Spread Betting: Trading USD/CZK
Most people are familiar with the US dollar, but one of the less seen currencies is the Czech koruna, the second currency in this pair, which is still the legal currency in the Czech Republic. Here is a recent chart:
As you can see with this weekly chart, this Forex pair has a lot of volatility, with a 25% swing in the last year and long candlesticks signifying large weekly moves.
The Czech koruna was adopted as recently as 1993 in this post-Communist country, but it simply replaced the Czechoslovak koruna at that time. The Czech Republic was due to adopt the euro shortly, but that move has been stayed by opposition.
The economy of the Czech Republic is highly developed, and trades mainly in the European Union. It is one of the wealthiest of the former Communist countries, and seems to now be approaching political stability, following some ups and downs early on. There is a booming tourist trade, and car manufacture is also a major industry, with an estimated 80% of production being exported. The economy has changed to the extent that the major import now is raw materials, rather than finished goods.
Other industries include iron and steel, electronics, chemicals, etc., and its agriculture includes potatoes, wheat, hops, and sugar beet. The weakness of the Czech economy is that it depends heavily on its export markets, so when Europe fell victim to the global economic crisis in 2008 the Czechs found demand for the goods slumped.
The economy of the United States is the largest in the world, and centres on the consumer and service industries. The US has run a deficit economy for a number of years, partly because of the cost of two major wars in the first decade of the 21st century which were unfunded, i.e. there was no specific provision or tax of the economy to pay for them. As a result of this, the national debt is over £10 trillion.
The US trades with most areas of the world, importing a lot of manufactured goods from China, although the neighbouring countries of Canada and Mexico also have significant trade. In fact, Canada is the largest supplier of oil to the United States. As the US dollar is considered the global international currency, the US is in an intrinsically sound position economically, able to provide more dollars as needed to meet trading demands.
If you want to spread bet on this Forex currency pair, then you’ll need to do your own research, as it’s unlikely that you will find many commentaries on this “exotic” pairing. It can be an exciting prospect, given the volatility that this pair has experienced in the past, but the other side of volatility is that there is danger of large losses. This means you must be especially careful when you put together your trading plan to have a sound stoploss strategy. The somewhat erratic performance on the chart suggests that you need to stay on top of the price movements in order to profit.
Spread Betting on USD/CZK
If you are considering spread betting on the US dollar versus the Czech koruna, you should spend a little time studying the charts so that you get an idea of how it moves. Your trading plan must give sufficient room for minor fluctuations in the wrong direction, but apply a stop loss before any potential losses become too great. The current price of the USD/CZK is 18,677.3 – 18,702.3.
If you think that the Czech koruna is going to increase in value compared with the American dollar, then you would need to place a short or sell bet on this pair, bearing in mind that the Czech currency is named second; effectively you are betting that the US dollar will go down relatively. Say you place a bet for £1.50 per point. With a sell bet, it will go on at the lower quoted price, which is 18,677.3.
Assume now that the price falls, as you hoped, and that you close your bet and take your winnings when it reaches 18,256.1 – 18,281.1. You can work out how much you won like this: –
- Your short bet was placed at 18,677.3
- Your bet closed at 18,281.1
- Therefore you won 18,677.3-18,281.1 points
- You won a total of 396.2 points
- Your bet was for £1.50 per point
- Therefore you won a total of £594.30
Often after you place a bet, it goes in the wrong direction and you are forced to close the trade before your losses mount up too much. To be able to do this is one of the secrets of successful financial trading. Say the price went up to 18,703.7 – 18,728.7, and you closed the trade to minimize your loss.
- Your short bet was placed at 18,677.3
- Your bet closed at 18,728.7
- Therefore you lost 18,728.7-18,677.3 points
- Your total loss is 51.4 points
- Your bet was for £1.50 per point
- Therefore you lost £77.10
For a second example, consider a long trade in the USD/CZK. A long or buy bet means that you think the US dollar will go up in relationship to the Czech koruna. Bet £2.40 per point, say. You close your bet for a profit when the price rises to 19,132.9 – 19,157.9.
- Your long bet was placed at 18,702.3
- You closed it at 19,132.9
- This gives you a gain of 19,132.9-18,702.3 points
- This works out to 430.6 points
- For your stake of £2.40 per point you have won £1033.44
Once again, consider the case when the price goes against you, and you’re forced to take a loss. Say the price drops to 18,602.0 – 18,627.0.
- Your long bet was placed at 18,702.3
- You closed it at 18,602.0
- This gives you a loss of 18,702.3-18,602.0 points
- This works out to 100.3 points
- For your stake of £2.40 per point you have lost £240.72
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