Forex traders and spreadbetters do a lot of trading on the GBP/EUR currency pair, perhaps because it is involved in so many Western markets. Despite the fact that the euro is not a traditional currency, and has not been in existence for hundreds of years like most money, with the backing of many European countries it is considered one of the few majors in the world.
There will always be political and governmental factors that affect currency values, and this situation is made more difficult to analyze by the multi-country span of the euro. After all, if you are spread betting on a currency against the US dollar, you can easily see when the US job reports, unemployment, trade figures, etc. are due to be issued, and plan accordingly. With the euro this situation is not so clear-cut, and you must be aware of the news reports and the economies of many countries if you want to adopt the same strategies.
At present the rate is about 1 pound sterling equalling €1.20, meaning that the pound is worth more than the euro. Over the years, there has been speculation about whether the pound and the euro could be going to parity, which would mean 1 pound equals one euro, but weakness in the European economies make this seem unlikely in the near future. In truth, the major economy for the euro is the German one, and it has been Germany which has been forced to provide a backstop to support the weaker members of the community. Because of the relative weakness of many of the other partners, you can gauge the movement of the euro fairly well from simply becoming familiar with the German and possibly French governments and their aims.
While this helps when the euro is strengthening, it can be hazardous to ignore the effect of the weaker economies such as Italy and Greece on the value. The collapse of one of the member countries economically would necessarily impact the whole EEC, and measures taken to prop up the weakest partners will be reflected in the currency pairing.
All this is not to say that the British economy has been steady and immune to the global downturn. However, massive austerity measures by the UK government, though causing discontent at home, have enabled England to recover more effectively than the rest of Europe.
The factors mentioned above are concerned mainly with the mid- to long-term outlook for the currencies, and it is always good to try and make short-term trades in the direction of the longer trends. However, when you are spread betting on the GBP/EUR you must be looking primarily at the price movement over the next few days or weeks, and for this you should be prepared to study the charts and apply technical analysis, in order to determine the general market sympathies at the time.
There are many traders who trade nothing but the GBP/EUR, and they have become very familiar with its daily and weekly cycles. If you are interested in spread betting on this currency pairing, be prepared to spend a couple of weeks in research, watching the typical movements, so that you can compete with the more experienced traders.
Spread Betting on the GBP/EUR Rolling Daily
If you decide to spread bet on the GBP/EUR, you will be in good company as this is the favourite currency pairing for many traders. The current price is 12,043.8 – 12,049.8, and with IG Index the minimum bet is £.50 per point. Say at this particular time you are concerned that several European countries are on the brink of collapse, and that this will be reflected in the value of the euro, you may want to make a short bet on the euro which corresponds to a long bet on the pound sterling. As the GB pound is the first mentioned in the currency pair, you would want a long bet on the currency pairing.
After consideration, you decide to place a long bet for £5 per point. As this is a rolling daily bet, your bet will be automatically re-entered each day in the evening. There is usually a small interest charge made each time. Perhaps after a few days you see the quote has risen to 12,216.9 – 12,222.9, in your favour, and you decide to close the bet and take your profit.
The long bet would have been placed at the higher number of the quote, 12,049.8, and then closed at the lower number of the later quote, which was 12,216.9. Taking one away from the other, you have a point difference of 167.1 which represents your winnings. With a stake of £5 per point, this multiplies out to a gain of £835.50. Provided you have not held the bet for very long, the overnight interest charges will not be a very significant deduction to this profit.
Sometimes, particularly when short-term trading, the market doesn’t go in the direction that you anticipate, and you are forced to close your bet for a loss. This happens to just about everyone, and how you deal with it can affect whether you are successful as a trader. The best advice is to close your bet just as soon as you realize that the trade will not go as planned, and certainly by the time you get to your stoploss.
In this case, perhaps the index began to fall after you placed your bet, accompanied by some good news out of Germany which was likely to bolster the value of the euro, and you decided that the reasons you placed the bet were no longer valid. You chose to close your bet and accept your losses when the quote was 12,015.2 – 12,021.2. In this case you must work out how much you have lost.
It was a long bet on the pound sterling, which means that the bet was placed at 12,049.8, and would have been closed at 12,015.2. The total number of points involved is therefore 34.6. You staked £5 per point, so you must multiply this out to see how much you lost. It comes to a total of £173. In addition, you would incur the small charges overnight for as long as you had the bet in place. However, by closing the bet quickly, you avoided possibly much larger losses.
Spread Betting on the GBP/EUR Futures
When you choose to spread bet on the GBP/EUR, you are making a bet on the relationship between England and the rest of Europe, and which of the economies will do better. Unlike a single country currency, the euro is involved in the economies of many different countries, and therefore typically can be more complex to analyze. However, technical analysis will usually provide some indication of the market sympathies and where the market is headed next.
The current price for a futures bet a couple of months away is 12,021.8 – 12,045.8, which is a spread of 24 points. Unlike a daily rolling bet, there are no additional charges to your account while you are holding the bet, and this is one reason that the spread is higher than for a daily bet. If you think that the euro is strengthening, then you want to place a short bet on the GBP/EUR, effectively a bet against the pound sterling in relation to the euro.
You decide to make a short or sell bet for £7.50 per point, and this is placed at the price of 12,021.8. You track the prices over the next few weeks, and watch a general decline in the value. Referring to the charts, you note when it sinks to an established previous level of support, and decide to take your winnings when the support holds and the price starts rising again. The quoted price is 11,852.6 – 11,876.6, so your spread bet is closed at a value of 11,876.6.
The difference in points between 12,021.8 and 11,876.6 is 145.2, and for this short bet that is the amount that you gained. As your stake was £7.50 per point, you have made a total of £1089.
When you’re trading, at any given price there is someone buying and someone selling, so roughly half the time traders are on the losing side. Although you can help these odds by studying technical analysis and other strategies, it is inevitable that sometimes your spread bets will lose. Say that in this case the spread bet quote went up, against your short bet, and you had to close the bet to minimize your losses. This happened when the quote was 12,071.2 – 12,095.2, so your sell bet closed at 12,095.2.
In this case you need to figure out how much you lost. As before, you placed the bet at the opening price of 12,021.8, but this time the bet closed at 12,095.2. That means that 73.4 points went against you. You chose a stake of £7.50 per point when you thought you were going to win, so this works out to a loss of £550.50 on the bet.
The amount of this loss illustrates an important principle. You can never know if a particular spread bet is going to win or lose, and it is important that you calculate beforehand how much you can afford to lose, and relate this to how far you can let the quote go against you before you close the bet for a loss.