Spread Betting: Trading USD/MXN
The fundamentals of spread betting on the USA dollar versus the Mexican peso (USD/MXN) involve finding out about the economies of each country, and seeing what news and events will affect trade. As a neighbouring country, Mexico has many links with the US, not all of them legal. For instance, it is estimated that there may be as many as 12 million illegal immigrant Mexican workers in the United States, who go to America in order to earn better money, usually cash for menial jobs such as landscaping and cleaning.
Mexico as a country is closely tied to the USA in terms of trade and will benefit from the economic recovery there. But as an exotic pair special care has to be taken and if trading long term, forex traders need to ensure they do research on interest rates and conditions of both countries represented in the pair. For instance, the USA economy is running a trade deficit which has grown to astronomic proportions. US debt is measured in many trillions of dollars. America’s dependency on foreign oil is one of the major driving factors, and increasing oil prices in the last two years have exacerbated the problem. Each year the US imports about a quarter of $1 trillion worth of oil, which is more than 10% of its total imports.
There are other contributors to the deficit, such as electronics, drugs, household goods, and automobiles. However, the USA is a net exporter of services, such as financial services, travel, and intellectual property fees. About one third of US exports go to Mexico and Canada.
Some have questioned whether the economy of the US can recover from the debt, which is still increasing at the present time. However, as the US dollar is the international currency, the United States can simply print more to pay for what it cannot really afford. This has a long-term effect of devaluing the dollar, which while not pleasant for the citizens, means that any international debts are in turn devalued.
Mexico has long been regarded as the poor southern neighbour of the United States, as indirectly evidenced by the number of migrant workers seeking a better paying job although having said that the Mexico only runs a small current deficit compared to the USA. The Mexican economy depends on the United States, with more than 80% of its exports going north. Mexico is the world’s sixth largest producer of oil, and the oil companies are state-owned, which provides about half the government’s income.
Because of this dependency, Mexico was hit in the same way as many other countries in the 2008 global economic crisis. Other than this, Mexico has maintained steady small growth over the years with just a small current account deficit. It has the potential to expand its economy, but at present lacks the modern resources to take full advantage of its position. It has widespread rural poverty, and the situation is only improving slowly. Having said that the USA economy has been somewhat recovering (2013) and this is helping the Mexican economy.
The peso is probably one of the more liquid emerging market currencies. This currency pair has been volatile, ranging from 10 to 15 pesos to the dollar in just the last few years. As such, it presents good opportunities for spread betting. Provided that you can implement a good spread betting trading strategy, the price moves should be there to allow you to take good profits. Make sure that your trading plan sets realistic stop losses to avoid any undue drawdowns on your account, which would limit your ability to place spread bets in the future.
Spread Betting on USD/MXN
United States of America and Mexico are close neighbours, but have had many disputes in history, one well-known example of which was the Battle of the Alamo in Texas. Nowadays they are close trading partners, even while illegal immigration is a contentious topic with many Americans. The USD/MXN currency cross itself is one of the more liquid emerging market currencies. The current spread betting quote for the USD/MXN is 126,582.5 – 126,642.5 for a rolling daily bet.
If you think that the Mexican economy is going to improve and the Mexican peso do better than the US dollar, then you need to take out a short bet on this pair. As the Mexican peso is the second currency, a bet in favour of it is the same thing as a bet against the US dollar. Say you placed a sell or short bet for £.25 per point.
If you are right and the quote goes down, you might consider closing and taking your winnings when it reached 123,963.2 – 124,023.2. You can work out how much you won like this: –
- You opened your short bet at 126,582.5
- Your bet closed at the price of 124,023.2
- The number of points you won is 126,582.5 less 124,023.2
- This is 2559.3 points
- Your stake was £.25 per point
- Therefore you have won £639.82
if your bet doesn’t work out, and the price goes up, then you might close your bet and cut your losses when it reached 126,656.4 – 126,716.4. You can work out how much you lost in a similar way: –
- You opened your short bet at 126,582.5
- Your bet closed at the price of 126,716.4
- The number of points you lost is 126,716.4 minus 126,582.5
- That is 133.9 points
- Your stake was £.25 per point
- Therefore you have lost £33.47
Now look at what happens if you decided instead that the US dollar was going to outpace the peso, and placed a long bet. Say you bet £.50 per point that the price will go up. This would go on at the buying price of 126,642.5.
Perhaps you close your bet when the price goes up to 128,542.6 – 128,602.6. You work out what you won on a long bet in the same way as previously: –
- The long bet went on at 126,642.5
- It was closed out at 128,542.6
- Therefore you won 128,542.6-126,642.5 points
- That works out to 1900.1 points
- Your stake was £.50 per point
- So you won 1900.1 times £.50
- Total winnings of £950.05
Once again, you must consider the case when your bet goes the wrong way. When this happens, you have to close your bet as soon as you know it is not going to work out. That way you can keep down your losses. Say the price drops to 126,493.2 – 126,553.2 and you close the bet.
- The long bet went on at 126,642.5
- It was closed out at 126,493.2
- Therefore you lost 126,642.5 minus 126,493.2 points
- That works out to 149.3 points
- Your stake was £.50 per point
- Which works out to a total loss of £74.65
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