An Introduction to Trading the Foreign Exchange

Sep 09, 2011, 09:00 ET from City Index

LONDON, September 9, 2011 /PRNewswire/ --

Foreign exchange, commonly known as 'forex' or 'FX', is the exchange of one currency for another at an agreed exchange price on the over-the-counter (OTC) market. Forex is the world's most traded market, with an average turnover in excess of $4 trillion per day.  City Index (http://www.cityindex.co.uk/), a leader in spread betting, CFD trading and margined foreign exchange, allows traders to take a position on more than 50 currency pairs through its online and mobile trading platforms. So, what do you need to know about trading foreign exchange?

Wide variety of currency pairs

City Index cites GBP/USD, EUR/USD and USD/JPY as the currency pairs most popular with its traders, although this is likely at least partly due to the company's competitive daily rolling spreads for EUR/USD at 1 point and GBP/USD at 2 points. There are dozens more major, minor and exotic currency pairs to be traded, including Swiss franc, Australian dollars, Canadian dollars and many more.

Multiple influences on movement

Essentially, forex trading is the act of simultaneously buying one currency while selling another, primarily for the purpose of speculation. Currency values rise (appreciate) and fall (depreciate) against each other due to a number of factors including economic and geopolitics. The common goal of forex traders is to profit from these changes in the value of one currency against another by actively speculating on which way forex prices are likely to turn in the future. 

This tendency to react to significant events means that many FX traders base their currency trades on news developments that they believe will have a pronounced impact on the market.

The market is never bear or bull

One advantage of trading currencies is that your market as a whole can never be bear or bull (i.e. it will never display upward or downward trends). This is due to the balance of the foreign exchange: if one currency is on the rise (bull), then at least one other must be going down (bear) against it for it to be doing so.

Risk management options

Trading currencies requires careful risk management and a considered trading strategy. The foreign exchange market can be a volatile place to speculate, so City Index offers guaranteed stop losses and limit orders to minimise your downside potential.  Always outline a profit target and know exactly how much you are prepared to lose before you place the spread bet. This way, your key decisions are made before you start trading - leaving you free to react to market-moving developments as they happen.

Learn more about trading the foreign exchange with City Index at:

http://www.cityindex.co.uk/range-of-markets/Currencies-Spread-Betting.aspx

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, spread betting.

We constantly look to improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support. To open a City Index spread betting account, visit http://www.cityindex.co.uk/spread-betting/start-spread-betting.aspx

SOURCE City Index