Swiss Franc Index
The Swiss Franc Index is a forex index that allows investors to trade the prevailing price of the national currency of Switzerland. This tutorial covers the history of the Swiss Franc and the currency index, the current weighting of its constituent currency pairs, trading strategies and more. We also rank the best Swiss Franc Index brokers in 2024.
What Is The Swiss Franc Index?
The Swiss Franc Index (SXY) is a weighted basket of CHF currency pairs, designed to provide investors with a balanced value for the Swiss Franc. The index achieves this by drawing from eight component CHF currency pairs, including the US Dollar (USD) and Euro (EUR).
The index was initiated in May 2007 with an initial value of 82.49. However, this price soon rose above 100 and the index has remained above this value for most of its history.
Weighting
The value of the Swiss Franc Index is made up of eight component currency pairs. As a result, the index is significantly exposed to the Euro and US Dollar exchange rates.
The index is weighted based on the following formula:
- 40.0% – CHF/EUR (Euro)
- 29.87% – CHF/USD (US Dollar)
- 10.92% – CHF/CHN (Chinese Yuan)
- 8.84% – CHF/GBP (British Pound)
- 4.0% – CHF/JPY (Japanese Yen)
- 2.85% – CHF/SGD (Singapore Dollar)
- 2.05% – CHF/CAD (Canadian Dollar)
- 1.47% – CHF/AUD (Australian Dollar)
Swiss Franc History
The Swiss Franc itself has a fascinating history and has historically been viewed as a safe haven from inflationary forces due to a 40% gold backing. However, in May 2020, a national referendum overturned this requirement, and the Franc became a fiat currency.
Recently, the value of the Swiss Franc Index has seen significant fluctuations. The first of these was in August 2011, when the collapse of Greece saw the Index reach its historical high of 141.44, almost a 15-point increase from the previous month.
At the end of 2014, the value of the Swiss Franc Index was affected significantly by the introduction of a negative interest rate. Along with a value cap tied to the Euro, this was to try and reverse an overvaluation of the currency.
A period of heightened volatility ensued that saw daily movements of up to 30%, which led to the insolvency of some brokers and heavy losses for major institutional and central banks.
Swiss Franc Index Today
Though the Swiss Franc Index has lost its gold backing, it currently remains a stable and much-traded asset. Protected by resilient business activity and stable trade, the currency remains comparatively inflation-proof even in the face of significant global increases.
Despite this stability, investors can still make gains on the Swiss Franc Index, whether the price is increasing or losing value.
Live Price Chart
Price Determinants
Here are some of the key determinants that traders can analyse to make Swiss Franc Index price forecasts:
Global Political Stability
Due to the neutrality of Switzerland in global political disputes, global instability can cause investors to flee from affected currencies to the historical safe haven of the Swiss Franc. Conversely, during times of peace and stability, investors may leave CHF to explore other growing or emerging economies and their currencies.
Local Monetary Policy
The Swiss National Bank can make monetary policy adjustments that influence the value of the Swiss Franc Index. These measures include quantitative easing, interest rate and base rate policies.
Historically, these policies have had a marked effect on the currency, such as in December 2014 when the central bank introduced a negative exchange rate on bank deposits.
Euro Exposure
With over a 40% weighting assigned to the EUR/CHF forex pair, significant fluctuations in the value of the Euro will have a strong effect on the Swiss Franc Index.
European Economic Stability
As in 2011 with the Greek debt crisis, threats to the economic stability of the Euro can lead to investors fleeing to the Swiss Franc, resulting in increases in the index value.
However, a strong European economy can cause investors to be less cautious and move away from the Swiss Franc, potentially leading to the index losing value.
Swiss Economy
The strength of the Swiss economy also impacts the price of the Swiss Franc Index. A higher GDP and a lower inflation rate make investors more likely to invest in the currency, resulting in a higher value.
The balance of trade can also impact the price of the Swiss Franc. Traditionally, Switzerland is an export-heavy region, hosting cutting-edge but also strongly diversified global businesses. Some of the main exports of the county are banking and finance firms, pharmaceuticals, precision manufacturing companies and research and development.
Pros Of Trading The Swiss Franc Index
- Strong Global Currency – The strength of the Swiss Franc means that investors will always have lucrative trading opportunities as the global economy cycles from boom to recession.
- Historically Volatile – Even in the short history of the Swiss Franc Index, there have been several significant periods of volatility, such as in 2011 and early 2015. Volatility offers the potential for notable gains, especially when trading leveraged derivatives such as CFDs and options.
- Liquid Instruments – As CHF is a key global currency, the forex pairs that make up the Swiss Franc Index are highly liquid. This ensures that the price is not stagnant and that investors can analyse historical exchange rates to make price forecasts.
