Spread betting on the EUR/GBP is an excellent way to start your foreign currency trading. While this pair is not popular with experienced Forex traders, that is for the reason that the price is not very volatile, which is an advantage if you are learning about trading. The price moves relatively slowly, giving you time to react when you’re not quite sure of what you’re doing. You are also less likely to be caught out for a large amount if your bet goes against you, as the daily range of this currency pair is seldom as much as 100 points. Another advantage of betting on the euro vs. pound sterling currency pairing is that it usually has a small spread with most spread betting companies, and this helps to maximize your profit.
It is also easy for the casual trader to relate to the currencies, the euro used by 17 European countries, and the pound sterling. Rather than trading exotic or less common currencies which you have to learn about, you already have a basic knowledge of these two. This does not mean that you know the details of how best to bet on them, but familiarity helps you become comfortable trading on them.
If you are looking for information about which way the currencies will go, hoping to trade them on the news, it can be a little problematical. Obviously, there are particular reports and announcements such as the jobless claims and industrial output which can be related back to the pound sterling. When it comes to the euro, the multitude of countries with very different economies make analysis difficult. It can be tricky to know which of the countries has more impact, so overall the euro is more complex.
However, trading the news is only one aspect of betting, and some say is an aspect that should be avoided until you are experienced, because of the propensity for rapid reversals. Many traders would advise you to stay out of the market when announcements are due for precisely this reason.
A reliable standby in trading is technical analysis, and the EUR/GBP is well behaved when analyzed in this way. Bollinger bands can give you a good indication of whether the price is streaming along its upper or lower bounds, and a crossing of the middle average, if confirmed, will signal a reversal. Technical analysis can be used on many different time frames, which means it is more universally applicable than simply following the news items.
In the longer-term, it seems that weakness in the euro is being reflected in comparison with other major currencies, and overriding any positive effect of German and other strengths. This is perhaps not surprising, given that the European Central Bank has still not come up with a long-term recovery plan, but is dealing with events on a month-to-month basis. Investors are keen to withdraw from exposure to the euro before the next crisis is revealed, and they are moving to safer currencies, which would include the pound sterling and thus directly impact on this Forex currency pair.
Spread Betting on the EUR/GBP Rolling Daily
The EUR/GBP rolling daily is a great currency pair when you are starting to spread bet on Forex, as it is fairly stable and not too volatile, and therefore does not punish beginners’ mistakes as much as some other pairings. The current spread betting quotation with IG Index is 8323.8 – 8326.3.
Suppose you think that the pound sterling is going to weaken against the euro, then you would want to short the GBP. Because it is the second currency in the pairing, this is the same as going long on the EUR, and on this Forex pair. For instance, you could place a long bet for £15 per point at a price of 8326.3.
If you are right, and the price rises to 8486.2 – 8488.7, you could close your bet for a profit. The bet closes at 8486.2, and this is how you work out how much you won: –
The number of points that you made is 8486.2-8326.3, which is 159.9 points. You bet at a level of £15 per point, so your bet has made a total of £2398.50. Against this, with the rolling daily bet you will have been charged a small amount of interest each night when the bet is rolled over to the following day, but this is probably not significant.
Any sort of trading is not certain, no matter how well you research the prices, so if the price goes against you, you must be ready to close the bet and accept your losses quickly, before the amount becomes large. Say that the price went to 8291.3 – 8293.8, and you decided to close your bet. It is important that you can work out how much you lost: –
Your bet was placed at 8326.3, and exited at 8291.3, which means you lost 35.0 points. You staked £15 per point, so your bet cost you £525, plus of course a small amount of interest for each night that you held it open.
Considering now a different case, which reflects the current situation where the euro is weak and in question, and using the current spread betting quotation, you might want to go short on the EUR/GBP at, say, £6 per point. For a short bet, the price would be 8323.8. Assuming first that you are right, and the price dropped, you might close the bet when the quote is 8182.5 – 8185.0. The bet would close at 8185.0.
This time the number of points that you gained is 8323.8-8185.0, which is 188.8 points. Simply bymultiplying this by the stake of £6, you find that you have won £1132.80. As this was a short bet, it should not attract overnight charges, and may even pay you interest.
Again, you must consider that your bet may lose, and be able to work out how much it has cost you. Say it went up to 8387.1 – 8389.5, and you decided this was far enough and closed the bet.
Your bet was placed at 8323.8, and closed at 8389.5. The number of points against you is 65.7. At your chosen stake, this would have cost you £394.20.
Spread Betting on the EUR/GBP Futures
The current spread betting price for the euro versus pound sterling currency rate is 8341.7 – 8351.2 for five months away. This means that one euro is just over 83 pence. The euro has been through a rough time, but with no long-term plans assuring a good recovery, and difficulty in implementing any plans because of the many countries which use the euro, you may be tempted to bet against the euro, or in favour of the pound sterling. Because the euro is mentioned first in this pairing, this is the same as selling or shorting the pair. Assume you staked £12 per point on this bet.
As you have a futures style bet, you can hold it until the expiry date if you want to, and will not be charged any interest to do so. But you can also close it at any time when you think the profit is maximized, or sometimes when the losses are mounting up. Perhaps the EUR / GBP falls to a price of 8092.6 – 8095.1, and you decide to take your profit.
Here’s how you work out what you won: –
- your bet was placed at 8341.7
- and your bet closed at 8095.1
- for a point difference of 246.6.
- You staked £12 per point
- which means you won £2959.20.
Sometimes the bet won’t work out, and you have to close it quickly to minimize your losses. This time, say the quote went to 8392.1 – 8394.6, and you decided to close the bet.
This is how much you lost: –
- your bet was placed at 8341.7
- and your bet closed at 8394.6
- for a point difference of 52.9.
- You staked £12 per point
- which means you lost a total of £634.80.
As another example, you might have decided to place a buy bet or go long in the first place, thinking that the Germans would ensure that the euro was well valued. You staked £15 per point, and the price was 8351.2. Assume the price went up to 8453.7 – 8456.2, and you joyfully closed your bet and counted your winnings.
Your bet was placed at 8351.2, and you chose to close it when it reached 8453.7 (the lower number as you are closing a long bet). This means you gained 8453.7 less 8351.2 points, which works out to 102.5 points. At your stake of £15 this gives you £1537.50.
Again, you must consider the case of losing the bet, in this case by the price going down. You close your bet when the price goes down to 8296.2 – 8298.7. The bet closes at 8296.2.
Now you have to work out how much you have lost. Your bet was originally placed at 8351.2, and it closed at 8296.2. This means you lost 55.0 points on the bet. Because you staked £15 per point, you lost a total of 55 times £15. Therefore the bet cost you £825.