If you have ever followed the market for a longer period of time, you know how important interest rates can be. They are the most important way of controlling the currency central banks have at their disposal, so knowing whether these rates will go up or down is of utmost importance to every serious trader. Even new traders can benefit a lot from this type of information because it’s really not that difficult to acquire it and it can help you increase your success rate significantly. We are going to show you everything you need to know about interest rates in trading right here in this article, so sit back and read on!
Interest rates in trading | What to follow?
In order to be able to predict interest rates in trading, you absolutely must follow major economic releases. You can learn their schedule from your Economic Calendar, since the releases are official reports from various government departments, agencies or even independent third parties that provide data about an economy. GDP is a good example of that. What you’re looking for are clues concerning the inflation of the currency you’re interested in. The more information you get from various reports, the clearer the picture will be and you will be able to predict central banks’ moves with greater certainty. Since they are the ones that determine interest rates, you understand why it’s important to stay one step ahead of these institutions. Don’t go away, we’ll explain how they work in the following paragraph.
Interest rates in trading | Up or down?
Now then, if the economic releases are not good and they point to the conclusion that the economy is not developing, the currency of that economy will lose its value. This is because the central bank will lower the interest rates in an effort to get things back on the right track. In this situation, you have a choice between Call and Put Options, but should focus on buying the latter because the currency’s value is very likely to drop. Likewise, if the data is showing that an economy is growing, interests rates and the currency’s value will go up, which is why you want to buy Call options. The key here, however, is to be able to correctly guess how long the trend is going to last and to set the right expiration time. If you can do that, profit is pretty much guaranteed.
Interest rates in trading | Conclusion
Interest rates in trading are one of the most basic things you have to keep an eye on and master if you want to profit from your trades. Various economic releases can help you a lot with that, so make sure you know when the information that concerns the currency you’re interested in is published. Once you can assess what the situation in an economy is, you can predict central bank’s moves with a much bigger certainty. However, there is much more to learn when it comes to trading, so take a look at our other educational articles and see what else you can learn.