USDCHF Trading Guide: How to Trade USD/CHF

The countless currencies and ever-fluctuating prices of the foreign exchange market may seem daunting at first for those new to forex trading. However, the USD/CHF forex pair, known for its stability and moderate volatility, could be a suitable option for traders of all levels.

Main Points:

• The USDCHF currency pairing, also known as the Swissie, is made up of the US dollar as the base currency quote and the Swiss Franc as the quote currency.


• The USD/CHF currency pair is notable for its negative interest rate policy compared to other major currencies.


• Important factors driving the exchange rate are central bank policies, interest rates and other notable economic factors.


• USD/CHF trading through Contracts for Differences (CFDs) can offer enhanced flexibility and access to the forex market, albeit with inherent risks to keep in mind.

Understanding the US Dollar - Swiss Franc Currency Pair

Currencies are traditionally exchanged or traded in pairs, one for another and are quoted in pairs by their alphabetic codes (currency codes) to simply convey the ever-fluctuating exchange rates. Hence, the exchange rate between the US Dollar and the Swiss Franc (USD/CHF) is established by their ISO codes; USD as the base currency and CHF as the quote currency.

What Is the USD?

The United States dollar (symbol: $) is the official currency of the United States. It is considered the world's most stable currency and is used as a benchmark currency for global transactions, making it the most used currency in the world. USD is another way of saying US dollar and it also has nicknames like greenback or buck.

What Is CHF?

The Swiss franc, symbolised by ₣, is the official currency used for everyday domestic transactions in both Switzerland and Liechtenstein. While other European nations adopted the euro, the Swiss franc stood alone. Switzerland remains the sole country issuing francs.

CHF is its acknowledged currency code, a standardised representation used to distinguish it from other currencies within the financial markets. The abbreviation 'CHF' reflects Switzerland's Latin roots. CH stands for Confoederatio Helvetica, the country's formal name, while F represents the franc. In addition, it is often called the Swissie by forex traders.

History of the USDCHF (US Dollar and Swiss Franc)

1792 marked a turning point for the United States – the Coinage Act introduced the US dollar as the country's official currency. Fast forward to today, it has become the most widely used currency in the world, both in everyday transactions and foreign reserves.

While the US dollar boasts a long history, the Swiss franc was introduced much later, in 1850. During the late 19th and early 20th centuries, Switzerland was part of the Latin Monetary Union, a coalition with France, Italy, and Belgium, where their currencies were all backed by Silver. The SNB later embraced the Bretton Woods System, pegging the Swiss franc to Gold. However, this system crumbled in 1974 but the SNB held on to the gold peg until the year 2000 when a referendum changed the peg from Gold to the Euro.

The Swiss National Bank (SNB) took an unexpected turn in 2011 by adopting an active policy to influence the currency markets. Despite the introduction of negative interest rates in 2014, the franc continued to strengthen. Then, in 2015, the SNB surprisingly untied the Euro peg, which resulted in a significant dip in Swiss stocks, liquidating several investors.

Public outcry, especially from investors and economists ultimately compelled the SNB to return to its traditional, hands-off approach.

What Is USD/CHF Trading?

USD/CHF trading means speculating on the exchange rate fluctuations of the US dollar against the Swiss Franc.

The USD/CHF exchange rate at any time indicates the amount of CHF required to purchase one USD. For instance, if at any time, the USD/CHF pair is quoted at an exchange rate of 0.50, this means that 0.50 CHF will be required to purchase 1.00 USD. So if the USDCHF exchange rate rises to 0.90, it means the USD has strengthened against the CHF hence it will take 0.90 CHF to purchase one USD. Conversely, if the USDCHF rate declines to 0.50, it clearly shows that the USD has weakened against the CHF, and will require 0.50 CHF to purchase one USD.

Furthermore, if the USDCHF exchange rate declines below parity (less than 1.0), it means that the US dollar is generally weaker than the Swiss Franc. Conversely, If the USDCHF exchange rate rises above parity (1.0), it means that the US dollar is generally stronger than the Swiss Franc.

