As Greek debt woes continue, the euro has been taking a battering. So too has sterling as investors wonder whether a sovereign debt crisis could hit the UK next. Many investors saw this coming – Greek public finances and accounting are notoriously suspect – so how can you take advantage?
Enter currency spread bets. Remember that currencies always move relative to each other – as one falls, another rises (or at least falls at a different rate). So this type of bet offers a fast, cheap way to bet on the direction of one currency against another using a currency “pair”.
Take the EUR/USD pair. It can be easily traded via a broker such as IG Index along with a host of other currency combinations. If you buy the pair, you are placing an upbet on the Euro against the USD. For a downbet you would sell the pair. You will need to decide up front on a price per “tick” or “pip”. This determines how much you win or lose. So if you buy the pair at a price of, say, 1.3585 (€1 = $1.3585) at $10 per pip and the rate moves to 1.3700, you could close the bet and take out a 115 pip profit, or $1,150.
- Spread betting – The easy way to geared, tax-free returns
- Forex trading- How to profit from currency movements
Be warned though – exchange rates can move fast in either direction so consider using a stop loss to limit the damage should you get the bet wrong. Also, exchange rates can react to a whole host of economic data ranging from interest rate decisions to unemployment figures. As such, they act as a barometer for the health of the underlying economy. So a grasp of economic jargon and a working knowledge of key announcement dates are both useful tools for any budding forex trader.