Academy How to trade EURCHF

EURCHF - Definition and Characteristics

The EURCHF cross is one of the minor currency pairs in the world. It is best known for its 1.20 peg, which used to be in place from 2012 to 2015. During those years, the Swiss National Bank decided to peg the Swiss Franc to the Euro at 1.20.

As there is no US dollar in this currency pair, it is called a currency cross. The price is derived from the EURUSD and USDCHF pairs. Since these two are negatively correlated to each other, the volatility of the EURCHF is usually low, unless one of the main pairs moves significantly more than the other.

The Swissie

The CHF in this cross is the Swiss Franc, also known as the Swissie. The EUR in this cross is the Euro. The quotation of the pair says to traders how many Swiss Francs are needed to buy one Euro.

Thus, the value of the EURCHF cross is quoted as 1 Euro per X Swiss Francs. Meaning, if the cross is trading at 1.10, it requires 1.10 Swiss Francs to buy one Euro. If the EURCHF cross rises to 1.15, it means that the Euro has strengthened (the Swissie has weakened), and it now takes 1.15 Swiss Francs to buy one Euro. On the other hand, if the EURCHF cross drops to 1.00, it means that the EUR has weakened (and the Swissie has strengthened), and it now takes 1.00 Swiss Francs to buy one EUR, also known as parity.

What drives the EURCHF cross?

As we previously mentioned, the calculation of this cross is derived from the difference between the EURUSD pair and the USDCHF pair. These two are very tightly correlated, meaning if one moves up, the other one moves down, usually with nearly the same percentage change. Therefore, there is little space for the EURCHF cross actually to move anywhere, and significant trends in this cross happen only occasionally.

Maybe the best-known trend in this cross used to be in 2015 when the Swiss National Bank decided to abandon the 1.20 peg, and the EURCHF cross dropped nearly 20% within minutes (the Franc strengthened), only to stabilize a couple of days after.

Since then, it took the cross three years to reach the 1.20 level again, only to be sold here, and the bearish trend returned.

Safe-haven status

Due to Switzerland's stable political and financial position, the Swiss Franc is considered as a safe-haven currency. It strengthens in bad times and tends to weaken during risk-on sentiment. As the Euro and the whole Eurozone faced disintegration during the Greece crisis, the EURUSD pair has been under severe pressure, while the USDCHF pair did not rise so much. That had led to a strong downtrend in the EURCHF cross as traders rushed into safe-haven currencies, such as the Swiss Franc.

Lowest interest rate

The Swiss Franc is known for its lowest interest rate in the world (from the G20 currencies). As of May 2020, the Swiss National Bank maintains the primary interest rate at -0.75%. Therefore, the Swiss Franc is the main refinancing currency (along with the Japanese yen) of the Carry Trades.

Performance

As you can see on the weekly EURCHF chart, the large candle on the left side of the chart is the week when the SNB abandoned its peg, and the CHF strengthened massively. It was pure chaos – there was no liquidity, and it was impossible to trade Swiss Franc for some hours. However, after the dust settled, the cross started going higher as the economic situation in the eurozone improved.

_{Source: Purple Trading MetaTrader 4}

As the price touched the 1.20 threshold from the downside, sellers jumped back into the market, and since then, a slow bearish trend is intact.

EURCHF – Quotes and trading

If you open our Purple Trading Metatrader 4 platform, right-click on the EURCHF cross and choose "new order," the following popup will appear:

_{Source: Purple Trading MetaTrader 4}

As you can see, the spread between the Ask and the Bid price is 0.7-0.8 pips, but the spread can fluctuate slightly, mainly during volatile times of the day.

Lot value calculation

The minimum amount to trade is 0.01 lot, while one full lot represents 100,000 EUR. So, if you are trading 0.01 lot (or a micro lot), you will be trading 1,000 EUR. The 0.1 lot is also called a mini lot and represents 10,000 EUR. If you want to buy or sell half a lot, you will be trading 50,000 EUR. Two lots are 200,000 EUR and so on.

Besides, you can open a market execution trade, which means that it will be done at the current market price, or you may use pending orders – limit and stop orders. Finally, it is possible to use the stop-loss and take-profit orders when opening the trade, or you can add them later when the deal is live.

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