Rates

THE IMPORTANCE OF INTEREST RATES IN FOREX MARKET

Day trader: A person who (like me) engages in buying and selling of currencies in an attempt to capitalize or gain profit from the intra-day movements of the markets.

The markets move up and down right through out the day forming the patterns that we see on charts. It is no secret that I follow the daily economic speeches and trade each time there’s an important economic announcement. Since I adopted this method of trading, it has not only been amazing but also very relaxing as I don’t spend all my time analyzing the charts, but I analyze the markets fundamentally  and execute technically (I only use technical analysis to confirm my entries and exits).With this method of trading I am always on the right side of the markets, yes the argument is always that the results never last. The truth is, I don’t want the results to last but I am more interested in being on the right side of the markets and follow it wherever it goes. I can go the whole month without taking any losses (I took enough losses to buy me the whole country in the past few years, thank you). I am not exaggerating but this is my reality. Read more about my method of trading HERE.

 

The role played by interest rates in the markets

Interest rates or cash rates as they are sometimes called, are the biggest influence in the Foreign Exchange Markets. The central bank is responsible for making decisions on the monetary policy. Interest rates are important to a day trader. That shock of the markets by the central bank’s decision has been killing many accounts especially when you are already in a trade prior to the announcement. I saw one trader on FB  who had a good Gold trade prior to the central bank announcement, he was thrown to the wrong side of the markets as the outcome was against his open position and he didn’t even know what could have gone wrong. He probably blamed his indicator. Learn how to trade Gold HERE.

Why would the Central Bank hike or cut the rates?

They would cut the rates to encourage lending so they can boost the economy and they would hike them to curb the inflation. The NZD has the highest interest rates by far. On the 4th of August BOE (Bank of England) cut their interest rates in over 7 years by 25 basis points, the previous rate was 0.50%. This was done to help the UK to cope with the negative impact of the Brexit vote and the rate cut also benefited people who have mortgages that go up and down based on the current bank rate. RBNZ (Reserve Bank of New Zealand) also had a rate cut by 25 basis points from 2.25% to 2.00% on the 10th of August. Below are the current Central Bank Rates, by knowing these rates you can also know when you’ll  be debited or credited with a swap (interest charged by a broker for keeping your trades overnight). A trader can be credited with a swap if they long (buy) a currency with a higher interest rate than the one they are shorting on, let’s say you are long on AUDUSD and you keep it overnight, instead of your account being debited with a swap, it will be credited  (you’ll earn a positive swap) because Australia has a higher interest rates than the U.S. Thank you so much for stopping by. I hope you found this post valuable, kindly share it if you did.

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