It can be interesting to spread bet or trade the USD/CHF, commonly called the “Swissie”, because the characteristics of the economies involved are relatively disconnected. If you are not aware, CHF is the Forex symbol for the Swiss franc, which nowadays is the only franc still left in Europe, most of the other countries having joined the European Monetary Union, using the euro.
The Swiss franc has long been considered a safe currency in times of crisis, based on the Swiss pacifist position on the wars happening around it. As a neutral country, Switzerland is idiosyncratic, as it requires its citizens to take time each year for military exercises, and has enacted laws requiring basements in all new residential construction to shelter from possible attack. The Swiss maintain tight control on their currency, keep inflation down, and economic activities, which mainly take place with the surrounding European Union, account for about 80% of foreign trade. In fact, despite its position as a safe haven, global trading in the Swiss Franc is at around 4% of all activity, making it much less liquid than the other major currencies.
When you are looking for indications of the Swiss franc’s expected movement, it can help to look at the pound sterling, as the British pound and the Swiss franc tend to reflect each other. Some traders have noted that the EUR/USD and the GBP/USD currency pairs tend to have a negative correlation to the USD/CHF. While this can be a helpful way to look at it, it should come as no great surprise because the US dollar is the first named currency in the USD/CHF pairing, and the second currency in the others, so naturally any strength or weakness in the US dollar will be reflected in opposite directions in these groups.
The value of the Swiss franc can be affected by a number of economic indicators of the economy, including the trade balance, consumer price index, and gross domestic product of Switzerland. Above all, you should realize that the Swiss economy is tightly controlled and it is not for nothing that Switzerland has maintained its position as the banker of Europe.
In contrast to this, the USA economy which was downgraded in 2011 has been subject to swings for many reasons. Unemployment has been high for some years, and the monthly unemployment figures are a factor in valuing the dollar. The trade deficit continues to climb, and the US dollar is fortunate to be considered the world’s currency, as even with no appreciable gold or silver reserves to back it up, the “Feds” can continue to print money to meet the bills. Once again the usual economic indicators can impact the value of the dollar. Look particularly for employment figures, the balance of trade, consumer confidence, and consumer and producer price indices.
The USA Federal Reserve Board has regular meetings, and the chairman reports any changes in the interest rate. Speeches by the “Fed” and by the President of the United States can be signals for monetary unrest, and unless you know what you are doing it is probably best to stay out of the currency exchange market around those times.
Spread Betting on the USD/CHF Rolling Daily
Although not among the most heavily traded of the major Forex currency pairs, there is still a lot of interest in trading on the US dollar/Swiss franc because of the distinct difference between the two economies. The current spread betting quote is 9425.2 for selling and 9427.1 for buying the US dollar. Because it is a currency pair, buying the dollar is the same as selling the franc, and vice versa.
If you think that the American economy is picking up, you may want to go long on the dollar and place a buy bet on this pairing. Say that you bet £8.50 per point for the dollar to go up. If you have judged the market correctly, and this pair goes up, you might close the bet and collect your winnings when it reached 9717.3 – 9719.2. Typically, the USD/CHF varies about 100 points a day.
- You bet £8.50 per point at 9427.1
- You closed your bet at 9717.3
- The number of points you gained is 9717.3-9427.1
- You have won 290.2 points
- Multiplying by your stake, you win £2466.70
The quote might have gone down, rather than up, and you would be faced with closing your bet quickly, before your losses became too great. Say that it dropped to 9382.6 – 9384.5, and you decided to cut your losses and close the position.
- You bet £8.50 per point at 9427.1
- You closed your bet at 9382.6
- Therefore you lost 9427.1-9382.6, which equals 44.5 points
- This amounts to £378.25, at £8.50 per point.
As this is a rolling daily bet, you should also expect some interest charges to be imposed each night that you hold the bet over, but generally this would not be significant if you held the bet for a few days or weeks.
Consider now that you might have wanted to go long on the Swiss franc instead. This is the same as going short on the currency pair, so you enter a sell bet of £4.50 per point at the original price of 9425.2. If you are right and the index drops, you might exit the bet when it has fallen to 9253.7 – 9255.6. This is how you work out how much you won: –
- You bet £4.50 per point at 9425.2
- You closed your bet at 9255.6, the higher price as this was a short bet
- The number of points you won was 9425.2 less 9255.6
- This is a total of 169.6 points
- For your chosen stake of £4.50 per point, your winnings are £763.20
Once again, you must consider the case that the price goes in the wrong direction, and you lose some money. Perhaps it went up to 9456.3 – 9458.2, at which point you closed your bet and cut your losses. Here is how you work out how much you lost: –
- You bet £4.50 per point at 9425.2
- You closed your bet at 9458.2
- You lost the difference of 33.0 points
- Therefore for your chosen stake, you lost £148.50
Spread Betting on the USD/CHF Futures
If you are betting on the USD/CHF futures, then you are interested in how these currencies relate in the next few months. This does not prevent you from closing your bet any time you want to, so you could take your winnings next week if the markets move in the right direction; but if it takes some time for the gains to come, there will be no out-of-pocket charges to hold onto the spread bet until the expiry date, unlike when you hold a rolling daily bet.
The current futures quote on the USD/CHF is 9402.6 – 9412.5. The spread of nearly 10 points is much larger than for the daily bet, but includes the benefit of no daily charges while you hold onto the bet. If you think that the Swiss franc will weaken, you will place a buy or long bet on this pair, perhaps for £5 per point. Because the currencies are paired, a weak franc is the same as a strong dollar.
Say after a few weeks you see that the quote has gone up, and feel that it is as high as it will go this time – you can close your bet at, say, 9689.6 – 9699.5. Here is how you work out your winnings: –
- You opened your spreadbet at 9412.5
- Your bet closed at 9689.6
- The difference between these is 277.1 points
- Your stake was £5 per point
- Therefore you won £1385.50
You must always be ready for the price to go the wrong way, and be prepared to exit your bet quickly to minimize your losses. Say the quote went down to 9362.6 – 9372.5, and you decided to accept your loss and close your bet.
- You opened your spreadbet at 9412.5
- You closed your bet at 9362.6
- That means you lost 49.9 points
- At your chosen stake, that amounts to losses of £249.50
As another example, let’s say that in the first place you decided that the dollar would weaken, and placed a short bet on the currency pair for £12 per point. A short bet would be placed at the selling price of 9402.6. In time, the quote drops to 9236.9 – 9246.8, and you decide to close your bet while you are winning.
- You opened your spreadbet at 9402.6
- Your bet closed at 9246.8
- The difference in points is 9402.6 less 9246.8
- The total number of points you gained is 155.8
- Your stake was £12 per point
- Multiplying out, you have won £1869.60
Once again, you will find that some bets do not work, and the price goes the wrong way. Perhaps the price rose to 9486.0 – 9495.9, and you decided that you must accept your loss and move on. You closed your bet at 9495.9.
- You opened your bet at 9402.6
- Your bet closed at 9495.9
- As it was a short bet, that means you lost 93.3 points
- At your chosen stake of £12 per point, you have lost a total of £1119.60