Switzerland is one of the richest countries in the world. It had a gross domestic product (GDP) per capita of $86,601.56 in 2020. It's also known as one of the most politically neutral and competitive economies in the world. These factors have granted the Swiss currency a safe-haven status in the financial community.
The Swiss currency is the Swiss Franc (CHF). It's the national currency of Switzerland and Liechtenstein. The Swiss Franc is the sixth most traded currency in the world; the USD/CHF currency pair remains one of the most traded pairs in the world.
- Swiss currency is seen as a safe-haven investment within the financial community—the franc is the sixth most traded currency in the world.
- Institutional and sovereign entities prefer to purchase francs due to their high liquidity and availability.
- The Swiss central bank's unpredictable actions in 2011 have made some people hesitant.
- Long-term investors tend to prefer Swiss currency ETFs. Short-term investors may instead consider the forex market.
Swiss Currency as a Safe Haven
The Swiss currency has been a long-time safe-haven investment. During the 2011 European sovereign debt crisis, there was such high demand for francs that the Swiss National Bank (SNB) was forced to peg its currency to the euro at a rate of 1.20 euros per franc. This was done in order to prevent its own economy and export sector from suffering.
Compared to other safe havens like gold, the Swiss currency is available on a large scale. It's also highly liquid. And, it's backed by the robust Swiss economy, which itself is seen as the world's leading banking center. Many institutional investors and governments are fond of using Swiss francs for this purpose; on the other hand, retail investors are often more focused on other assets.
The Swiss franc's safe-haven status was tainted in 2011. This was when Switzerland pegged the currency to the euro to steady its economy. Many large foreign exchange (forex) brokers and investors faced billions in losses; they were then declared insolvent. Since then, some people are hesitant to invest in Swiss francs. That's because the central bank can be unpredictable.
Investing in Swiss Currency with ETFs
Those looking to invest in Swiss francs can do so easily with exchange-traded funds (ETFs) that trade on U.S. stock exchanges. The most popular ETF for Swiss francs is the Invesco CurrencyShares Swiss Franc Trust (FXF).
It was created by CurrencyShares. It was designed to track the price of the Swiss franc relative to the U.S. dollar. There are a few advantages of an ETF rather than buying Swiss francs on the spot forex market. These include:
- Easy to Purchase: ETFs can be bought using traditional brokerage accounts. Shares trade daily on the NYSE Arca.
- Prudent Margin: ETFs are eligible for margin accounts. This means that you can leverage your positions, but less so than typical currency spot market leverage.
- Lower Cost: ETFs are traded as securities. This means that costs are much lower than currency spot market transactions.
Trading Swiss Currency in the Forex Market
The forex market is another option for buying Swiss currency. This involves borrowing one currency (A) to buy another currency (B). Then, you close that transaction for a profit or loss in the future. A profit is realized when B increases in value relative to A. Losses are generated when the opposite occurs.
In the forex market, one of the most popular Swiss currency pair is USD/CHF. Traders that are bullish on Swiss currency will sell or short this pair—effectively reversing the order and using U.S. dollars to buy Swiss francs. This is done at very high leverage of up to 10,000:1 in order to make a profit on small pip movements (fractions of a cent).
Even though Swiss currency is considered a good investment, you should carefully consider the risks, particularly when using leverage, before committing any capital.