One of the most popular trading places in the world is Forex market. It is made for the currency exchange that is the main form of trade there. Forex market is opened for all comers, each one can start trading there having only $300 deposit. The most of people are attracted to this market due to its high liquidity and huge leverage that give ability to make big profits having small funds. To make it real, first you need to learn Forex basics and factors that form the situation on the market. One of such basics is interest rates.
The main index on the Forex market is currently price. Interest rate is another index that directly influences on the currency price. It is not hard to understand how interest rates influence the forming of currency prices. Among price forming factors there are also politic and economic events in the world, but the interest rate is the weightiest factor. When the interest rate to a specific currency grows, investors are capitalizing the returns from it and there will be a new money flow into the specific country, where the interest Forex rate is high. The currency becomes stronger when the countrys interest rate becomes higher. This is because such currency seems more profitable for Forex brokers and individual investors.
From time to time the government of specific country may interfere into the Forex market by flooding it with their domestic currency. This will lead to the currency price lowering. If the government purchase a lot of its domestic currency, taking it away from the Forex market, this means it is intended to rise its price and increase the interest rate of it. This approach is called Central Bank Intervention. Governments sometimes use it to help their domestic economy. This has positive effect on the Forex, however such cases happen rarely and do not break the market conditions, it even rises the Forex attractiveness, as big players enter the game.
Any interfering into the natural market functioning doesnt have long effect. Interest rate changes may influence on the currency price, but this influence is noticeable only in a short-term outlook. The Forex is too large to be controlled only by restricting the interest rates. There are a lot of other factors that form Forex online marketplace. But in a short-term trading tracking the changes in interest rates is one of the methods to predict low-risk, profitable investments.