Interest rates

Interest Rates

Interest Rates

When an economic release is published, you can always expect changes on the trading market. This is because these releases always impact interest rates. Essentially, if you’re trading currencies, this piece of information is the thing you should worry about the most. It is what drives the currency trade, so we consider knowing how things works in this case one of the most basic things a trader can learn. The following paragraphs are dedicated to helping you grasp this concept quickly and if you can do that a whole new perspective of trading will open up in front of you. Therefore, if you’re still a rookie in this business keep reading – it will help you a lot.

Interest rates | Central banks and economic releases

Now then, like we said, economic releases are what affects interest rates. You can learn from your economic calendar when a particular release will be published and then plan your strategy accordingly. Depending on what the release says, Central Banks will increase or decrease their interest rates and thus affect the currency’s strength, which is what you need to predict. The goal of these changes is to maintain stability of prices and to fight potential inflation. This is what EVERY central bank wants to do, meaning you always have some sort of idea of how they will react. Essentially, there are two main ways this institution can react, so now that you know why interest rates are changed we can see how exactly that is done. Stay with us and learn how to act on the market!

Interest rates | How to react?

It’s actually very simple, if the aforementioned economic releases point to a shrinking economy, the currency’s value will drop. The central bank will then react by cutting its interest rates in order to help the currency get back on its feet and to entice people to spend more. If this is the scenario you expect after reviewing releases concerning the currency that interests you, you should buy put options. However, if the releases point to a significant strengthening of an economy, interest rates will be increased and the currency’s value will go up. Therefore, investing in call options is the most reasonable thing to do in this case. So, keep track of the most important market news and you will be well prepared to make the right decision.

Interest rates | Conclusion

As you can see, interest rates play a huge role on the market, so knowing how to predict their movements is one of the most important skills you as a trader can have. They are closely related to central banks and important economic releases, which means you have to follow the market closely and extract as much information as possible. Remember that you have the dates when economic releases are published in your economic calendar, so you can plan ahead. Also, don’t forget that if you want to learn more about trading binary options, we have loads of other useful articles right here in this section of our website.

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Author: Ben Prescott
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