Cons Of Trading The Swiss Franc Index
- Unpredictable Market – Due to the status of the Swiss Franc as a safe haven currency, the price of the index may not respond in a typical way to news, fiscal changes and other events.
- High Euro Exposure – 40% of the Swiss Franc Index comprises the EUR/CHF currency pair. Though more diversified than other forex indices, such as the US Dollar Index, this weighting can mean the index is highly exposed to changes in the value of the Euro.
- Limited Instruments – While more major FX indices such as the Euro Index and US Dollar Index have a wide range of trading instruments, the Swiss Franc Index is primarily tradable through CFDs, options and futures.
How To Trade The Swiss Franc Index
Find A Broker
The first step to trading the Swiss Franc Index is finding a reliable, secure and low-cost broker. This brokerage needs to support your chosen CHF Index trading instrument (more details below).
In addition to supporting these vehicles, look for brokers that:
- Are regulated by a reputable body such as the FCA, CySEC or ASIC
- Offer competitive trading fees, spreads and commissions
- Support popular and fast payment methods, such as PayPal
- Offer an accessible and competent trading platform
- Provide knowledgeable customer support
Instruments & Vehicles
While larger forex indices such as the US Dollar Index have plenty of available instruments for trading, including ETFs, mutual funds and options, the choices for the Swiss Franc Index are more limited.
In addition to CFDs, investors can trade the Swiss Franc Index as options and futures through the CME and Nasdaq respectively.
Strategies
A trader’s strategy is often individual and based on factors such as available capital, risk tolerance and trading times. However, there are some useful considerations that can help you create your own approach:
Event-Driven Trading
Event-driven trading entails investing based on either rumours or unfolding news. For the Swiss Franc Index, this could be fiscal policy changes made by the Swiss National Bank or economic developments in closely related markets, such as the Euro.
This is a short-term strategy, and investors must react quickly to profit. This said, event-driven trading has a proven historical track record of making notable gains from the Swiss Franc Index exchange rate.
Hedging
The Swiss Franc has a reputation as a safe haven due to the stability of the Swiss economy and the geopolitical neutrality of its government.
These factors, along with low inflation rates, mean that many traders turn to the Swiss Franc in times of economic uncertainty as a hedge against financial volatility.
Technical Analysis
Many traders rely on technical analysis to spot trends and patterns in the historical exchange rate of forex markets like the Swiss Franc Index. By looking for specific signals, traders can often make forecasts as to the future price movements of an asset.
There are thousands of tools available to analyze the Swiss Franc Index price chart, many of which are built into popular trading platforms like MetaTrader 5 or free charting programs such as TradingView.
Look at indicators that offer overbought or oversold signals for the Swiss Franc Index as a good way to start making short to medium-term trades.
Mean Revision
The mean revision strategy combines fundamental analysis, technical analysis and event-driven trading. This approach has a medium to long-term focus and relies on the principle that the Swiss Franc Index will return to a long-term trend, or “mean” after short-term fluctuations.
Trading Hours
While the forex markets that the Swiss Franc Index is based on run 24/5, this does not necessarily mean that Swiss Franc Index instruments will do the same. In fact, there are no CHF Index products that run 24/5.
For example, The SXY CFD Index only trades from 13:00 UTC to 22:15 UTC from Monday to Friday.
Final Word On Trading The Swiss Franc Index
There are very few currencies available that have combined long-term stability with short-term volatility like the Swiss Franc.
Due to the unique geopolitical neutrality and resilient local economy of Switzerland, this currency is both intriguing and potentially lucrative for traders. The Swiss Franc currency index offers an interesting way to trade the value of CHF holistically.
However, significant EUR exposure due to the 40% weighting of EUR/CHF means that the Swiss Franc index may not be as diversified as some may like. Furthermore, there are not as many trading vehicles available compared to other forex indices such as the Euro or US Dollar Index.
Use our table of the top Swiss Franc Index brokers to start trading.
FAQs
What Is The Swiss Franc Index Composed Of?
The Swiss Franc Index consists of a basket of eight component currency pairs. Ranked from highest to lowest allocation, these are the Euro, US Dollar, Chinese Yuan, British Pound, Japanese Yen, Singapore Dollar, Canadian Dollar and Australian Dollar.
Is The Swiss Franc Index Losing Value?
As with all currencies, the Swiss Franc goes through periods of upward and downward price trends. However, the Swiss Franc is regarded as a highly stable currency with comparatively limited potential for long-term downtrends.
How Does Gold Affect The Swiss Franc Index Price?
Since Switzerland voted to abolish the gold backing of the Franc in 2000, there has been no direct link between CHF and gold prices.
Why Does The Swiss Franc Index Have A Low Inflation Rate?
There are many reasons for the low inflation rate of the Swiss Franc. These include a resilient and productive business economy, low demand for fossil fuels and high import tariffs.