Trading the U.S. Dollar/Swiss Franc

Although it is somewhat less liquid than the euro and the pound, the Swiss franc is still a very easy currency for forex traders to trade. The issue most likely to result in big movements in the Swiss franc is international political and/or economic instability. When either political or economic turmoil increases, investors will flee to the safety of the Swiss franc. When volatility decreases, however, the Swiss franc will see less interest from traders and investors.

Though the franc often rises against most other currencies during times of increased volatility, forecasting the relative performance of the Swiss franc versus the U.S. dollar is difficult, since the U.S. dollar is also seen as a safe haven during times of turmoil. Therefore, it is not always easy to figure out whether the Swiss franc or the U.S. dollar will be the predominant source of safety during an international crisis.

During less volatile periods, traders should keep in mind that the Swiss franc has a very high correlation to the euro. When the value of the euro increases, the franc will usually follow suit. If you notice a rise or decline in the euro without a corresponding move in the franc, you may want to consider initiating a trade believing that the franc will eventually continue its historical correlation with the euro. Keep in mind, however, that although this type of relative value trade is extremely popular (and often profitable), there is no guarantee that markets will revert to their historical mean, so don't put yourself in a position to get caught holding the bag. For example, on January 15, 2015, the Swiss National Bank (SNB) shocked the world when it suddenly announced it would longer peg the Swiss franc with the euro. The Swiss franc skyrocketed relative the euro, which you can see in Figure 1 below. This event stands as one of the best examples for traders in that there are no guarantees in the market and if you got caught on the wrong side without a proper risk management strategy that your capital could get wiped out in a matter of minutes. (To learn about another popular pair that includes the "Swissie", see Making Sense Of The Euro/Swiss Franc Relationship.)


Figure 1 – CHF/EUR

 

Swiss Franc Facts

Switzerland is widely regarded as a stable, safe and relatively wealthy nation. In the shadow of the Alps and with a reputation for neutrality, Switzerland has long been viewed as a world unto itself. From a financial perspective, this reputation has only been enhanced by the infamous secrecy of the Swiss banking system. Although Swiss banking rules have eased somewhat recently, Switzerland is still an international hub of private banking, insurance and investment management. Also, citizens of Switzerland have long enjoyed one of the highest standards of living in the world. (To read more about Swiss banking, see What are the Gnomes of Zurich? and How do I open a Swiss bank account and what makes them so special?)

Although Switzerland remains outside the European Union to maintain its status as a neutral nation, Switzerland does partake in extensive trading with its European counterparts, the United States, and many other countries from around the world. Switzerland is also home to large multinational corporations such as the banking giants, UBS and Credit Suisse, and the consumer products firm, Nestle.
 

Leverage

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