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The Swiss franc has been among the best safe havens in the financial markets. In times of turmoil or uncertainty, investors seek the safety of Switzerland’s national currency, knowing it would retain its value.
There are many ways in which one can invest in the Swiss franc. Using the following methods and instruments, you can use the Swiss franc to have profitable trades and protection against downside.
The Swiss Franc’s Strength
In 2011, the European debt crisis was at its peak. The European Union and international investors searched for safety and bought Swiss francs. This move drove the currency’s value through the roof.
And because of the stronger currency, Switzerland’s exports suffered. Swiss policymakers decided to artificially cap the currency at 1.20 against the euro, hoping that the Swiss franc won’t become too strong. For them to maintain this cap, policymakers decided to print more francs and bought euros using them.
In January 2015, the Swiss National Bank suddenly and unexpectedly freed its currency by getting rid of the artificial cap.
The decision shocked the forex market and sent the value of the franc, which was then a stable and conservative currency, soaring.
In spite of the fallout, investors still view the Swiss franc as a safe-haven currency that is supported by a robust financial system and strong competitive economy.
How to Invest in the Swiss Franc
Here are some ways in which you can invest in the Swiss franc.
Exchange-Traded Funds
CurrencyShares Swiss Franc Trust, which was launched in 2006, follows the price of the Swiss franc against the US dollar.
Investing in the Swiss franc through an exchange-traded fund is a good choice for those who want to take advantage of tactical opportunities in the short term. There are also strategic opportunities in the long term.
Investors can use their traditional brokerage accounts to buy shares of the ETF, which are treated as regular securities but with transaction costs lower than the currency spot market.
Spot Market
Similar to the stock market, where investors can buy and sell stocks, the foreign exchange market is the platform for trading different currencies. There are various currency pairs in the forex trading platforms.
But before you join the forex market, make sure to brush up on your knowledge and learn the basics of trading. From there, it’s going to be easy to open a forex trading account and start performing currency trades the same way you would with stocks.
Futures and Options
Another way you can invest in the Swiss franc is through futures and options. These derivative assets aren’t only exclusive to trading stocks.
The foreign exchange market provides retail traders these derivative products to manage the risks related to the currency rate fluctuation. At the same time, these products also let you take advantage of profit opportunities from changes in currency rates.
Forex futures and forex options trading are popular hedging techniques that banks and financial institutions commonly use.
These derivative products are traded in many exchanges around the world, the Chicago Mercantile Exchange (CME) being the most popular.
At ProfitStar we strive to bring the best out of our students, guiding them through the complex world of financial markets.
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