European stocks and the Euro are showing strength against the U.S. dollar as German business provided a much needed cushion
for the Euro, which has risen from its funk. Originally down because of Chinese credit restrictions, the Euro jumped to $1.3769 and later traded flat at $1.3726.
The daily outlook for the Euro and Pound has extended to a higher level at 0.8286 from its rebound of 0.8157. The resistance level is on the upside at 0.8439. Retail sales were weak in the United Kingdom, prompting the currency pair’s strength. Chances for reversal are high, depending on the release of data, inflation and price pressure. The EUR/GBP currency pair is a cross between the two largest economies in Europe. The pair is sensitive to monetary policy between the European Central bank and Bank of England.
Foreign exchange market trading
Electronic trading networks have made it possible for investors to trade currencies with ease, which includes the EUR/GBP. The Forex market may appear difficult to traders, however, hedge funds and the mass of international corporations have the potential to benefit individual traders. The Forex market trades 24 hours per day, five days per week. Last year, traders were active to the tune of $5.3 trillion each day.
Currencies tend to move up or down rapidly, which gives traders opportunities to make fast profits. There are tools to mitigate risk and allow individual traders to profit whether the markets fall or rise. In the Forex market, traders are exposed to high leverage with low margins. Forex instruments, such as spread betting, options, contracts for difference, the spot market and futures greatly assist traders.
Buying and selling currency pairs
Currencies, such as the EUR/GBP always come in pairs. Results are based on purchasing one of the currencies in the pair and selling the other. The practice requires traders to think differently than mainstream investors. Trading in the Forex market means investors execute each trade, according to how they expect their currency pairs to perform. Traders also pay attention to how their currencies are quoted. In the case of EUR/GBP, the Euro is the base and the Pound is the quote.
Spread Betting on the EUR/GBP
Spread Betting is a prediction of how the price will move on a particular currency pair. Two prices are quoted – the bid and the offer, which is also known as the spread. Investors speculate as to whether the underlying stock price will fall below the bid or if it will rise above the offer. Investors do not own underlying stock. They are simply speculating on its price movement.
For example, if a trader has a bid of $200 and the offer is $203, the trader may predict the price will fall below $200 based on the history of the stock, and chart and technical analyses. The trader then bets $2 for each dollar below $200 over a period of five days. At the end of five days, the stock is valued at $190. The trader just pocketed $20.
The Bid/Ask spread
The spread is actually the amount of the ask price exceeding the bid price. This is the highest price an investor wants to pay versus the lowest price at which the seller will let go of the asset. For example, the spread between a bid price of $20 and an ask price of $21 is $1. The liquidity of assets is a factor when it comes to spread size.
About the author: Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes informative essays for the globally renowned spread betting and CFD trading provider, InterTrader.com.
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