How Interest Rates and Inflation Affect Exchange Rates

How to trade forex markets

When you trade forex with us, you’ll never take possession of any foreign currency. Instead, you’ll go long or short on a currency pair using CFDs.

There’s a reason we’re the world´s No.1 CFD provider.¹ We offer more than 80 of the world’s most popular forex markets, including leading major, minor, emerging market, Australasian, Scandinavian, and exotic pairs.

To start trading forex:

1. Research your preferred market
2. Create a live account or practise on a demo
3. Click ‘buy’ to go long or ‘sell’ to go short
4. Take steps to manage your risk
5. Open and monitor your trade

Trade forex on the spot

You can speculate on forex spot prices with us via CFD trading. Spreads are usually lower than those available when trading FX forwards.

Trade forex forwards

The opposite of spot trading, forex forwards mean you’re buying or selling forex at a specified price on a predetermined expiry date in the future. This means you’ll be predicting in advance what that currency pair will be by a certain date still to come and will make a profit if your prediction is correct and a loss if it isn’t.

Like speculating on the spot, forex forwards can be traded using CFDs. While spreads are generally slightly higher for FX forwards, you won’t pay overnight fees to keep your position open longer than 24 hours.

Trade forex options

Forex options (also known as currency options) are derivatives that give you the right – but not the obligation – to buy and sell a currency pair on a specific date for a specific amount (known as the strike price).

FX options are popular because you- aren’t obliged to complete the purchase. Also, they offer limited risk when the trader is buying the currency pair, as they can only lose the initial amount, they paid to open the position (called the premium).
However, it should be noted that the risk is potentially unlimited when selling currency options. This is because the buyer can exercise the call and hold the position for a long time, which prolongs your losses. Despite the potential risk, your account balance will never fall below zero.

How do interest rates and inflation affect forex summed up

• Interest rates are the predetermined amounts by which banks may borrow from the central bank or each other
• Interest rates can affect exchange rates and cause volatility in forex markets, which may be seen as an opportunity for traders
• Inflation, the rate at which prices in the economy are rising, also affects the forex market
• You can trade forex with us using CFDs. You’ll never own any currency outright, but will instead speculate on whether one’s value will rise or fall against another’s
• You can also trade FX on the spot, using forwards, or with options