LONDON, June 28, 2012 /PRNewswire/ --
In the following guide, we show you how to trade forex as the EU summit gets underway - and question whether this could have a positive or negative effect on the euro.
The summit - starting Thursday 28 June 2012 - has the potential to improve investor confidence; however, the question is whether this is enough to improve the value of the euro.
Regardless, by trading forex with a City Index account, you can profit irrespective of whether the currency is appreciating or depreciating.
Going short on the euro and profiting in line with every pip that it falls, or going long and profiting with every pip that it rises.
However, forex trading presents a high level of risk; if the market moves against your position you can incur losses greater than your initial deposit.
How will you trade the euro?
On Wednesday 27 June 2012, European shares edged up but the euro fell as investors grew cautious over the imminent summit.
Whilst the summit should have offered investors a level of comfort, a reported comment made by German Chancellor Angela Merkel stated that 'debt sharing across the euro area would not happen in her lifetime' which subsequently diffused any sense of hope for an imminent recovery.
With that in mind, let's look at how you can trade the euro regardless of whether it rises or falls.
Trading Example: Trading the EUR/GBP
In this trading example, let's say that the EUR/GBP is trading at 0.8026/0.8051 through the Advantage Web trading platform - available to City Index forex trading account holders.
Going Long on the EUR/GBP
You believe that the euro will strengthen against the pound, and decide to go long and buy €10,000 on EUR/GBP at 0.8051.
In the event you are correct and the euro appreciates against the pound to 0.8076, you decide to cash in your profits.
The new price is 0.8076/0.8098. You sell to close at 0.8076, giving you a profit of £25, i.e. (0.8076-0.8051)x10,000 = £25.
Alternative scenario: Had the euro moved against your position and depreciated against the pound, you'd have incurred a loss for each pip the market fell.
Going Short on the EUR/GBP
You believe that the euro will depreciate against the pound and decide to go short and sell €10,000 on EUR/GBP at 0.8026.
In the event you are correct and the euro depreciates against the pound to 0.8001, you decide to cash in your profits.
The new price is 0.7976/0.8001. You buy to close at 0.8001, giving you a profit of £25, i.e. (0.8026-0.8001)x10,000 = £25.
Alternative scenario: Had the euro moved against your position and appreciated against the pound, you'd have incurred a loss for each pip the market rose.
Start Trading Forex
To start trading forex across a range of trading platforms - including mobile - you can apply for a forex trading account through the City Index website.
Read More Forex Trading Tips
If you found this article helpful, you may want to read more just like this. You can access a range of forex trading tips, guides and articles through the Forex Trading section of the City Index website.
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.
Spread betting, CFD trading and forex trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
SOURCE City Index