What Are the Driving Factors Affecting the USD/CHF Exchange Rates?

The USDCHF exchange rate constantly fluctuates based on the unique market factors that influence both the U.S. dollar and the Swiss franc. They include:

Central Bank Policies

The Swiss National Bank (SNB) plays a critical role in the USDCHF market. Acting as Switzerland's central bank, it has the most influence over the currency pair. Every three months, the SNB announces its interest rate decisions, along with statements outlining its plan for managing the money supply in both the short and long term.
On the other hand, the US has its central bank – the Federal Reserve, often shortened to the ‘Fed’. Eight times a year, the Fed announces interest rate changes, along with monetary policy statements. These rate announcements are highly anticipated events due to the dominant role of the US dollar (USD) in the forex market.

Interest Rate Differential

Variations in the interest rate difference between the Federal Reserve and the Swiss National Bank can also affect the trajectory of the USD/CHF exchange rate. For example, If the Fed raises rates higher than the Swiss National Bank, it might attract investors to the US dollar, potentially increasing its value against the franc. This could lead to a rising USD/CHF exchange rate.

Economic Indicators

Like most major currency pairs in the forex market, the USDCHF pair is also sensitive to economic data and reports like inflation, Gross Domestic Product (GDP), trade balance etc.

Employment numbers from the US Bureau of Labour Statistics, particularly the Nonfarm payrolls (NFP) data are one of the biggest catalysts of volatility on the USDCHF forex pair.

In Switzerland, the Federal Statistical Office (FSO) holds the responsibility of overseeing official statistical observations at the national level. It releases key economic data such as the Business Census, National Consumer Price Index, Swiss Earnings Structure, and Swiss Labour Force. These reports play a major role in impacting the trajectory of the USDCHF currency pair.

The European Union (EU)

Switzerland's economy is closely linked to the European Union (EU). Because of this close connection, any events that impact the EU's economic outlook will inevitably influence the value of the Swiss franc.

Why Is USDCHF an Important Forex Pair to Trade?

Major Rankings

USDCHF is one of the traditional four major currency pairs in the forex (FX) market, along with EUR/USD, USD/JPY, and GBP/USD. It also ranks 6th among the most traded currency pairs as of April 2024 and it is the world’s 8th most widely held reserve currency.

Currency Stability

The stability of the Swiss Franc is a result of several factors, including Switzerland's history of sound public finance policies, positive trade balances, no financial repression and its strong rule of law. Switzerland is known for two key things: staying clear of international disputes (neutral foreign policy) and its business practices that align with Western standards.

Lowest Interest Rate

Over the years, The Swiss National Bank has been committed to a zero-inflation policy and is known for its extremely low interest rate among G20 currencies. Hence, it is the main refinancing currency used for carry trades alongside the Japanese yen. In March 2024, a 25-basis-point cut was enacted by the Swiss National Bank, lowering its interest rate to 1.5%, a surprise move as the first major central bank to loosen monetary policy amidst global inflationary pressure.

Safe-haven Status

Switzerland's dependable political and financial condition establishes the Swiss Franc as a safe-haven currency, alongside the Japanese Yen and the US dollar. They tend to rise during periods of economic uncertainty and decline in risk-on sentiment. However, unlike those currencies, the Swiss Franc isn't widely used as a reserve currency. This is because international transactions in Switzerland primarily use Euros (EUR) or US Dollars (USD) for settlement, not the Franc.

How to Trade USDCHF?

You don’t need physical or digital ownership of the US dollar or the Swiss Franc to trade both currencies like in the spot FX market. Contracts for Difference (CFDs) offer an alternative approach to trading the USD/CHF pair. These flexible contracts allow you to speculate on price movements of the USD/CHF exchange rate by executing a long or short position to make profits or losses from the difference in the entry and exit price of your trade.

What Are the Trading Hours for USDCHF CFDs?

