Imagine mastering the Swiss Franc, a currency renowned for its stability and strength in the global market.
This quick guide will take you through why the Swiss have kept their own currency, its preference among traders as a haven, and how to trade it. Take action now to elevate your forex knowledge.
Need to Know
- The Swiss Franc is globally recognized as a "safe haven" currency. This status means it often appreciates during times of global economic uncertainty or market volatility- think COVID-19 or the 2008 financial crisis!
- Swiss National Bank (SNB) monetary policy, especially regarding interest rates and currency interventions, can significantly impact the value of the Swiss Franc. The SNB unofficially targets a weaker franc to support Swiss exports.
- The Swiss Franc is commonly traded against the US Dollar (USD/CHF) and the Euro (EUR/CHF), two of the most significant currencies in the Forex market.
An intro to the Swiss franc
In the heart of Europe, Switzerland maintains its own currency, the Swiss Franc (CHF), despite being surrounded by Euro-using nations.
This currency, issued by the Swiss National Bank, is not just a medium of exchange but also a symbol of the country's economic and political stability. The Swiss Franc is popular among investors due to its low inflation rate and the country's strong financial and legal system, making it a haven for capital during turbulent times.
Trader’s favorite haven currency
The Swiss Franc is considered a safe haven due to Switzerland's strong economy, political stability, and history of financial privacy and security. These factors create a perception of reduced risk, especially during times of global uncertainty.
For example, the Swiss Franc saw significant appreciation during the 2008 global financial crisis as investors sought stability amidst the market turmoil. Similarly, in early 2020, during the onset of the COVID-19 pandemic, the Swiss Franc strengthened as investors moved towards safer assets in response to the unprecedented global economic uncertainty.
Why Doesn’t Switzerland Use the Euro?
Switzerland’s decision to retain the Swiss Franc instead of adopting the Euro revolves around its tradition of political and financial independence. Joining the Eurozone would mean ceding control over monetary policy to the European Central Bank, which doesn’t align with Switzerland’s preference for sovereignty in these matters.
Moreover, the Swiss economy, characterized by high wages and a strong export sector, operates quite differently from some of its European neighbors, making the CHF arguably more suitable for its unique economy.
Outlook for Swiss Franc in 2024
Looking ahead to 2024, the Swiss Franc's trajectory, like any currency, is subject to various global economic factors. These include interest rate decisions by the Swiss National Bank, geopolitical events, and the overall health of the global economy.
The below price chart shows the EUR/CHF currency pair over the past two years. This shows the value of one euro in Swiss francs, meaning that when the chart is trending lower - as it has been - the franc is appreciating. A possible double bottom alongside a break of a down-sloping trendline suggests there could be a period of euro-strength and franc-weakness coming up.
Source: TradingView
Getting Started with Swiss Forex Trading
How to Get Started
For those interested in trading the Swiss Franc, the first step is to gain a solid understanding of the Forex (foreign exchange) market. This includes learning about currency pairs, market analysis, and the economic indicators that impact currency values.
Beginners should start by setting up a demo account available through FlowBank.com, which allows for risk-free practice using virtual money.
Understanding Leveraged Currency Trading with CFDs
Contract for Differences (CFDs) trading involves speculating on the price movement of currency pairs without actually owning the underlying currencies.
Suppose a Forex trader decides to trade the EUR/CHF currency pair using leverage.
- They choose to trade 1 standard lot, which is equivalent to 100,000 units of the base currency (in this case, EUR).
- If the trader uses a leverage ratio of 100:1, they only need to commit 1,000 EUR of their own capital to control a 100,000 EUR position.
For example,
- If the EUR/CHF pair is trading at 1.10, the total value of 1 standard lot would be 110,000 CHF (100,000 EUR * 1.10).
- If the EUR/CHF price moves to 1.12, the value of the position becomes 112,000 CHF.
- This represents a 2,000 CHF gain on the trade, amplified by the use of leverage.
It's important to remember that while leverage can magnify gains, it can also amplify losses in equal measure.
In Summary
The Swiss Franc remains an interesting focus for investors, standing out in the world of currencies with its stability and strong backing. Whether considering direct investment in CHF or trading through Forex and CFDs, it's important to approach with a well-informed strategy, understanding the risks and dynamics involved.
*The information contained on this page does not constitute a record of our prices, nor does it constitute an offer or solicitation for a transaction in any financial instrument. FlowBank SA accepts no responsibility for any use that may be made of these comments and for any consequences that may result therefrom. Any person who uses it does so at their own risk.
