Spread Betting Forex Markets

Summary: For the financial traders that are spread betting forex markets, there are countless opportunities. This page looks at some of them.

Most readers will be aware that the currency markets are big. Really big! There are literally trillions traded every day. Liquidity is everywhere. Obviously, some parts of the forex market are more liquid than others, but the reality is that there is a lot of money on the move every second.

Major currencies are traded in 'pairs' - for example the US$ and the British £. This particular pair is known as 'Cable' (sorry, no idea why...). It goes without saying, that the $/£ is much more liquid to trade than (for example) the British pound and the South African Rand.

It is also worth remembering that foreign exchange markets are open nearly all week! There is a currency market open somewhere in the world almost all the time. This has its hazards - prices can move for or against you while you sleep! This can make it a much riskier proposition than spread betting shares as the stock exchanges of the world have very clear opening and closing times and while there is trading out of hours, it is in relatively small volumes in comparison.

Years ago, your author read 'The Alchemy of Finance' by George Soros. While the book was a very tough read in places (probably not one for a relaxing beach vacation!) it did explain a lot about the way currency markets work and how they trend.

The book is many years old now and forex markets have changed and are much more volatile - something the Mr Soros may like - but much of the basic analytical processes and ideas remain relevant. George Soros has made hundreds of millions of dollars (if not billions of them) through his ability to trade currencies.

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One of his central theories is that a currency will trend on one direction for many months or perhaps even years. A national economy is a slow moving thing and once in place a trend will not change for some time. However, when that trend does change, there will be huge shifts in rates and sentiment and lots of money to be made. Soros specialised in finding those moments.

The role of politics

Since then the banking crisis of 2008 has piled debts onto national governments making their balance sheets much less stable. World markets have plunged into recession and one of the results has been very unstable currency markets. Many economists now think of the currency markets as a "race to the bottom", suggesting that countries seem to be trying to bankrupt themselves as quickly as possible.

For now at least, the long term trending of currencies seems to be past us. Instead, the crisis engulfing the eurozone has seemed to be moving slowly, but the speed at which confidence can be lost in a government and it's debt has caught politicians and economists off-guard leaving little time for central bankers to respond. This is especially worrying since central banks normally deal in time periods of several years but have found that a decision that takes several weeks may be too late.

This volatility offers opportunities for technical traders, momentum followers and swing traders to spread bet forex markets and make regular profits.

There are almost certainly many 'systems' in the marketplace to provide trading advice to newcomers. However, it would seem more obvious for a potential trader to learn the skills required to make reasonably competent judgements using technical analysis. For those that master the skills, there is a lot of money in the currency markets. Of course, there are risks involved - spread betting is possibly the most high-risk financial trade there is.

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These new and changing foreign exchange conditions mean that spread betting forex traders now need to take the actions and speeches of politicians into account much more than was generally the situation. As sentiment swings and lurches in various directions, the words of leading politicians seem to be one very major factor to consider.

However, the eurozone crisis has proved one thing time and again - politicians are desperate to call the crisis "over" when it clearly is not - so taking their speeches at face value can also be a risky proposition for someone spread betting currency markets and exchange rates.

There are opportunities though. It has been proved many times during the eurozone crisis that bond, equity and foreign exchange markets have taken several days to understand and reflect on the meaning of political events. This lack of a nuanced approach suggests that the news is not "in the price" and that there may be wide ranging opportunities for trading and spread betting indices.

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