Spread Betting: Trading USD/PLN
It is just as easy to bet on the fortunes of the Polish zloty as on a major currency such as the pound. The basic process of spread betting doesn’t change, regardless of what you’re betting on. The “exotic” currency pair of the USD/PLN presents an opportunity and a challenge, as you’re unlikely to find much information in the financial section of the newspaper on trading the zloty. This means that you are relying on your own assessment, using technical analysis, of the price chart.
The Polish zloty has had a chequered past. The most recent zloty was introduced in 1995, after a period of hyperinflation that had one new zloty equivalent to 10,000 of the old zlotys. Poland is due to adopt the euro according to its treaty, but has at least a few years to go before it is allowed in.
The economy of Poland is growing, thus it is only economic management that is the problem. It is the sixth largest economy in the European Union, and one of the fastest-growing. In addition to providing agricultural goods, Poland also exports electricity and did not follow the rest of Europe into an economic recession. However, the country in general has inefficient practices, low investment, unemployment, and other factors which count against it.
The other part of this currency pair is the US dollar. The dollar is the global currency standard which puts it in a special position when it comes to valuation. The United States runs a trade deficit which has reached somewhat unimaginable proportions at more than £10 trillion, and is still increasing. Because of its special position as the currency for the international market, the US is able to “generate” money by simply printing it, or in more modern terms just adding it to a balance sheet, and its value depends on trust and faith in the US economy.
The US is a consumer oriented economy with most of its economy classified as services, and many goods supplied by China rather than manufactured locally. However, its major trading partners are Mexico to the south and Canada to the north, and the main oil supplier to the US is Canada, not a Middle East country. Given the increase in technology capable of extracting oil and gas from the ground, more areas are becoming viable for exploitation, subject to environmental approval, and it is likely that the imbalance between domestic production of energy and consumption will be addressed more by increasing production than by reducing consumption.
The labour market in the US attracts immigrants, both legal and illegal, even though the current unemployment rate of between 8% and 9% is considered high, and about twice as much as is desirable. One reason for the extent of immigration is that many immigrants are prepared to do work that US citizens will not, such as for example Mexican landscapers who are happy to work outside in the heat of Arizona.
If you are interested in spread betting on the USD/PLN, then you must be prepared to do your own analysis – which is always advisable anyway – and place your bets based on basic principles of technical analysis.
Spread Betting on USD/PLN
Just for a change, you might want to spread bet on the Forex currency pair US dollar versus the Polish zloty. This is not a widely made trade, so you will need to do your research, following the currency moves for a couple of weeks to get the feel of it, as you probably won’t find much advice in print. The current spread betting quote is 31,430.5 – 31,455.5 for a daily rolling bet, which may be the only type of bet that your spread betting company provides on this pair.
When you are spread betting on a currency pair, the most important thing to bear in mind is the order of the currencies. Everything is referred to the first currency mentioned. If you make a long or buy bet, you are betting on it to increase in value; a short or sell bet means you think it is going down, compared to the other currency. The quote is also based on the first currency, so the price given above shows that with one US dollar you can buy 3.14305 Polish zlotys.
If you think that the US dollar is going to increase against the zloty, then you could place a long bet for £1.20 per point. If the price went up, you would win, and maybe you would take your winnings when it reached 32,671.0 – 32,696.0, for example. To calculate how much you won, you simply have to work out the difference in points. A long bet goes on at the buying price of 31,455.5, and closes at the selling price of 32,671.0. That is a difference of 1215.5 points. With a bet of £1.20 per point, you have made a total of £1458.60.
You might also find that the value goes down, and that means you have to close your bet quickly before you lose too much. If the quote went down to 31,265.7 – 31,290.7, and you closed the bet to limit your losses, you can work out the point difference that counts against you. The bet went on at 31,455.5, but this time was closed at 31,265.7. The difference this time is 189.8, which multiplying by your stake means you lost £227.76.
If you think instead that the Polish zloty is going to increase in value, then you have to place a short bet on this pairing. The short bet goes on at the lower price, so say you placed a bet for £.80 per point at 31,430.5. If you are correct, and the price goes down you could close your bet when it reaches 30,957.9 – 30,982.9. A short bet closes on the higher of the two prices quoted, in this case 30,982.9. The difference in points is 31,430.5-30,982.9, which is 447.60 points for a total of £358.08 win.
If the price rises, again you should be quick to close the bet before you lose too much. Perhaps it goes up to 31,506.2 – 31,531.2, and you close the bet at 31,531.2. This time the points difference is 31,531.2-31,430.5, which works out to 100.7 points. Multiplying this by the stake of £.80 means you lost £80.56.
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