As money flees to safe havens such as the Japanese yen and the Swiss franc, new spread betters may be tempted to turn to foreign exchange (or 'forex') markets. If so, here arethree things worth knowing about the market before you take the plunge.
Currencies trade in pairs
Every upbet on one currency is a down bet on another. In that sense, you are automatically doing what other spread betting markets would call a pairs trade (eg, long gold/short silver, or long FTSE/short Dow). So it's not enough to be bullish on, say, the yen you need to decide what you think the yen will strengthen against. It is entirely possible, for example, for it to move up against one currency, such as the euro, and down against another. Or, at the very least, for it to move at different speeds.
Currencies are their own boss
When gold prices fall, it usually suggests share prices will be rising. That's because when markets are confident, money piles into shares and out of gold as a safe haven, and vice versa when markets are fearful. Equally, bond and equity prices tend to move in opposite directions bonds are havens for the fearful, whereas equities are favoured by the bold.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Currencies do not behave the same way as an asset class. Sure, when gold prices rise, so might the yen on the basis that both are a safe haven. But there is not a big enough correlation between the two for that to be taken as read. Exchange rates are barometers for entire economies and therefore subject to a huge range of factors (from interest rates, to their perceived safe haven qualities to unemployment and GDP stats - and, of course, political developments).The message is simple focus on one currency pair and do your homework.
Currencies can make or lose you money fast
The currency market is the most liquid in the world volumes here regularly exceed equity markets by factor often or more. That's good and bad. It means you can open and close positions with ease. However, it also means prices can be very sensitive to new news.That comes from the very small 'tick' or 'pip' sizes in this market. For example, if the GBP/USD rate is quoted at 1.6368 when you buy it and you bet at £10 per point, a move to just 1.6388 makes you 20 pips or £200 if you are betting at $0.0001 pips. So watch your bet sizes!
-
Which UK region has the most in savings? Average savings by areaThe amount people have in their savings differs from region to region in the UK. How does your nest egg compare to those living nearby?
-
Doug and Mary Perkins: Specsavers’ clear-sighted foundersHelped by the deregulation of the sector in the 1980s and brilliant advertising, Mary Perkins and her husband Doug have taken Specsavers to the top of the optometry market
