LONDON, January 31, 2012 /PRNewswire/ --

Also known as Forex or FX for short, foreign exchange trading is one of the most widely traded markets in the world. However, currency spread betting allows traders to control a much larger position than their deposit would normally allow in the underlying market. City Index provides a beginner's guide to the benefits and dangers of spread betting currencies.

As the largest and most liquid market in the world, the Foreign Exchange market is also the most accessible. Trading 24-hours a day from Sunday evening until Friday night, means you can trade the opportunity as you see it. Whether you're after short-term volatility or long-term price trend, you can trade FX based on international news or economic fundamentals.

Wide Choice of Currency Pairs

GBP/USD, EUR/USD and USD/JPY are the most popular currency pairs, and spread betting clients can trade these forex pairs with competitive daily rolling spreads, with EUR/USD at 1 point and GBP/USD at 2 points. There are dozens more major, minor and exotic currencies to be traded, including the Swiss franc, Australian dollars, Canadian dollars and many more.

Multiple Influences on Movement

Forex trades are based on the exchange rate between two currencies, such as EUR/USD. This exchange rate will then move as investors gauge a range of constantly changing factors from economic data, political decisions, social unrest and even natural disasters. As a result FX traders, particularly short term traders, tend to base their currency trades in reaction to significant events in the belief that they will have a pronounced impact on the market.

Go Short or Go Long
Unlike traditional trading, spread betting also allows you to go long or short on market prices, making it possible to profit even when prices are falling. So you do not need to rely upon economic conditions improving in order to profit from your position.

Leverage
Unlike traditional currency trading, margined foreign exchange allows traders to take a position on more than 50 currency pairs and only required a small deposit in order to control the full value of a trade.

The advantage of this is that your profitable trades can net you a much greater return on investment. However, there is a risk is that your losses could be magnified in exactly the same way, which can result in losses greater than your initial deposit. This is why risk management should always play a crucial role in your trading strategy. 

Risk Management

Because foreign exchange can be a volatile market and all trades are leveraged, trading currencies requires careful risk management and a considered trading strategy. Your positions can be managed efficiently using stop losses and limit orders to help minimise losses and lock in profits at predetermined levels set by you.

It is also important to outline a profit target and know exactly how much you are prepared to lose before you place the spread bet. By creating a carefully considered strategy before you start trading, your key decisions are already made, leaving you free to follow the market movements and react to them as they happen.

Learn more about foreign exchange spread betting 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 in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers 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