Spread Betting USD/JPY

When you are spread betting on the USD/JPY, you are comparing the relative strengths of the US and the Japanese economies. If you go long, you are betting that the US dollar is strengthening and/or the Japanese yen is weakening. If you take a short or sell bet on the USD/JPY, the opposite is the case – in effect you are selling the US dollar or buying the Japanese yen.

Because of the size of its economy, Japan is a representative of Asian economic growth in general. Certainly, the Japanese economy has had some issues, particularly in the early 90s when bubbles in real estate and stocks burst and there was a general deflationary spiral and consequent slowdown in the economy. This left the Japanese banks with many defaulted loans. The Japanese government has worked hard to try and reinvigorate the economy, and although it is not back to its previous state, it is true to say that Japan is still thriving.

Japan’s economy has been built up on a strong work ethic, innovation in design and manufacture, and the high rate of saving. After recovering from the Second World War, the Japanese economy grew to rival all but the United States. With such a small country, Japan is extremely dependent on trade with other countries, and is well-known for its exports. This means that the foreign exchange market is particularly active and has good liquidity for the trader.

In fact, the Japanese yen is the most heavily traded currency in Asia, so this currency pair combines two major world economies. Because of the economic slowdown, in recent years Japan has had to keep interest rates low to stimulate economic growth. This has had an effect of keeping the yen low in relation to other currencies, because of something called a “carry trade”, which effectively sells the yen and buys other currencies so that the trader can benefit from the higher interest rates offered. Any time there is a lot of selling of anything going on, you can expect the price to fall.

The popularity of this technique, which is used by institutional investors and hedge funds, depends on the volatility between currencies, as obviously swinging exchange rates can negate any advantage gained. It works during calm periods, but if volatility increases then you might expect the yen to increase in value as the various carry trades are unwound.

This market is very active, with some people putting it as the fourth highest traded currency pair, which generally means that there are low spreads and good liquidity, both factors which help in making trades profitable.

Because of Japan’s dependency on imports and exports, rising commodity prices can hit at the currency, and weaken the yen in relation to other countries. The economic situation in other countries can obviously also impact the Japanese economy, as less of its goods are bought abroad. One thing to watch out for is that the Bank of Japan has been known in the past to intervene if the yen strengthens too much, which is regarded as harmful to the export industry. Such an intervention would have an immediate effect on exchange rates.

Spread Betting on the USD/JPY Rolling Daily

The USA dollar v. Japanese yen is heavily traded, and thus enjoys good liquidity and tight spreads. The current quotation for this Forex pair is 7780.8 – 7783.3 with IG Index, and a typical day might see 30 or 40 points of movement, perhaps 100 points on a trending week. If you think that the Japanese yen is going to increase in value relative to the US dollar, then you would want to place a sell bet on this pair, effectively selling the dollar and buying the yen. Say that you staked £6.50 per point.

If the yen did go up, this is the same as the US dollar going down, and the quoted prices would go down. Perhaps they would go to 7676.4 – 7678.9, and you would close your bet to secure your winnings. You could figure it out like this –

  • Your sell bet opened at 7780.8, and closed at 7678.9
  • Therefore you gained (as it was a short bet) 101.9 points
  • Your chosen stake was £6.50 per point
  • By simple multiplication, you have won £662.35

Whenever you are trading on the financial markets, you must remember that they can easily go in the opposite direction to what you want, and make you lose. With spread betting, the amount you lose can mount up quickly, and you have to stay in touch with your bet. Say it went to 7812.3 – 7814.8, you could decide that you must close it and cut your losses.

  • Your sell spreadbet opened at 7780.8, and closed at 7814.8
  • This is a loss of 34 points
  • Multiplying, this amounts to £220 lost.

The other way you might want to bet on this pair is to bet that the US economy will keep on going strong against the Japanese yen, so that you want a long position for your bet, at say £7.25 per point. If the market goes in your direction, you could close your bet for a win when it reached 7903.1 – 7905.6. This would give you the following: –

  • Your spreadbet opened at 7783.3
  • It closed at 7903.1
  • The total number of points you made is 7903.1 minus 7783.3
  • Which is 119.8 points
  • Your stake was £7.25 per point
  • 119.8 x £7.25 = £868.55 that you won

As it is a daily rolling bet, there will be some adjustments for interest applied to your account for the overnight periods that you held it, but these are usually quite small.

You must consider the case that the rate does not go in the direction you want. Say that the quoted rate dropped to 7750.6 – 7753.1, and you decided that was far enough and closed your bet for a loss. Here’s how you work out your losses.

  • Your spreadbet opened at 7783.3
  • It closed at 7750.6
  • That means you lost 7783.3 – 7750.6 = 32.7 points
  • Your stake is still £7.25 per point
  • The total you lost is £237.08

Spread Betting on USD/JPY Futures

One of the interesting elements of spread betting on futures prices is that they reflect the markets view of where the prices are going. For instance, the spread bet on US dollars v. Japanese yen six months out is currently quoted at 7740.6 – 7750.4. This is 20 or 30 points less than the current spot spread pricing, which means that the market is “thinking” that this currency exchange rate will slip slightly in the next few months.

This reflects on the USA dollar in particular, as it is the first named currency. A decline in this pricing indicates weakness of the dollar and/or strength of the Japanese yen. You may have a belief that the dollar is weakening, but for spread betting on this futures market, you will need to decide whether the quote has got it right, or whether the dollar will be more or less weak than indicated. If you believe that the dollar will become weaker than the spread quote, then you would open a sell bet, or short the index, say for £15 per point.

With the market already thinking that the rate will drop, you may well see it go down over the next few weeks. Provided it doesn’t swing up and cause you to close the bet for fear of losing too much, you can hang on and watch the rate drop to see if it continues. Say it drops to 7683.2 – 7693.0, and you decide to close your bet and take your winnings.

Your bet was opened at 7740.6, and closes at 7693.0, giving you 47.6 points difference. As you chose a stake of £15 per point, this works out to £714 that you have won.

If on your other hand the rate had gone in the other direction, you might have decided to close your bet and cut your losses when it reached 7763.2 – 7773.5. In this case you would have lost 7773.5-7740.6, which is 32.9 points, and at your chosen stake this works out to £493.50 that you are down.

If you had decided to go against the market view, and instead took out a long bet, which basically means that the yen will prove weaker than the dollar over the next few months, you might stake £20 per point at a price of 7750.4. If you are right, you might watch as the current price of about 7780 goes up, and this gets reflected back into the futures price. Perhaps you’ll wait until the spread betting quote becomes 7823.2 – 7833.4 for this futures bet, and then close it for a profit.

You opened the bet at 7750.4, and closed it at 7823.2 for a gain of 72.8 points. As you staked £20 per point, this gives you a healthy profit of £1456.

Once again, you must consider that many bets do not go in the right direction, and you must take care to close your bet before the loss becomes too great. Say the price went down to 7723.7 – 7733.9, and you closed the bet. 7750.4 minus 7723.7 is a loss of 26.7 points, which means you lost £534 on this bet.