How to Trade Safe Havens in Uncertain Times – Gold, CHF, JPY, Bitcoin, Bonds, Stocks

February 22, 2022 11:20

The escalating Russia-Ukraine conflict has caused some investors to exit growth markets such as commodity currencies and stocks and move into more traditional safe-haven asset classes.  

While some investors may choose to short sell these markets using contracts for difference (CFDs) - and potentially profit as the market falls – others will choose to trade safe-haven assets.  

In this article, we go through what safe havens are, the different types of safe-haven assets available to trade and invest in via Admirals and an example safe haven trading idea for the current turmoil in the market.  

What is a Safe Haven? 

What is a safe haven? A safe haven asset is a financial instrument that is expected to hold or even gain in value during uncertain economic times.  

There are a variety of safe-haven asset classes to choose from and include: 

1. Gold 

Gold is the most traditional instrument to be considered as a safe haven due to its physical properties. It is available to trade all across the world but there is a finite supply to make it valuable. It can also be melted down and used as currency.  

Legendary investor Warren Buffett famously quoted that ‘gold is a way of going long on fear.’  During the Russia-Ukraine conflict which started in early February, the gold price surged to 8-month highs.  

With Admirals, you use contracts for difference (CFDs) to speculate on the price of gold moving higher or lower, you can invest in gold exchange traded funds (ETFs) which track the underlying price of physical gold or gold futures contracts, or you could gain the performance of the price of gold through the Admirals Wallet Gold Account.  

2. Japanese Yen 

The Japanese Yen is also considered to be a safe haven due to Japan’s high trade surplus relative to the debt it holds. This means that the value of foreign assets held by Japanese investors is much higher than the number of Japanese assets held by foreign investors.  

In uncertain economic times when investors exit global investments to bring money back to the domestic market, there tends to be a rise in the Japanese Yen.  

3. Swiss Franc 

The Swiss Franc is considered to be a safe haven asset class due to the political neutrality of the Swiss government, a strong banking sector and independence from the EU. During the current Russia-Ukraine crisis there have been flows into the Swiss Franc as investors fear the European economy could be hit the worst due to supply disruptions of energy products such as gas from Russia.  

4. US Dollar 

The US dollar is also seen as a safe haven currency as it holds the status of the world’s reserve currency. The fact that it is the most liquid and readily available currency to trade in the world is liked by investors during uncertain times.  

With Admirals, you can trade on the US Dollar Index which is an index of the US dollar trading against a basket of currencies. It’s a popular instrument for investors to determine the direction of the US dollar also.  

Learn more in the ‘How to Trade the US Dollar Index’ article.  

5. Government Bonds 

Government bonds are issued by a government to raise capital for spending. Essentially, when an investor buys a government bond they are lending money to the government. In return, the bond will pay interest (known as coupon payments) for a fixed period to the investor.  

Investors consider government bonds to be a safe haven as the principal investment will be paid back in full once the bond’s fixed term has ended, or matured.  

With Admirals, you can speculate on the 10-Year Germany Bund Futures and 10-Year US Treasury Note Futures using CFDs. This will allow you to trade long and short and potentially profit from rising or falling bond prices.  

6. Defensive Stocks 

Defensive stocks are publicly-traded companies that are in stock sectors that provide goods and services in consumer staples, healthcare, food and beverages and utilities. These are considered to be a safe haven as these are products that people need regardless of what is going on in the economy.  

Some defensive stocks include Procter & Gamble, Unilever, Kraft Heinz and Walmart.  

7. Bitcoin 

Bitcoin has previously been regarded as a safe haven asset. However, as it has only become mainstream relatively recently – compared to traditional currencies, stocks and bonds – the correlation during uncertain economic times has been mixed.  

While at times Bitcoin has risen while stock markets have fallen, recently the digital currency has been trading similar to the stock market. During the stock market decline at the beginning of the year, the cryptocurrency sector has also fallen. This is good news for crypto enthusiasts because it means it is trading more like a traditional asset class.  

With Admirals – and depending on your geographical region – you can speculate on a wide variety of cryptocurrency CFDs such as Bitcoin, Ethereum, Cardano, Dogecoin, Solana and many others.  

Example Safe Haven Trading Idea – GBPJPY 

Currency Pair: GBPJPY
Trade.MT4 / Trade.MT5 Symbol: GBPJPY
Date of Idea: 22 February 2022
Time Line: 1 - 2 weeks
Entry Level: 152.88
Stop Loss Level: 154.77
Target Level: 148.37 
Position Size for Invest.MT5 Account: Max 2%
Risk: High

* The Trade.MT4 and Trade.MT5 account allows you to speculate on the price direction of currencies and other instruments such as bonds, indices and stocks using CFDs. This means you can trade long and short to potentially profit from rising and falling prices. Learn more about CFDs in this How to Trade CFDs article. 

