LONDON, June 7, 2012 /PRNewswire/ –
Following Moody’s downgrade of six German banks, we look at what happened, why and how you can trade forex following the news.
Credit Ratings Cut Across German Banks
On Monday 6 June 2012, the rating agency Moody’s downgraded six German banks including the country’s second biggest lender Commerzbank – cutting its rating from A2 to A3.
Through the Moody’s website, they stated that these cuts were driven by ‘the increased risk of further shocks emanating from the euro area debt crisis’.
Adding that this was combined with the banks’ ‘limited loss-absorption capacity’.
How Can I Trade Forex Following Downgrade?
You can trade 37 currency pairs – including those affected by the German downgrade – with a City Index forex trading account.
With the ability to trade forex across a suite of professional trading platforms – including online and through your mobile device – you can receive a tailored service to suit your trading needs.
Below, we look closely at a currency that could potentially be affected by the downgrade – as well as other negative news out of Europe – the EUR/USD.
Using this example, we look at how you can go short on the currency pair following the downgrade of German banks.
How to Go Short on the EUR/USD
In this example, let’s say that EUR/USD is trading at 1.2444/1.2445.
Investors are concerned about the stability of the Euro following the downgrade of six German banks – including its second-largest lender Commerzbank – by ratings agency Moody’s.
As a result, you expect the euro to fall against the US dollar. Therefore, you decide to go short and sell €10,000 on EUR/USD at 1.2444.
In the event that you are right and the Euro depreciates against the dollar to 1.2335 and you decide to close your trade and take your profits. Through the City Index trading platform, the EUR/USD is now being offered at a new price of 1.2335/1.2335 and you buy to close at 1.2335.
As a result of the Euro depreciating 109 pips, at a stake of €10,000 – you profited $109.
However, had you been wrong and a weaker US dollar had occurred and pushed the Euro up by 109 pips; you’d have incurred a loss of $109.
As a result, it is important that you manage your forex trading risk through a solid strategy and thorough analysis of your chosen currency.
Free Forex Trading Tips
If you found this article helpful, you can find a range of free forex trading tips, guides and articles through the City Index website.
About City Index:
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.
We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk for details.