Forex Trading Strategy Following Spanish Bank's Downgrades

LONDON, May 21, 2012 /PRNewswire/ --

As Europe recoils from the Spanish bank downgrade last week - how are you planning to trade the forex markets?

In the following guide, we show you how you can trade across global currencies with forex trading provider City Index.

What is Forex Trading?

The act of trading forex is buying one currency in a pair, for example the Euro in the EUR/USD pair, while simultaneously selling the other (US dollar).

Investors do this with expectations that the cross rate price will rise in value and their profits will rise in live with any increase in that price.

Alternatively, selling a currency pair means that you sell the first currency in the pair - in this example the Euro - while simultaneously buying the second (US dollar).

Investors do this with expectations that the price will fall and their profits rise.

Forex Trading Strategy for Going Short on the EUR/USD

In this example of a forex trading strategy, let's assume that EUR/USD is currently trading at 1.2709/1.2712.

Investors are concerned about the situation in Europe with the ongoing Greek political crisis and news that sixteen Spanish banks had their ratings cut by Moody's - causing shares to plummet across the European markets.

With no resolution in sight to the Greek political crisis till mid-June when a re-election will be held in Greece, investors may expect that the Euro will decline in value against the US dollar - which has often been deemed a safe haven as the most popularly traded currency in the world.

With this in mind you decide to sell (go short) €10,000 on EUR/USD at 1.2709. 

In the coming days, you watch the Euro fall against the dollar 109 pips to 1.2600.

To close your trade, you buy back at the new price of 1.2507/1.2600 netting you a profit of $109, i.e. (1.2709 - 1.2600) x 10,000 = $109.

Forex Trading Risks

Consider the above example; had the market moved against you position - i.e. the US dollar had weakened overnight, pushing the value of the Euro against the US Dollar to rise 109 pips instead of down - you'd have lost $109.

Before you start trading forex, it is important you understand the risks involved.

Why Trade Forex with 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 forex trading platform.

As a group, City Index transact in excess of 1.5 million trades every month in over 50 countries, providing access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.

In addition, they constantly aim to improve the performance across all their platforms and expand their range of services - including educational tools and resources.

As a result, their clients benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk for details.

SOURCE City Index