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By Deputy Editor Tim Bennett Feb 10, 2010

Tim Bennett

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As Greek debt woes continue, the euro has been taking a battering. So too has sterling as investors wonder whether a sovereign debt crisis could hit the UK next. Many investors saw this coming – Greek public finances and accounting are notoriously suspect – so how can you take advantage?

Enter currency spread bets. Remember that currencies always move relative to each other – as one falls, another rises (or at least falls at a different rate). So this type of bet offers a fast, cheap way to bet on the direction of one currency against another using a currency "pair".

Take the EUR/USD pair. It can be easily traded via a broker such as IG Index along with a host of other currency combinations. If you buy the pair, you are placing an upbet on the Euro against the USD. For a downbet you would sell the pair. You will need to decide up front on a price per "tick" or "pip". This determines how much you win or lose. So if you buy the pair at a price of, say, 1.3585 (€1 = $1.3585) at $10 per pip and the rate moves to 1.3700, you could close the bet and take out a 115 pip profit, or $1,150.

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Be warned though – exchange rates can move fast in either direction so consider using a stop loss to limit the damage should you get the bet wrong. Also, exchange rates can react to a whole host of economic data ranging from interest rate decisions to unemployment figures. As such, they act as a barometer for the health of the underlying economy. So a grasp of economic jargon and a working knowledge of key announcement dates are both useful tools for any budding forex trader.

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Published in Forex trading explained | More articles by Tim Bennett

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  • 1. Knew Better

    (23 January 2012, 03:15PM)  Complain about this comment

    I hope sir, for your reader's sake they did not pursue anything in the forex market based on what you wrote. You essentially said, "just bet which way its going, if you are right you make $1100!" I couldn't think of a more flippant or ridiculous way to approach such a high risk venture.

    Shame sir. Shame

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