Forex Price Explain, By Forex Forum
The Financial Markets department compiles indicative foreign exchange rates daily for use by the general public. These rates reflect the average buying and selling rates of the major participants in the foreign exchange market at the open of trade every day, thus providing a good indicator for any interested party on the value of the shilling on any particular day.
Watching the forex prices and the factors that drive them before opening a position is a mandatory task for every trader. With more than $5 trillion being bought and sold every single day, the foreign exchange market is the largest and most liquid in the world, which means that prices fluctuate in an overwhelming manner. Find out more about the major factors that move a currency to maximize your trading opportunities!
How the prices on Forex are created
Forex is the marketplace where the exchange rate of every currency is determined. Since it is a decentralized and over-the-counter (OTC) market, you might wonder who determines the prices exactly. Simply put, they are determined by the bid and the ask offers available at that time in the market. The bid and ask offers in question are the highest price recorded that someone is willing to buy (bid) and the lowest price recorded at which someone is willing to sell (offer). The price swings are also determined by the number of lots, or the volume, of the bid and ask offers present in the market at every specific price.
Comparison of Monetary Policy
Exchange rates are basically a comparison between the policies of two countries. It is essential to understand that exchange rates are not absolute rather they are relative. The following factors are considered amidst many others while comparing the monetary policies of any two countries.
1. Inflation: Exchange rate is basically a ratio between the expected number of units of one currency and the expected number of units of other currency in the market. Inflation increases the number of currency units. Therefore, if one currency is facing inflation at the rate of 6% whereas the other is only facing inflation at the rate of 2%, then the ratio between the two is bound to change. Hence, inflation rates are a major factor while determining exchange rates. However, the official inflation rates often do not tell the true picture. Therefore, participants of the market use their own estimates of inflation rate and come up with their own valuations for currency pairs.
2. Interest Rates: When investors hold a certain currency, they get a yield in terms of the interest rate that is applicable on that currency. Therefore if investors were to hold a currency with a 6% yield as opposed to a 3% yield, they would end up profiting more! Therefore, the interest rate yields are also priced into the Forex rates that are quoted in the market. The currency valuations are extremely subjective to interest rate changes. A small change in this rate brings about a big reaction from the market participants.
Therefore, Central Banks become extremely important participants in the Forex market since they control the monetary policy which is one of the biggest determinants of the value of the currency.
For learn more about forex trading and currency market daily updates join forum.forex
This is the forex forum for beginners and professional currency market traders. Discuss and share forex trading tactics, currency pairs, tips and forex market data. Analyze forex brokers, leverage and signals providers.
Thank You
The Financial Markets department compiles indicative foreign exchange rates daily for use by the general public. These rates reflect the average buying and selling rates of the major participants in the foreign exchange market at the open of trade every day, thus providing a good indicator for any interested party on the value of the shilling on any particular day.
Watching the forex prices and the factors that drive them before opening a position is a mandatory task for every trader. With more than $5 trillion being bought and sold every single day, the foreign exchange market is the largest and most liquid in the world, which means that prices fluctuate in an overwhelming manner. Find out more about the major factors that move a currency to maximize your trading opportunities!
How the prices on Forex are created
Forex is the marketplace where the exchange rate of every currency is determined. Since it is a decentralized and over-the-counter (OTC) market, you might wonder who determines the prices exactly. Simply put, they are determined by the bid and the ask offers available at that time in the market. The bid and ask offers in question are the highest price recorded that someone is willing to buy (bid) and the lowest price recorded at which someone is willing to sell (offer). The price swings are also determined by the number of lots, or the volume, of the bid and ask offers present in the market at every specific price.
Comparison of Monetary Policy
Exchange rates are basically a comparison between the policies of two countries. It is essential to understand that exchange rates are not absolute rather they are relative. The following factors are considered amidst many others while comparing the monetary policies of any two countries.
1. Inflation: Exchange rate is basically a ratio between the expected number of units of one currency and the expected number of units of other currency in the market. Inflation increases the number of currency units. Therefore, if one currency is facing inflation at the rate of 6% whereas the other is only facing inflation at the rate of 2%, then the ratio between the two is bound to change. Hence, inflation rates are a major factor while determining exchange rates. However, the official inflation rates often do not tell the true picture. Therefore, participants of the market use their own estimates of inflation rate and come up with their own valuations for currency pairs.
2. Interest Rates: When investors hold a certain currency, they get a yield in terms of the interest rate that is applicable on that currency. Therefore if investors were to hold a currency with a 6% yield as opposed to a 3% yield, they would end up profiting more! Therefore, the interest rate yields are also priced into the Forex rates that are quoted in the market. The currency valuations are extremely subjective to interest rate changes. A small change in this rate brings about a big reaction from the market participants.
Therefore, Central Banks become extremely important participants in the Forex market since they control the monetary policy which is one of the biggest determinants of the value of the currency.
For learn more about forex trading and currency market daily updates join forum.forex
This is the forex forum for beginners and professional currency market traders. Discuss and share forex trading tactics, currency pairs, tips and forex market data. Analyze forex brokers, leverage and signals providers.
Thank You