strengthen compared to the British economy. The bet is placed at the selling price of 18,947.0.
Suppose that the quote does fall, as you expect, and that you close the position when it goes down to 18,436.5 – 18,451.5. The short bet closes at the buying price of 18,451.5. This means that you have gained 18,947.0 minus 18,451.5 points, which works out to 495.5 points. As your bet size was £2.50 per point, you have won £1238.75.
No one picks winning bets all the time, and even winning traders have their share of losses. By keeping the size of losses down, you can make sure that you still profit overall. Suppose after you placed the bet the quote goes up to 18,993.3 – 19,008.3, and you decide to cut your losses and close the bet. Once again, your bet would close at the buying price, 19,008.3, as it was a short bet. That means you have lost the difference in points, which is 61.3. For your size of stake, that amounts to £153.25 lost.
For a second example, assume that you believe instead the New Zealand dollar is going to weaken, and the pound sterling will therefore strengthen relatively. You want to place a long or buy bet on this Forex pair, and that would go on at the price of 18,962.0. Say you staked £1.20 per point.
Taking the winning case first, perhaps the quote would go up to 19,362.3 – 19,377.3 and you would close the bet for a win. The price at which you close the bet is 19,362.3, and taking the original price away from this means you have made 400.3 points. Your stake was £1.20 per point, so simple multiplication shows you have a profit of £480.36.
Now for the case where you lose. Once again, you must remember that you need to minimize your losses, and that means that you close the bet as soon as you realize it is not going to work out as you anticipated. Say the price dropped to 18,882.7 – 18,897.7, and you closed the trade. The bet closed at 18,882.7. 18,962.0 less 18,882.7 is 79.3 points. You staked £1.20 per point, so you can just multiply this out to find that you lost £95.16.
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