How to Spread Bet Following FOMC Statement

LONDON, August 2, 2012 /PRNewswire/ --

On Wednesday evening, the Federal Open Market Committee (FOMC) announced that they would not be introducing any new QE measures this month to help boost the flailing US economy, while leaving interest rates unchanged at historic lows.

Following the announcement, we look at what effect this has had on the markets and how you can take a position with a spread betting account from City Index.

FOMC Leave Policy Unchanged

Market expectations were for the FOMC to extend the low rate guidance until at least late 2014, whilst refraining from announcing QE3 in August.

As expected, the FOMC held back on fresh QE action to stimulate the US economy, while keeping rates steady at current levels.

A significant change in the statement by the FOMC, however, was a downgrade in the economic growth outlook.

In the August statement, they said 'economic activity decelerated somewhat in the first half of [the] year'.

The latest statement recognised 'further' signs of improvement in the housing sector, but said that it remained 'depressed'.

How will you Trade following the FOMC Announcement?

Following the FOMC announcement, how will you plan your trades?

Below, we look at how you can take a position on the future price movement of the Wall Street index with a City Index spread betting account.

Spread Betting the Wall Street Index

In the following spread betting example, we look at trading the Wall Street index through the City Index trading platform - available to clients online and through a sophisticated mobile trading app.

In this example, let us say that you speculated that the Wall Street index would fall following the FOMC statement at 19:05 BST, Wednesday, 1 August.

Let us say that through the spread betting platform, the Wall Street index price was trading at 13056.5/13057.5 (the sell price/buy price) an hour prior to the statement.

You decided to go short and sell at the current sell price of 13056.5. You sell with a stake size of $10 per point.

Wall Street Index: Falls

Following the statement, let's say the Wall Street index price falls to 12951.5/12952.5.

Deciding to cash in your profits, you now close your trade by buying back your stake at the new buy price of 12952.5.

This represents a 104-point fall in favour of your position which, when multiplied by your $10 stake, nets you a $1040 tax-free profit*.

Wall Street Index: Rises

Alternatively, let's look at what would have happened had the Wall Street index risen and moved against your position.

In this example, let's say that following the statement, the Wall Street index rose to 13159.5/13160.5, putting your spread bet into a loss position.

Deciding to take your loss, you now choose to close your trade by buying back your stake at our new buy price of 13160.5.

This represents a 104-point rise against your position which, when multiplied by your $10 stake, nets you a $1040 loss.

Remember, spread betting is a leveraged product which can result in losses greater than your initial deposit. Ensure you fully understand the risks involved.

Start Financial Spread Betting

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

Read More Spread Betting Tips

If you found this article helpful, you may want to read more just like this. You can access a range of free spread betting 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.

SOURCE City Index