Trading The Foreign Exchange Markets

It is rare but the foreign exchange markets are actually being quite peaceful with the Euro quietly retracing the $1.2200-1.2400 region once again

. We have been here before though and last time we found little traction below $1.2250. That suggests we can expect short term traders to start buying again.

Investors should beware though, the Euro is looking quite fragile versus all the major currencies at the moment. Versus the Yen, the Euro is trading very close to an eight year low of 108.10.

Even the Pound is gaining ground and is now well above 1.20. That rather dents all the talk of Pound/Euro parity over the last year or so.

Although the problems of the Southern European States sovereign debt has drifted from the front of the newspaper this does not mean that they have gone away. The summer is often a time of peace and reconciliation on the forex exchanges and forex spread trading markets as volumes dry up. Nevertheless, as we exit the summer we may well see more fireworks.

Elsewhere the Pound/Dollar market has crept back above $1.50. There are two key reasons for this; firstly, US economic data has started to weaken, secondly, the new UK emergency budget has given some hope to longer term investors that the health of UK plc will be restored. Of course, it must be admitted that making tough speeches is one thing, standing firm when cuts actually impact will be quite another.

Whether you think the Dollar will continue to weaken or not, you should accept that there are genuine risks when you trade the foreign exchange markets. But what options are there for those wanting an investment option which offers risk management tools, tax benefits* and access to thousands of global markets? For many private investors the answer is financial spread betting. Although, as with all forms of speculation, there is a negative side and with spread trading you can lose more than your initial stake.

There are also a couple of other pointers which the following risk notice says you should look at, "Spread trading carries a high level of risk. Before trading, please ensure that spread trading matches your investment objectives. Familiarise yourself with the risks that are involved. Seek independent advice if necessary".

Spread trading does have a number of advantages though, a key plus point is that it offers a wide range of markets on which you can speculate including foreign exchange, indices, commodities and US and UK stocks.

Also, financial spread trading is not subject to tax*. You do not buy or sell any actual currencies or assets. Instead you are only speculating on the future value of a given market.

A bonus for forex traders is that when opening or closing a position you do not pay any brokers fees or commissions.

Be careful when making any trades though and remember that making use of Stop Losses and smaller trade sizes can lower your potential risks.

* Based on UK and Irish tax law. This may change or differ depending on your personal circumstances.

by: Robert Thomas

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