How to Trade Forex as Euro Reaches Four-Month Low

LONDON, May 17, 2012 /PRNewswire/ --

How are you planning to trade forex as the euro reaches its four-month low following the ongoing political instability in Greece?

Through forex trading provider City Index, we look at the recent news out of Greece and how you can trade on this global currency market.

Will Greece Exit the eurozone?

With no resolution in sight between left and right wing party leaders, investors are asking if or when Greece will be exiting the eurozone.

As it stands, it is heading for a caretaker government to see the country through, until a second round of elections can be held between June 10-17.

Chief Market Analyst at City Index, Joshua Raymond, commented today in his daily market commentary [May 16 2012] that the focus 'undoubtedly remains on Greece'.

Adding: "It remains open for debate as to just how much authority any caretaker government may have."

Which begs the question; does such a move bring Greece any closer to building investor confidence, than no move at all?

How to Trade the Euro as it Falls

So, how are you going to trade forex with the value of the euro falling and no resolutions coming out of Greece?

Many investors will be looking towards the safe haven of the US dollar to provide shelter from the storm.

Lauren Rosborough, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in a note to clients: "Risk aversion is rife and the dollar is the big winner."

Consider that this year, whilst the euro fell 1%, the dollar rose 1.1% [Bloomberg Correlation-Weighted Indexes].

Forex Trading Example: Going Short on the EUR/USD

In this example, let us use this morning's data.

Therefore, at 8:00 BST the City Index price for EUR/USD was 1.2681-1.2739.

Investors remain concerned about the impact that negative news out of Greece is having on the euro and you expect it to fall against the US dollar.

You decide to go short €10,000 on EUR/USD at 1.2681.

In this example, you were correct and the euro depreciates against the dollar to 1.2572 and you decide to close your trade and take your profits.

The new price being offered by City Index is 1.2571/1.2572 and you buy to close at 1.2572.

Result: You sold at 1.2681 and bought at 1.2572, a fall of 109 pips, giving you a profit of (1.2681 - 1.2572) x 10,000 = $109.

Alternative scenario: If however, a weaker dollar occurred across the board overnight and had pushed the euro up - you would have instead incurred a loss for every point it rose.

You can learn about how to manage your forex trading risk through City Index and their dedicated Learn to Trade section of their website.

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