Worried about the pound devaluing? Hedge your bets...

[Boscoe]

If you are worried, as I think may people are quite rightly given the massive deficit, the potential for the UK's credit rating to be downgraded etc etc etc. There is a way to hedge your bets so you won't lose if the £ goes down against the Eur, but it's important to note that you also will not 'win' if GBP strengthens against it.

As an illustration let's take it as you have and income of £50,000 per annum from the UK

Open a spread betting account and deposit around £2000.

Open a position 'buying' EUR/GBP futures to the tune of around £6 per point.

Sit back and relax.

How does this work? Well, EUR/GBP June futures are currently trading at

'8721'. This number derives from 1 Euro costing 0.8721 pounds. If you

place a bet at £1/point then you will make £1 for every point that the

EUR/GBP goes up, and will lose £1 for every point that it goes down. As

you've placed a bet for £1/point at 8721 you effectively have £8721

'invested' in Euros. If the Euro appreciates by 5%, you'll make 5% of

£8721 profit or £436.

So, stretch this to £6/point at 8721 and you've effectively 'invested' £52,326 in Euros.

The one thing you of course need to be aware of is that if the Euro

devalues against the pound and the index falls back to, say, 8421,

you'll have lost 300 x £6 = £1800.

Should this happen then a spread betting dealer from the

company may then call you and say 'You only deposited £2000 and you've

lost £1800. Please put more money in your account or we'll close your

positions". This is known as a 'margin call' and isn't a nice call to

get. But equally, you've lost no more than if you'd turned all your

£50k into Euros and had the market move in the same way. The

key is being able to fund that liquidity if you need to...and remember,

you still have the income in GDP coming in at the higher exchange rate, so effectively you will have 'lost' nothing...

As a warning I'd say don't get into this as anything more than hedging your income, and be very careful if you 'bet' more than you need to cover any fluctuations in exchange rates, if it goes the wrong way then you could end up losing a lot more than you potentially could have gained!

As a final comment - I am not licensed to give Financial advice in either France or the UK and the above post should not be taken as financial advice of any sort, it is just given as an illustration of how one could potentially protect themselves from currency fluctuations. I would however recommend talking to your licenced Financial adviser before even considering using this or any other method of investment.

[Bugsy]

[quote user="Boscoe"]

As an illustration let's take it as you have and income of £50,000 per annum from the UK

[/quote]

I stopped reading this when I got to that point [:(]

.

[Boscoe]

:) Well it works at any level...

If you have £50,000 income then it's around £6 per point.

If you have £25,000 income then it's around £3 per point.

If you have £16,000 income then it's around £2 per point.

[Bugsy]

[quote user="Boscoe"]:) Well it works at any level...

If you have £50,000 income then it's around £6 per point.

If you have £25,000 income then it's around £3 per point.

If you have £16,000 income then it's around £2 per point.

[/quote]

Keep going ....................[:)]

.

[Jonzjob]

£50,000/year, nice dream eh Bugsy!!

[Bugsy]

[quote user="Jonzjob"]£50,000/year, nice dream eh Bugsy!![/quote]

Nice dream indeed, John [:)]

.

[Boscoe]

£92 for every £1 spread bet since I posted...

[baypond]

[quote user="Boscoe"]£92 for every £1 spread bet since I posted...

[/quote]

but did you bet that £1 ?

[Boscoe]

No, £10 but I wasn't using it as purely a hedge :)

[baypond]

nice tax free return then.... well done.