You may have strong convictions on the strength of the UK economy in comparison to the European economies, and spread betting allows you to test how right you are. Certainly, when the decision whether to go into the European monetary system was taken, and it was decided to keep the sovereign British pound, many views were expressed. Having a currency that is separate from other countries allows the British government better economic control, and may prove to be the better choice in the long run, considering the ills that have befallen both of them but in particular the euro in recent years.
Of course, you must realize that spread betting on the GBP/EUR is exactly the inverse of trading the EUR/GBP, which is also available with many spread betting providers. The first or base currency, in this case the pound sterling, is considered as the unit, and the price is the amount of secondary currency that it can buy. This means that the chart above shows that £1 can buy €1.24849. If you take a long bet, you are betting that the first currency will go up in value against the second, and vice versa.
Prices are influenced considerably by governments, and by announcements of the health of countries’ economies, such as unemployment rates and other economic data. At the moment, there is concern about Greece and Spain in the European monetary system, and you can see a general uptrend in the relative value of the British pound in recent years on the weekly price chart above.
However, trading takes place over a much shorter time span than years, and you need to research the technical analysis that applies to the timeframe that you are trading. In this case, on the longer time frame, you can see that the uptrend has stayed in the upper half of the Bollinger Bands until recently, but now it shows signs of reversing. As this may only be a consolidation, the chart suggests watching until a definite move happens.
Forex GBP/EUR Rolling Daily
Taking out a long bet on the GBP/EUR rolling daily, which currently stands at 12,471.6 – 12,477.6, you decide to stake £1.50 per point (or pip) on the price of this currency pair going up. As this is a rolling bet, which is rolled over in the evening by your spread betting provider, there may be a small charge applied to your account each time. Usually this is not a significant amount, as long as you do not intend to hold onto the bet for months.
As a first example, imagine that your bet works out and that the price went up to 12,936.7 – 12,942.7. You could choose to close the bet and collect your winnings. Even though your spread betting company will work these out for you, you may want to check how much you have gained. Your long bet was started at a price of 12,477.6, and you closed it at 12,936.7. The difference between these is 459.1 points or pips. As you staked £1.50 per point, this would mean that you had won £688.65.
Of course, you will have your share of losses any time that you are trading on the financial markets, so you must be prepared to close the bet and accept the losses on any of your trades. In this case, you may close the bet if the price falls to 12,112.0 – 12,118.0. The closing price is 12,112.0, so the difference from the starting price is 12,477.6 minus 12,112.0, which is 365.6 points. This would mean that you had lost £548.40.
Instead of watching the markets all the time, many traders choose to use a stop loss order to automatically close their losing bets. With one of these, you might find that your bet would have been closed at 12,232.3 – 12,238.3. Your losses this time are from 12,477.6 to 12,232.3, a total of 245.3 points, which would cost you £367.95.
GBP/EUR Forex Spread Betting: Futures
When you place a spread bet on the forward GBP/EUR, expiring in six months time, you are deciding what the midterm future is for the price. For example, if you think that the euro will pick up, with the weaker economies being supported by Germany and others, and that the pound sterling may relatively remain weak, you will want to place a short or sell bet. Suppose you stake £2.50 per point on the current quote of 12,434.7 – 12,458.7.
The short bet means that you are expecting the price to come down, so if the price drops to 12,056.1 – 12,074.1 you could close the bet and take your profit. The bet was placed at a selling price of 12,434.7, and it closed at the buying price, which was 12,074.1. Taking one from the other, 12,434.7 minus 12,074.1 is 360.6 points. As you staked £2.50 per point, you would have won £901.50.
When you are financially trading, you must accept that sometimes your trades will not win and be prepared to close them for a loss. Perhaps in this case the price might have gone up to 12,726.8 – 12,750.2, and you would decide to end the trade. The starting price was 12,434.7, and the closing price was 12,750.2, giving you a difference of 315.5 points. As this counts against your sell bet, this means you have lost £788.75.
Many traders prefer to use a stop loss order as a contingency against losing too much. The stoploss order tells your spread betting company to close a bet if it is losing by a certain amount, regardless of whether you are watching the market. In this case with a stoploss order you might find that the bet was closed for you at 12,656.4 – 12,678.4. Taking 12,434.7 away from 12,678.4, you would have lost 243.7 points, which would amount to £609.25.