Using a Spread Bet to Hedge the Pound Value

December 6, 2009 · Posted in futures trading · Comment 

It is quite easy to use a spreadbet to hedge the value of your pound.

Open a financial spread betting account and make a spread bet that the EUR/GBP will go up (Euro strengthens).  But be careful to bet just enough per point so that the Euro’s gain against the Pound makes you as much money as you lose in the real world. Make sure you go for the longest term possible (MAR-10, JUN-10, etc).

Just make sure you have a generous enough stop to account for minor fluctuations. If the GBP gains significantly against the EUR, your stop limit will be hit and you’ll have to pay. But, you’ll be paying safe in the knowledge that the amount you pay is equivalent to the amount you gained relative to the lads across the channel. If the market moves against the Pound, you’ll see the bet going very well. Don’t get excited, it’ll be money you’re losing in the real world and making back in a bet.

BTW, you’ll find that this is an interesting way to budget for all kinds of things. If you are going to go skiing next year, for example, and the exchange rate is good now, then bet so as to hedge or fix the current rate. You could nip on down and buy the real thing, but there’s a fair spread and no stop limit when you hold the actual currency.

Go to the your spread betting account and have a look at the EUR/GBP spread.

The Euro is worth: 71.40 pence.
The spread figures are quoted as: 7138–7142 EUR/GBP March 10
Now, you can BUY (bet that Euro will gain in value relative to the Pound) or SELL (bet that the Euro will lose value). You bet a specific amount per point. The amount that your bet is placed at is the one that is least favourable to you. So, if you BUY at 7138 and immediately SELL at 7142 at £1 per point, then you will have just lost £4. That is the spread that goes to the bookmaker. Spreads on the long-term bets will normally be larger.

Let’s hedge that £20K using the fictional spreads above. You’re in it for the long term so you go for:

7138–7142 EUR/GBP MARCH 10

You can use formulae to work it out, but I’ll do it by example. Suppose, £1.00 buys EUR1.401  (I know, I know the pound has been decimated but this is just an example). If the value moves to: 7238–7242 EUR/GBP, then £1.00 buys EUR1.381. That move of 100 points cost you 1.42% or £286 if you have £20K in the bank. Scary, yes?

If you had bought 7138–7142 EUR/GBP MARCH 09 at £2.86 per point, then the 100 point move would have made you £286 on the bet. In fact, if you have £20K in the bank or anywhere else and you fancy keeping its value relative to the Euro, then that is exactly what you should be doing. On the other side of the channel, people are doing the exact opposite, or perhaps there are people just hoping to get lucky. It’s their money you’ll have. Or they’ll have your money.

DISCLAIMER: PLEASE DO NOT BLINDLY DO THIS ON MY SAY SO! I personally did something like the above on EUR/GBP back in September ’07 at 6960.  I viewed it as a hedge against devaluation – if GBP devalued, my savings would be worth less but my spreadbet position would make me money to compensate. If GBP increased in value, my savings would be (arguably) worth more but my spreadbet position would lose me money.

In fact, as time went on I got slightly more “sophisticated” and spread my bets across a basket of currencies. So instead of just EUR, I hedged a little bit against the Swiss Franc, Japanese Yen, Norweigan Krone and Swedish Krone … oh, and a sprinkling of Gold and Silver. I’ve actually gone a bit over-board and hold positions in excess of the amount of GBP savings I have. I don’t recommend this unless you’re very confident and can afford the losses if you get it wrong (and can handle seeing your “worth” swing by as much as a few £k on a daily basis – especially in weeks like this!).

This article was written by Andy who publishes a financial stock market guide, which specialises in offering free guides and information on stockmarket products such as financial spread betting

Article Source:http://www.articlesbase.com/day-trading-articles/using-a-spread-bet-to-hedge-the-pound-value-1545574.html

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Forex coaching GIVEAWAY (+live “breakfast” trade)

December 4, 2009 · Posted in futures trading · Comment 

This article has 2 ways for you to get your hands on some killer, premium COMPLIMENTARY Forex training…

…PLUS, a brand new “live”, step-by-step Forex trade made during breakfast (I know, sounds weird, right?), all captured on video…

>>> #1 <<<

35+ year trader Bill Poulos is giving away the first copy of his complete Forex Income Engine 2.0 home study course PLUS he’s also including 8 weeks of semi-private coaching — but this contest ends on MONDAY.

To be considered for the big giveaway, it’s easy – all you need to do is spend 15 seconds to post a comment on his news site here:

http://www.customforextrading.com/y/?i=1057655&u=2&l=f86

(BTW, in the past, Bill has actually given away more than just 1 copy of his course… I don’t know that he’ll do that this time, but I’m betting he will, so your odds of getting one are probably better than you think.)

>>> #2 <<<

When Bill releases his Forex Income Engine 2.0 course next TUESDAY, December 8th, he just announced this bombshell –

* He’s going to be giving away 8 weeks of complimentary semi-private COACHING to all his new students who join him.

Frankly, I’ve never seen anyone do that before… and it wouldn’t surprise me if you don’t ever see it happen again.

8 weeks of step-by-step “hand holding” with a team of pros can be downright EXPENSIVE if you can even find it… and Bill’s just giving it away to show you how serious he is about helping you succeed.

For more details, see his new video here:

http://www.customforextrading.com/y/?i=1057655&u=2&l=f87

>>> #3 <<<

Finally… for those of you wondering if Bill’s “Flexible Forex” training videos work against the unknowable “hard right edge”, I think this video will answer that question:

http://www.customforextrading.com/y/?i=1057655&u=2&l=f88

In it, you’ll see Bill make a live trade during breakfast, before his day even begins, in less than 20 minutes. You will definitely want to take notes on his approach. ESPECIALLY how he “gracefully exits” the trade.

It’s a keeper.

Don’t forget… this is IMPORTANT… even if you have no intention of joining Bill next week as one of his charter students, MAKE SURE you watch all his complimentary training videos. They teach more “what works now” Forex tactics than many courses you’d have to PAY for. See them all here before he takes the training videos offline next week

Rob Trader – Forex Expert
http://tradingtoollist.co.cc/

Article Source:http://www.articlesbase.com/day-trading-articles/forex-coaching-giveaway-live-breakfast-trade-1541958.html

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