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.
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- 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.
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