In the world of foreign exchange (forex), finding a stable currency in which to hedge your bets is a popular way to spread risk and gather modest returns. The forex market has risen to new heights across the globe in recent years, with $7.5 trillion traded in one day in 2022.
Exchanging currencies happens exclusively in pairs – meaning you invest in one by selling another. Investing through forex on a trading platform can be a reliable way to diversify portfolios, similar to spreading funds across stocks, indexes and commodities. So, how good an investment is the Swiss franc?
What is the Swiss franc?
The Swiss franc is the official currency of Switzerland and Liechtenstein. The code for this currency is CHF, which stands for ‘Confoederatio Helvetica Franc’, and you’ll see this if you’re executing trades on the forex market.
Why is the Swiss franc a good investment option?
The relative strength of currencies in comparison to others is what determines the attractiveness of certain exchanges. The strength of a currency is typically influenced by factors such as interest rates, trade balances, GDP figures and government stability, but perception and speculation also play a key role.
The Swiss franc ticks many boxes for investors looking for a safe harbour for their funds, thanks to Switzerland’s strong economy and its incredible GDP per capita figure – one the highest in the world. But why is the currency so strong?
Largely because Switzerland has no national deficit and a self-sufficient economy to back the Swiss franc, meaning the country doesn’t have to borrow from other countries and institutions. Unemployment is also low and average income is high, so it has everything needed for a prosperous and stable economy.
With all this in mind, the Swiss franc provides investors and traders with a strong currency that is largely resilient to global crises, especially during times when major currency pairings such as the USD and GBP are flailing.
What other currencies are worth considering?
The most popular forex pairs are EUR/USD, USD/JPY, GBP/USD and USD/CNY, based on trade volume and, therefore, liquidity. The more liquidity a particular pair has, the less risk you’re likely to be taking on by opening a position because the more easily you should be able to close it.
Among the safest, least volatile currencies in the world are the US Dollar (USD), Japanese Yen (JPY), Norweigan Krone (NOK), Danish Krone (DKK) and the Euro (EUR). Investing in these is likely to be a safe bet, although you can never guarantee your money in any trading or investing.
