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Forex Knowledge Trading Interest

forex-interest-rate.jpgCurrency transactions involve both buying and selling currencies, this means that interest payments due on money which trader aim to fund a sale can be offset by interest earned on the currency they buy.

 

Central banks set interest rates and it will raise or lower the cost of a currency. High interest rates will make it expensive to buy a currency and low interest rates will make a currency more affordable.

 

Trader who buys GBP/USD needs to convert US Dollars to buy UK Pounds and will both pay interest on the US Dollars he convert and earn interest on the UK Pounds he buys.

 

If the Bank of England interest rate is higher for the GBP than the interest rate set for the US by the Federal Reserve, the trader has the opportunity to earn more in interest on holding of GBP that they paying on their USD.

 

 

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