Spread Betting: Trading USD/HUF
You can be forgiven if you do not recognize one of the currencies represented in this Forex currency pair. USD representing the US dollar is straightforward, and appears in many Forex transactions, but HUF is seldom used. In fact, this pair is listed under the category “Exotics”.
Unless you have visited there, you may not know that the name of the Hungarian unit of currency is the forint, and that HUF is the Forex code for the Hungarian forint. The forint is long-standing, having first been used in 1325. It was discontinued after the First World War, but then revived in 1946, after the Second World War. There is talk that it might disappear again, to be replaced by the euro, but as Hungary had to be bailed out in 2008, it may not be ready for this until 2020. The forint is made up of 100 “filler”.
Moody’s have already cut Hungary’s credit rating to “junk”, and Standard & Poor’s, who downgraded the US credit rating in 2011, call Hungary “below investment grade”. Hungary as a country mainly exports machinery and other equipment. Here’s a recent chart of the exchange rate: –
As you can see, looking at the chart the good news is that technical analysis in the form of Bollinger Bands is working as expected. This is a good demonstration of the way technical analysis can be applied to any financial market, and still come up with reasonable results. Note the short candlesticks, if not doji, at the reversals, and the way the price tends to follow the band, and stay in the half of the band it is in, unless breaking through in another direction.
The other half of this currency pair is the United States of America, with the international standard currency of the US dollar. The strength of having the recognized worldwide standard currency cannot be underestimated. The US, with its increasing debt limit, is in a position that many smaller countries would find untenable, but with the dollar universally accepted around the world, in truth all the United States has to do is keep printing dollars until it gets out of recession.
This is not to say that the US is dealing with the situation flippantly, simply that it has a built-in advantage compared to other countries. Oil prices have been increasing, and the value of oil imported to the States is more than 10% of its entire import costs. The US economy thrives on consumer oriented goods, most noticeably from China, although there is significant trade with Canada and Mexico, both bordering countries.
America has by far the largest economy in the world, even though there are many developing nations with expanding trade. It runs a consistent trade deficit, with the constant commitment to reducing it that has not had much effect to date. There are many economic indicators available, which can gauge the strength of the US economy. The primary ones include employment figures, such as jobless claims and nonfarm payrolls, the macroeconomic ones include items like the gross domestic product.
If you’re going to spread bet on the USD/HUF you will probably not get much assistance from the pundits, who tend to ignore this Forex pair. Do your own technical analysis, and be aware that currency instability in Hungary could catch you out, if you are not keeping on top of the news.
Spread Betting on USD/HUF
Spread betting on the US dollar versus the Hungarian forint (USD/HUF) is a pure trading game, with little in the way of expert opinion available in this sparsely traded Forex pair. The current price for a daily bet is 21869.4 – 21899.4, and just looking at the chart you can see that the daily trading range may be 400 or 500 points. You need to do some technical analysis to figure out which way to bet, so say you want to bet on the US dollar to increase in value, which is the same thing as the Hungarian forint going down, you would place a long bet. With such a large daily swing, you probably want to keep the stake small in case it goes the wrong way, so say that you bet £.50 per point.
After a few days, the spread bet quote goes up to 23,136.2 – 23,166.2, and you decide to close your bet and cash in your winnings. Here is how you work out how much you have won: –
- Your long bet went on at the higher price of the pair of prices, 21,899.4
- and closes at the lower price of the current pair, 23,136.2.
- That means you won 23,136.2-21,899.4 points,
- which is 1236.8 points.
- Your stake was £.50 per point.
- Multiplying out, you have won £618.40.
If things had not worked out, and the price started going down, you would have to decide to close the bet and accept your loss. Say it went down to 21,526.2 – 21,556.2, and plainly was not going to go in your direction, so you exited the trade. You work out your loss in a similar way: –
- Your long bet went on at the higher price of the pair, 21,899.4
- and closed at the price of 21,526.2.
- That means you lost 21,899.4-21,526.2 points,
- which is 373.2 points.
- Your stake was £.50 per point.
- Multiplying out, you have lost £186.60.
If you had decided in the first place that the forint was going to go up, or the US dollar to go down, then you would have to take out a short or sell bet on the currency pair. This is just as simple, so say you bet £.40 per point for the price to go down. If you’re right, then the price might go down to 20,215.6 – 20,245.6, at which point you close your bet and count your winnings: –
- Your short bet went on at the lower price of the initial pair, 21,869.4.
- The bet closed at the current higher price of 20,245.6.
- As you are betting for it to go down, you gained 21,869.4-20,245.6 points.
- That is 1623.8 points.
- For your stake of £.40 per point, this means you won £649.52.
Once again, you must consider the case that you may not win. If the price went up to 22,132.9 – 22,162.9, here is what you lost: –
- Your short bet went on at the lower price of the initial pair, 21,869.4.
- The bet closed at the current higher price of 22,162.9.
- As you are betting for it to go down, you lost 22,162.9-21,869.4 points.
- That is 293.5 points.
- For your stake of £.40 per point, this means you lost £117.40.
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