Swiss Currency: How to Invest in Swiss Francs
Discover why many investors choose the Swiss franc
Switzerland is one of the most competitive economies in the world. It has strong added value services and is known for its highly skilled and motivated workforce of over 5 million out of a population of 8.6 million (U.N. data 2020)
Switzerland is one of the wealthiest countries in the world. It is a politically neutral country and has a Gross Domestic Product (GDP) of $87,062 per capita (2020). GDP is a measure of the size and health of a country's economy over a period – usually one quarter of a year.
Therefore the Swiss currency is often seen as a safe haven for investment.
The Swiss currency, known as CHF, is the sixth most traded currency in the world. CHF is an acronym for the Latin name for the Swiss Confederation - Confoederatio Helvetica franc.
The Swiss franc is also called the Swissie by Forex traders.
Why is Swiss Currency known as a Safe Haven?
In the financial community, for a long time, the Swiss franc became known as a safe haven currency for investors, primarily because of their solid approach to managing their economy.
In 2009, towards the back end of the 2008 financial crash, the European debt crisis drove investors to seek a safe place for their money, and they found it in the Swiss franc.
By 2011, the Swiss franc was almost equal to the euro.
The Swiss National Bank pegged the Swissie at 1.20 francs and bought huge reserves of Eurobonds to maintain this level. However, it wasn't sustainable, and, in 2015, the Swiss National Bank removed the peg. Almost overnight, the Swiss franc appreciated by a colossal 30% versus the euro and 25% against the U.S. dollar.
Some saw this as an unpredictable move by the Swiss National Bank.
Switzerland is like an island in the middle of Europe. They trade with their E.U. neighbours but without having to support their debts. The country has a stable government and financial system, and they have held this stability over a long period. If Switzerland continues with their economic policies, there is no reason to imagine this won't continue.
The other benefit is that unlike investing in a commodity like gold – often seen as a safe investment – the Swiss franc is more readily available and with high liquidity.
The world sees the Swiss economy as a global leading banking centre, and it is popular with institutional investors. The Swiss National Bank continually regulates and controls the value of the Swiss franc. They have complete transparency in regards to its financial markets, which are appropriately regulated.
Experienced investors aim for diversification of their portfolio, and many will hold the Swiss franc as part of their portfolio
The point of this information is to demonstrate the reasons why the Swiss franc is a sound currency for investment.
Read Also: 5 Ways to Invest in Currencies
How to Buy Swiss Currency
Once you've decided to invest in the Swiss franc, the easiest way to do so is with Exchange Traded Funds (EFT).
A popular Swiss currency EFT is the Invesco Currencyshares Swiss Franc Trust (FXT), created by CurrencyShares. The advantage of an EFT over buying the Swiss franc on the Forex Exchange is as follows.
1. Purchasing the Swiss franc is easy – you can buy from any traditional broker. Shares trade daily on the NYSE Arca (the world's largest ECN, an electronic stock and exchange-traded product exchange)
2. Sensible Margin – investors can leverage their positions as ETFs are eligible for a margin account – less so than currency spot market leverage
3. Less Expensive – transaction costs are considerably less than currency spot market transactions because they trade as securities
How to Trade Swiss Currency in the Forex Market
The Forex market has high liquidity, with $6.6 trillion traded daily (April 2021). You can trade on currency pairs 24- hours, six days a week.
In the Forex market, you borrow one currency to buy another, and you can either buy or sell the currency.
One of the most popular currency pairs traded on the Forex Exchange is USDCHF (U.S. dollar / Swiss franc).
If you expected the Swiss franc to lower in value for this currency pair, you would buy the U.S. dollar. If you think the Swiss franc is strong, you would take a sell on the trade.
If you are new to Forex, this concept may seem confusing.
Here's the explanation. If the Swiss franc were gaining strength, the price action on the charts would show momentum to the downside. Although you are taking a sell trade, effectively, you are buying the Swiss franc.
You would set a target price for the trade and exit for profit once the price hits your target. If the trade goes the opposite way, with the U.S. dollar taking control, the price will rise, and the trade would lose.
You are making a profit (or a loss) on the price fluctuations of the currency pair.
Recap to Swiss Currency: How to Invest in Swiss Francs
If you are a long term investor, you may prefer buying Swiss currency EFTs. It is easy to do, and you can manage the level of your investment.
As a short-term investor, it may be preferable to trade the currency on the Forex Market.
There are several Swiss currency pairs available on the Forex Exchange apart from USDCHF
- AUDCHF – Australian dollar / Swiss Franc
- CADCHF – Canadian dollar / Swiss Franc
- CHFJPY - Swiss Franc / Japanese Yen
- EURCHF - Euro / Swiss Franc
- GBPCHF - Sterling Pound / Swiss Franc
- NZDCHF - New Zealand dollar / Swiss Franc
Before deciding whether to buy EFT's or trade CHF via Forex, do your homework on the risks involved. Take your time before deciding which is the best option for you. Keep leverage to a minimum to reduce your risk
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading or investing in financial instruments such as Forex and EFTs may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.
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