FOREX NEW YORK COMPANIES

LONDON, June 18, 2012 /PRNewswire/ --

On Friday, June 15, the pound fell against the US dollar following the Bank of England's announcement of an emergency liquidity package the day before. But how will you profit from this fall?

In the guide below, we show you how you can profit from the depreciating sterling through a spot forex trading account from City Index.

BoE Announces Emergency Liquidity Package

On Thursday evening last week (14 June), Governor Mervyn King suggested more quantative easing (QE) could be on its way as the Bank of England announced an emergency liquidity package to support the British banking system.

In his keynote speech, King said that the BoE would also be providing cheap long-term funding to encourage lending to businesses and consumers.

Pound Depreciates against Dollar

Whilst many investors in the marketplace said the measures planned by King would support the UK economy; further suggestions of monetary easing prompted investors to sell-off sterling in early London trade on Friday (15 June).

How to Trade Forex

With a City Index forex trading account you can take a position on the future price movement of 37 currency pairs within the foreign exchange market.

As a global currency market - trading 24-hours a day from Sunday evening to Friday night - forex offers traders multiple opportunities to potentially profit from fast-moving major, minor and exotic currency pairs.

Unlike in traditional equity markets, trading forex with City Index allows you to profit from market movements - regardless of whether they are rising or falling.

With this in mind, using the example above whereby the pound depreciates against the US dollar - traders have the potential to 'go short' and sell the pound with the aim of potentially profiting from every pip that it depreciates further.

In addition, as a leveraged product - forex trading requires only a small percentage of the underlying market's total value as an initial deposit.

This enables traders to control a relatively large exposure for only a small amount, gain greater access to the global currency markets and possibly magnify gains.

It is important to remember, however, that as a leverage product, you also run the risk of losing more than your initial deposit. A forex risk management strategy should be used in order to limit potential losses.

Start Trading Forex

To start trading forex across a range of trading platforms - including mobile - you can apply for a forex trading account with City Index through their website: http:http://www.cityindex.co.uk

Read More Forex Trading Tips

If you found this article helpful, you may want to read more just like this. You can access a range of free forex trading tips, guides and articles through the City Index website also.

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.

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One of the main reasons that trader’s fail is a lack of understanding when it comes to Money Management. Given the amount of leverage available to currency traders, the temptation to put on a trade that is larger than their account can realistically handle is great. As a result, when losing trades happen, 20%, 30%, 50% or more of the entire trading account can be lost. If traders had a “rule of thumb” that they could follow in this area, losing trades would not be eliminated but the amount of the loss would be small and manageable as opposed to large and catastrophic.

Steps to follow...

-Determine what a 5% loss represents based on your trading account. This one is easy. Whatever your account balance is, multiply it by .05 to arrive at the 5% number. For example, if you have a $7500 account 5% of that would be $375. Now we know that to adhere to the 5% rule, the maximum amount of risk you can take on at one time is $375.

(To me, not knowing my “5% number” would be like driving without a speedometer on your car and you also do not know the posted speed…you are definitely operating at a disadvantage.)

-Next, look for a higher probability trade to enter. As a trend trader, I prefer to look for pairs that are in a strong trend and then look for an opportunity to enter the trade in the direction of that trend.

-Once I have found the pair, I then find a chart time frame that provides me with fairly defined levels of support and resistance so I can determine my entry level and stop placement with greater clarity.

Let’s take a look at the Hourly chart of the EURNZD pair below…

Since this pair is in a downtrend as price action is making lower highs and lower lows and the EUR is weaker than the NZD, we know that we only want to short the pair. Based on this 1 hour chart, a trader could short the pair if price trades below 1.5842. A logical place for our stop is above the previous high at 1.5906. Subtracting our entry price from our stop, we have the amount of risk that we are taking on in this trade…64 pips.

-The next step, and this is a critical one, is to divide those 64 pips by .05. This will give us the size of the account that is needed to place a 10K trade on this pair and be in compliance with the 5% rule. In this case a trader would need an account size of no less than $1280. If the account size is less than that, seek out another pair to trade whose parameters are more in line with your account size.

Please note that ALL of the above is done before ever actually entering the trade.

If a trader waits until after they enter a trade to make this determination, it is quite possible that they will be entering trades that logical stop placement will cause them to take on too much risk.

Also, if a trader is considering taking a 20K position on this trade the account size would need to be at least $2560 since twice the amount of risk is being taken on.

Although this concept remains the same in either an uptrend or a downtrend, let’s take a look at a pair that is in an uptrend.

Below is an Hourly chart of the NZDCHF…

In this case this distance between the entry and the stop (risk) is 31 pips. When we divide that by .05 we come up with 620. So to place a single 10K trade on this pair using these parameters our minimum account size would be $620. To place a 20K trade, one that was twice the size, the account balance would need to be at least $1240.

Part II of Money Management Made Easy will deal with Risk Reward Ratios

---Written by Richard Krivo

To contact Richard, please email instructor@dailyfx.com . You can follow Richard on Twitter@RKrivoFX.

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