Currency trading or foreign exchange (forex) trading is a great opportunity to take advantage of the relatives fortunes of economies and countries. So if you get frustrated with the idiosyncrasies of companies, forex is a good alternative. If you’re interested in getting involved in this type of investing, Switzerland currency or the Swiss franc is a good option.
The foreign exchange market is massive and complex. Further, trading is also highly competitive and times, ruthless. Forex markets are generally dominated by trading houses, major banks, and funds.
No matter what currency you trade, the foreign exchange market isn’t a place for a novice. When it comes to one of the seven major currencies like the Swiss franc, you will need to know the underpinnings of the economy and the statistics of the country that can influence the currency.
Switzerland’s currency is the sixth most traded currency in the world, even though their economy ranks 19th globally. Although this European nation is known for its prudence and conservatism, the Swiss franc isn’t a common reserve currency.
The Swiss National Bank (SNB) that’s behind the currency targets a consistent rate of inflation that’s set at about 2% annually. Further, even if there’s a downturn in the economy, the SNB will not engage in monetary policy that can stimulate the economy.
Approximately 11% of the Switzerland’s GDP is made up of financial services. This is driven mostly by the country’s policies of bank secrecy and neutrality. This makes it a highly attractive destination for global funds.
Although these financial services are as not as secret as they used to be, it’s still rumored that at least one-third of the planet’s offshore funds are held in banks within the country. This makes it difficult for investors to get a clear financial picture of this European nation.
Over the past few years, the Swiss economy hasn’t been able to maintain the stability of prices and there’s been a significant lack of growth. Although the SNB has been successful at controlling inflation, the debt as a percentage of the GDP remains at about 55%.
If you really want to understand what drives the Swiss economy better, you have to know the interest rate parity, purchasing power parity, balance payments models, and the Fisher effect. But this alone won’t help as exchange rates are also determined by supply and demand.As a result, investors will also need to make sure that they understand a variety of market psychological factors before they invest in currency.