You can track price fluctuations in real time and trade the USDCHF CFDs directly from the Plus500 WebTrader platform. USDCHF trading is available continuously, starting Sunday at 10:00 PM CET all the way to Friday at 10:00 PM CET.

*Please note that trading platform hours depend on the individual operator.

Key Concepts for Trading USDCHF CFDs

1. Contract Size Calculation: Contract size is the amount of base currency you control in a USD/CHF trade.
• In the context of USDCHF, a standard contract size equates to 100,000 units of the base currency (USD). For instance, if you're trading the USD/CHF currency pair with a standard contract size, you would be buying $100,000 worth of US dollars.
• A mini contract size is typically 10,000 units of the base currency. For instance, if you're trading the USD/CHF currency pair with a mini contract size, you would be buying $10,000 worth or more of US dollars.
• A micro contract size is typically 1,000 units of the base currency. For instance, if you're trading the USD/CHF currency pair with a micro contract size, you would be buying $1,000 worth of US dollars.


2. Leverage: Leverage increases the amount of contract size you control beyond what your initial deposit would normally allow. For example, a $1000 balance with a 10:1 leverage, is capable of controlling a mini contract size of $10,000. Trading with larger contract sizes amplifies minor fluctuations in exchange rates and increases both potential gains and losses.


3. Spread: The spread of the USDCHF pair represents the difference between its current buy rate (bid price) and the current sell rate (ask price). This difference is one of the cost of executing any trade.


4. Pip: In the context of USD/CHF, a pip is the smallest price move of its exchange rate, which is typically 0.0001. Therefore, if the USD/CHF pair moves from 0.9000 to 0.9010, this is a movement of ten pips.

Features of Trading USDCHF CFDs

The features of trading CFDs on USDCHF include the following pros and cons.

• Leverage: Leverage enables traders to trade with larger contract sizes which amplifies both potential gains and losses.


• Trading costs: Plus500 offers competitive spreads but there are other fees that may apply, such as overnight funding fee and currency conversion fee. However, Plus500 does not charge trading commissions.


• Flexibility: CFDs can be traded during various time zones, during the day or at night. They also offer flexibility for managing trade positions with different order types.


• Volatility: USDCHF is less volatile compared to other majors but its price movement is known to be influenced by news and economic events which translate to potential trading opportunities.

Steps to Buy and Sell USDCHF CFDs With Plus500

Plus500 makes USDCHF CFD trading straightforward. To trade USDCHF CFDs:

1. Open a CFD trading account.
2. Log in to the Plus500 WebTrader platform.
3. Select USDCHF CFD from the instruments list.
4. Analyse the price and decide to buy (long) or sell (short) USDCHF.
5. Choose the number of contracts you decide to control.
6. Input your risk management parameters.
7. Click "Buy" or "Sell" to confirm your trade.

Conclusion

USDCHF, with its well-documented history, characteristics and other various aspects offers valuable insights for both novice and experienced forex traders. This comprehensive guide provides you with a useful foundation to begin exploring the USDCHF market. By understanding the characteristics of this currency pair and the driving forces behind its exchange rates, you can make informed decisions and navigate the USDCHF market responsibly. Remember, however, that successful trading requires ongoing research, practice, and a disciplined approach.

Frequently Asked Questions

Is The Swiss Franc Still Anchored in Gold?

Although the Swiss Franc isn't backed by the gold standard, the Swiss National Bank holds one of the world's largest gold reserves, exceeding 1000 tons.

What Are Some Correlations of the USD/CHF Pairing?

USDCHF often move in the same direction as the Danish krone and USD/JPY but in the opposite direction of EUR/USD and Gold.

Can I Use Technical Analysis to Trade USDCHF?

Yes, technical analysis tools and indicators can help you identify trends and find buy or sell opportunities.

What Fundamental Tools Are Helpful for the USDCHF?

Fundamental analysis tools like Plus500 sentiment data and economic calendar can help you understand the economic factors driving the USDCHF price movement.