Investing in Swiss Franc is a good financial move
In the world of finance, the Swiss franc (CHF) is well known as one of the safe havens for investment purposes. Switzerland has long been considered by investors as the safe place to deposit their money in times of trouble and be confident that the national currency will retain its value. During the financial crisis of 2007-2008 saw many investors queuing up to purchase Swiss francs.
At the time of the European debt crisis, the Swiss franc remained steady which increased its popularity even more. Like during the time when during the covid crisis everyone was required to stay at home, online slots became the primary place to go.
Below we are going to look at different financial mechanisms, such as ETSs and also forex options, that enable investors to wager on the Swiss franc but not actually having to buy the currency.
Key points:
- The Swiss franc (CHF) is Switzerland's national currency and it does not use the euro currency of its neighbors.
- Switzerland has proven to have a stable government and financial system and therefore considered a safe-haven currency. Many investors therefore pursue the Swiss franc.
- Investors have many different options to access the Swiss franc.
What is the result when a currency is too strong?
In 2011 Europe was in the middle of a debt crisis. EU and international investors were seeking safety and purchased Swiss francs which pushed up the value of the currency. This in turn began to have a negative impact on the country's exports. Switzerland made the decision to put a cap on the currency at 1.20 against the euro in the hope that this would prevent the Swiss franc from getting too strong. In an effort to maintain this cap, more francs were printed by the Swiss central bank and more euros were bought.
The Swiss National Bank freed its currency in January 2015 when it removed the artificial cap. This move was unanticipated and caused shock waves in the forex market. The value of the franc, usually a stable, currency, suddenly soared. The chaos that followed caused many traders and brokers to make big losses.
Nevertheless, notwithstanding this unexpected move and the problems it caused, the Swiss franc is still considered a safe haven by investors, supported by a strong financial system and a robust competitive economy.
How to invest in the Swiss Franc:
ETFs - Exchange Traded Funds
In 2006 the CurrencyShares Swiss Franc Trust (NYSE:FXF) was launched and designed to track the price of the Swiss franc against the American dollar. Gaining access to the Swiss markets via an exchange-traded fund is a good way to learn about the short-term advantages and also long-term opportunities without the need to own a foreign exchange account.
This pathway gives investors some advantages. It means that investors are able to use their customary brokerage accounts to purchase shares of the ETF. They are considered to be regular securities and therefore transaction costs are much lower than those of spot market transaction costs. The shares get traded daily on the NYSE Arca which gives eligibility for a margin account, and also a short sale which is allowed by the US Securities and Exchange Commission (SEC).
Spot Market
The foreign exchange market, commonly referred to as FX or forex, is where trading in different currencies takes place like the stock market is the platform to buy and sell stocks.
A wide variety of currency pairs are offered on Forex platforms. However, before rushing into forex, it would be useful to acquire some basic understanding of the market by self-learning or by taking a trading course. Once you have some basic knowledge, opening a forex trading account will be simple and it will be possible to start doing currency trades in exactly the same way as stocks.
Forex markets are operational 24 hours a day for 5 days a week which allows a lot of flexibility to investors and traders. Trading on margin is also allowed so participants can increase investment amounts even if they don't actually have the funds. Keep in mind that when using margins, leverage works in both directions - meaning it can increase profit and loss.
The USD/CHF currency pair is among the most often traded pairs in the foreign exchange market.
Futures and Options
Futures and options are another good way to invest in the Swiss Franc. It is often assumed that the possibility to trade these derivatives only applies to stocks. However, the foreign exchange market also offers retail traders these derivative products which handle the risks connected with the rise and fall of currency rates and at the same time taking advantage of opportunities for profit from changes in currency rates. Forex Futures and options trading are widely used as hedging techniques by banks and other financial organizations.
The most popular of these exchanges is Chicago Mercantile Exchange (CME) but these products are traded at many exchanges everywhere around the globe. In 1972 CME initiated Swiss franc futures and later in 1985 Swiss franc options. There are a number of brokers that offer a platform to trade in both of these.
Binary Options
For many in the forex market, binary options are simple and flexible and therefore a very popular choice. There are some very popular currency pairs among binary options traders. These are the euro and US dollar (EUR/USD, the British pound and US dollar (GBP/USD), the euro and British pound (EUR/GBP), US dollar and Swiss franc (USD/CHF), and the US dollar and Japanese yen (USD/JPY).
Your job is to simply determine whether the currency will go up or move down.
The USD/CHF can be quite difficult to predict its movement as the pair is less volatile compared to many other currencies. Be aware of events, like monetary action by the US Federal Reserve or the Swiss National Bank or other economic factors that may influence the pair, such as gross domestic product estimates, unemployment data and other factors.
It would be wise to initially work with a few other currency pairs to gain some knowledge and experience and then move on to the USD/CHF pair.
Conclusion
Foreign exchange markets, like stock markets, move up and down and therefore if you are interested in investing in Swiss francs you must be aware that this can impact your position negatively. However, the Swiss franc is generally stable but recent action taken by the Swiss National Bank resulted in the currency destabilizing and its value soared. You should keep in mind that currency movement is invariably subject to the actions of central banks as well as macroeconomics.
However, the Swiss franc overall continues to be a very safe investment option.