LONDON, May 28, 2012 /PRNewswire/ --
On Friday morning news reports stated that Spain's Bankia had been suspended in Madrid. Whilst this could have yet another negative impact on the Euro; could you potentially profit from trading forex?
The answer is yes, there is the potential to profit from a falling currency by trading forex with City Index.
In the following guide, we look at the news out of Spain on Friday. broader euro weakness recently and how today you could take a position in the foreign exchange market.
Bankia Shares Suspended
Spain's fourth largest bank, Bankia, was part-nationalised two weeks ago because of its problems with bad property debt.
They are reported in the press as of 12 noon, Friday 25 May, to be due to ask the government for a bailout of over 15 billion Euros - equal to $19 billion or £12 billion. Their shares were suspended from trading in preparation for an announcement.
How does this affect the Euro?
Only last month (April 2012) was Spain's credit rating downgraded by Standard & Poor's on the basis that the Spanish economy would more than likely have to take on more debt to support its banks.
The stability of its banking system is a key element to whether or not the country needs to eventually seek a bailout from the eurozone and the International Monetary Fund.
Since the highs made in trading on 1 May 2012, the euro/dollar currency pair has fallen nearly 6% from $1.3283 to a low of $1.2514 on Thursday 24 May.
How Can I Profit from a Falling Currency?
When trading forex with City Index, you do not own shares in the underlying instrument. Alternatively, you take a position on that currency pair and either go long and buy, or short and sell.
For example, let us look at the EUR/USD currency pair.
Following the negative news coming out of Spain, Greece, Italy and the UK - an investor may predict that the value of the Euro will fall and therefore will go short on the EUR/USD.
How this works is that the investor is taking a position on the first currency in the pair; therefore when going short on the EUR/USD, he expects that the Euro will fall. (Had the investor predicted the Euro would rise; he'd have gone long and bought the EUR/USD currency pair).
In the event the investor is correct and the Euro weakens against the US dollar; he would profit.
However, had the market moved against him and the Euro had in fact appreciated against the US dollar; he would have incurred losses.
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