MoneyTec 2.0 - Online Forex Traders & Brokers Social Networking Community » Trading Talk » Beginners Forum

[bHtrade]

Hi, I am a newbie asking a simple question that i want to have insights more.. How does interest rates affects the people behind the trade? and on what way..?

Thanks!

[TraderPierre]

How do they affect the people behind the trade? What do you mean exactly?

[bHtrade]

Okay, I guess I will just rephrase my question, How do interest rates works in a trade and on what way?

[TraderPierre]

There's no easy answer to that question!

Gosh, where to start....

Generally, currencies with the highest interest rates gain. Looking at GBP/JPY for example, the UK interest rate is 5.75%, the Japan interest rate is .50%. Some traders borrow JPY which costs them .50%, to buy GBP which pays them 5.75%, that's called a 'carry' trade and GBP/JPY goes up obviously. But then it's not quite as simple as that because carry traders don't like volatility, sharp moves against them can wipe out any profit from the interest they get so when there's volatility you find carry traders closing some of their trades (unwinding) and GBP/JPY goes down, sometimes very fast!

Most interest rate moves are priced in well in advance so market reaction to an interest rate decision can be the opposite to what we expect.

Other fundamentals come into play as well. If you take USD for example, the market is pricing in a rate cut this month with more rate cuts to come but instead of that being a negative for the dollar in yield terms it's seen as a positive for the US economy so the dollar has gained some ground.

There are dozens more factors to take into consideration.

I think you would be better off leaving fundamentals alone at the beginning (things like interest rates and data) and just trade technical levels with traditional stops and limits.

[bHtrade]

Well, though i am still in the process on absorbing all what you've said.. But thank you really for the reply.. I appreciate it.. I have lots of stuff to study and to learn and sharing some of your insights is really a helpful tool.. Thanks again!

[TraderPierre]

Originally Posted by bHtrade

Well, though i am still in the process on absorbing all what you've said.. But thank you really for the reply.. I appreciate it.. I have lots of stuff to study and to learn and sharing some of your insights is really a helpful tool.. Thanks again!

No problem, you're more than welcome.

You say you have lots of stuff to study, what exactly?

Trading isn't as difficult as people make it out to be you know, get your money management and discipline right, then find a reasonable trading strategy and bingo, you're set.

Anyway, good luck!

[bHtrade]

Originally Posted by TraderPierre

No problem, you're more than welcome.

You say you have lots of stuff to study, what exactly?

Trading isn't as difficult as people make it out to be you know, get your money management and discipline right, then find a reasonable trading strategy and bingo, you're set.

Anyway, good luck!

Simply because I am still new to Forex (just two weeks ago), and I am still on the process on learning how this thing works.. So you see, this whole thing is really i should have to absorb.. So before going further, I have to learn and study first the basics and learn more as i go along further..

Thank you again for the insights..

So How's your experience with FOREX been so far?