All trading is high risk and you can lose more than you risk on a trade. Never invest more than you can afford to lose as some trades will lose and some trades will win. Start small to understand your own risk tolerance levels or practice on a demo account first to build your knowledge before investing. 

Why Trade GBPJPY as a Safe Haven? 

During uncertain economic times, investors may flee into safe-haven currencies such as the Japanese Yen. With Admirals, you can trade on a wide range of Japanese Yen currency pairs that include: AUDJPY, EURJPY, CADJPY, CHFJPY, GBPJPY, NZDJPY, USDJPY and more.  

As currency pairs move like a seesaw, as the exchange rate is falling it means the first currency in the pairing (known as the base currency) is weakening while the second currency in the pairing (known as the counter currency) is strengthening.  

Therefore, if you believe the Japanese Yen is like to rise, it would also be ideal to find a currency that you believe could fall. Then by speculating on this exchange rate to go lower, you have the two elements potentially working in your favour.  

The Bank of England has already raised interest rates several times over the past few months. Tax increases and a squeeze on living costs may hurt economic growth causing investors to avoid investing in the UK and therefore the British pound.  

This ‘theory’ is also evident in the price action of the GBJPY monthly price chart, shown below.  

Source: Admirals MetaTrader 5, GBPJPY, Monthly - Data range: from 1 Nov 2013 to 22 Febr 2022, performed on 22 Feb 2022 at 7:00 am GMT. Please note: Past performance is not a reliable indicator of future results. 

The monthly price chart of GBPJPY shown above, higlights that the price has been trading in a long-term range between ~156.07 and ~124.38 (the two black horizontal lines). Currently, the price is at the top of the trading range which is a price level the market has turned lower before in February 2018, May 2021 and in January 2022.  

As buyers are struggling to break through this horizontal resistance level, there is potential for sellers to take control of the market and drive it lower. Of course, if the current economic uncertainty improves, there is a chance the price could breakthrough level and continue to move higher.  

There are a variety of different technical analysis tools traders will use to help in their decision-making process. You can learn more about technical indicators in the Admiral Forex Indicators library. 

How to Trade GBPJPY using CFDs 

If you want to buy the Japanese Yen you need to sell another currency to purchase it (convert your British pounds into Japanese Yen as if you were going on holiday). Traditionally, you may have gone to your local currency exchange to do the transaction.  

However, most currency traders will use CFDs to merely speculate on the direction of the currency pair’s exchange rate. With CFDs, you never own the underlying asset which means you can trade long and short and potentially profit from rising and falling markets.  

  • If you buy a GBPJPY CFD you will profit as the market goes higher and lose if it moves lower.  
  • If you sell a GBJPY CFD you will profit as the market goes lower and lose if it moves higher.  

An Example Trading Idea for GBPJPY  

Based on the analysis above, an example trading idea for how to trade GBPJPY CFDs could be as follows using a trading account in USD:  

  • Short sell the currency pair on a break of last month’s low at 152.88. 
  • Place a protective stop loss on a break of last month’s closing price at 154.77 
  • Place a target at the next major level of support around 148.37 
  • Keep your risk small at a maximum of 2% of your total account.   
  • Time Line = 1 – 2 weeks.  
  • If you traded with a position size of 0.1 lots, then:  
    • If your target is reached = $392.69 profit    
    • If your stop loss is reached = -$164.56 loss 

It’s wise to remember that the price is unlikely to go down in a straight line and it may even go higher before it moves lower, especially considering the current volatility of the market. You can also change your price levels as you see fit.  

Therefore, be sure to exercise good risk management which is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade and the risks involved.  

You can do this using the Admirals Trading Calculator for the Trade.MT4 account, where you can change your account currency, price levels and see more details, as shown below: 

Source: Admirals Trading Calculator 

Another factor to consider is the cost of trading CFDs. These include: 

  • Spread. This is the difference between the buy price and the sell price of an instrument. 
    • The Admirals typical spread on GBPJPY is 0.024
  • Commission. This is the cost to make a buy and sell transaction. 
    • From the Admirals Trade.MT4 account there are ZERO commissions to pay to buy or sell currency CFDs. 
  • Swaps. This is the overnight fee to roll your position over to the next day. 
    • The current swap fee for GBPJPY CFDs from the Trade.MT4 account is –0.157 for long positions and –0.639 for short positions.  

You can find more details from the Admirals Contract Specification page for GBPJPY. 

How to Trade GBPJPY in 4 Steps  

You can trade the GBPJPY CFDs and other global markets from the Trade.MT4 or Trade.MT5 accounts.  

  1. Open an account with Admirals to access the Trader’s Room.   
  2. Click on Trade on one of your live or demo accounts to open the web platform or download the MetaTrader 4 or MetaTrader 5 desktop platform.   
  3. Search for GBPJPY at the bottom of the Market Watch window and drag the symbol onto the chart.   
  4. Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.   

Source: Admirals MetaTrader 5 Desktop. Past performance is not a reliable indicator of future results, or future performance. 

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Jitanchandra Solanki
Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.