How to Trade the FX Markets
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The FX markets are often an interesting if not a confusing place to trade. The Japanese Yen is still seen as the strong man of the major currencies yet that is rather at odds with the country’s fiscal position. Not only that but the Euro/Yen rate is still flirting with the nine year lows around the ¥108.00 level.
Looking at the Euro/Sterling rate, whilst the currencies continue to fight over the same ground, Sterling does look to be drifting somewhat. In June 2010 we almost hit €1.24, a level not seen since November 2008. We are now trading well under the €1.20 level.
There is one major factor in the UK’s favour though and that is that its problems are solvable by itself. The UK can determine economic policy to suit its own needs. Elsewhere Spain, Greece, Ireland, Italy etc are stuck in a monetary straightjacket that is controlled by the stronger European economies of Germany, France, Holland etc. The future for the weaker economies appears bleak and that in turn should weaken the Euro again.
Investing in the markets can be interesting, even exciting, especially when you consider the profits that you might make. And making a profit is rarely seen as a bad thing. However, it is important to appreciate that you can lose.
If you speculate on the traditional FX markets, or even if you invest via newer products, such as margined-FX or FX spread betting, there are risks. With the latter two options you need to be especially careful because you can lose more than your original stake.
Having said all this, nowadays many investors are turning to the spread betting firms given that they provide a convenient investment option for those who want fast access to the international markets.
A clear advantage is that financial spread betting offers a large variety of markets on which an investor can trade, including the FX markets but also stock and shares, indices, gold and crude oil.
Financial spread betting also offers tax efficiency. Because it does not involve the transfer of assets, and you are merely speculating on the future level of a market, profits are not subject to stamp duty, capital gains or income tax*.
Also note that it can help to keep your trading costs down. When trading the more traditional FX markets you will normally incur broker’s fees and/or commissions. When spread betting, your trades do not incur any such fees or commissions.
Take care when trading the financial markets. Remember that using smaller trade sizes is an important risk management technique.
For the latest FX news – see daily FX Trading news.
FX Markets Spread Betting Comparison
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| GBP / USD Daily - Spread Size |
2 |
2 |
2 |
2 |
3 |
0.8 |
2 |
2 |
| GBP / USD Daily - Min Stake |
£1 |
£0.50 |
£0.50 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
| GBP / USD Future - Spread Size |
8 |
8 |
12 |
8 |
8 |
- |
8 |
8 |
| GBP / USD Future - Min Stake |
£1 |
$0.60 |
£1 |
£1 |
£1 |
- |
£1 |
£1 |
| EUR / GBP Daily - Spread Size |
1 |
2 |
2 |
1 |
1 |
1 |
1 |
1 |
| EUR / GBP Daily - Min Stake |
£1 |
£0.50 |
£0.50 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
| EUR / GBP Future - Spread Size |
6 |
8 |
10 |
6 |
6 |
- |
6 |
6 |
| EUR / GBP Future - Min Stake |
£1 |
$0.60 |
£1 |
£1 |
£0.5 |
- |
£1 |
£1 |
| EUR / USD Daily - Spread Size |
1 |
1 |
1 |
1 |
2 |
0.8 |
1 |
1 |
| EUR / USD Daily - Min Stake |
£1 |
£0.50 |
£0.50 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
| EUR / USD Future - Spread Size |
8 |
8 |
12 |
8 |
8 |
3 |
8 |
8 |
| EUR / USD Future - Min Stake |
£1 |
$0.60 |
£1 |
£1 |
£1 |
£1 |
£1 |
£1 |
| USD / JPY Daily - Spread Size |
1 |
2 |
1 |
1 |
2 |
0.8 |
1 |
1 |
| USD / JPY Daily - Min Stake |
£1 |
£0.50 |
£0.50 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
| USD / JPY Future - Spread Size |
8 |
8 |
12 |
8 |
10 |
- |
8 |
8 |
| USD / JPY Future - Min Stake |
£1 |
¥100 |
£1 |
£1 |
£0.5 |
- |
£1 |
£1 |
Comparison Notes
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Article provided / approved by Financial Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
'How to Trade the FX Markets' edited by DB, updated 30-Jul-10
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