Basics

How CPI, GDP and Interest Rates impact forex trading


There’s an old maxim that says, “money goes where it is treated best.” The Consumer Price Index (CPI), and the Gross Domestic Product (GDP) of a country are important indicators of the economic health of a country. This is the strength behind a given currency.

However, what really treats investor money well is interest rates.

If you think of interest rates as good treatment for money, then that maxim is a good way to explain the flow of forex currencies. When the interest rate that a central bank pays on a country’s currency increases, or is relatively higher than similar currencies, then investors want to own that currency so that they can collect the interest it will pay. Higher interest rates increase the demand for the currency.

You can think of interest payments on currencies similar to dividend payouts on shares of stock. Shareholders of record get dividend payouts when the issuer of the stock determines it is time to pay a dividend.

But unlike stocks where dividends are paid out according to a monthly or quarterly schedule, interest payments on currency are paid out daily.

 

Anyone who is holding an interest paying currency at the beginning of a trading day (that’s 17:00 EDT / 22:00 GMT / 09:00 JST), gets a payment added to their forex trading account. However, anyone who is short an interest paying currency must pay out of their account.

This is an important fact for forex traders to understand if they hold positions overnight–especially a leveraged position. Traders need to understand what kind of interest will be added or subtracted from their balance on a daily basis.

So consider the example of a trader who has a $6,000 account and holds a long position of one standard lot of the forex pair USD/JPY pair for just over 24 hours.

This trader receives the interest paid on the base currency (USD) and pays out the interest paid on the quote currency (JPY).

Even though their account balance is only $6,000 USD, they are paid interest on the entire standard lot size. It is as if they had a $100,000.00 balance.

If there were a 1% annual difference between these currencies, then a long position might pay out $1000 (annual rate) / 365 (days in a year) or $2.73 for one day.

If they held that position short, however, they will expect to have money taken from their account if the trade remains open. (Note this rate changes often, but Oanda has a nice calculator for this amount on any given pair here).

Most of the time, these charges are incidental to forex traders, however large commercial banks know and understand these interest rate charges and take advantage of them.

It is not hard to imagine how a large commercial bank could earn millions of dollars or euros overnight by simply holding positions billion-dollar positions, enough to cover their reserves.

That’s why it is important for traders to understand this impact and anticipate how trends might change if interest rates change.

For now Wiseinvest.ai users can expect that the algorithmic signals generated on their dashboard will take these costs into account.

That means they don’t have to worry about losing money overnight on leveraged positions unless the AI algorithm has calculated that it is worth the risk—and the potential reward.

The best way to trade forex

There are two ways to invest with our AI in forex:

1. Automated with AI-Trading. Check out the 3 steps to trade automated with our AI.

automated trading with ai bot

Don’t you have a broker account yet? Our AI is integrated to trade automated with the broker Oanda. Click here to open an account.

With Automated AI trading you do not need MT4 / MT5 and other trading platforms to invest in forex. All forex trades are automatically placed into your broker account and you can monitor the AI trading performance directly on our dashboard.

2. Manually with AI-Signals.

Wiseinvest also provides AI forex signals that perfectly fit into MT4, MT5 and any trading platform. To trade with our AI forex signals, you must simply copy the data you receive from each real-time signal into any forex brokerage account of your choice.

There are five unique variables for each AI signal, and each must be copied exactly, in order to match the performance of the signal as close as possible.

Each AI signal alert consists of the following five data points:

  • Symbol (forex pair)
  • Direction (long or short)
  • Position size (number of units or lots)
  • Take profit (price level to exit with maximum gain)
  • Stop loss (price level to exit with maximum loss)

You can trade forex with our free forex signals clicking here, or with our Premium subscription that provides you unlimited AI signals and automated AI trading in partner brokers. Whether you are a beginner or a Professional forex trader, our AI trading system can help you save time and improve your trading performance. Get started with free AI.

When investing through Wiseinvest automated AI trading or AI forex signals, you do not need to calculate or change the leverage in your forex broker account. Learn more about leverage in forex trading clicking here.

Disclaimer: Forex and Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money due to leverage. Forex trading is not suitable for everyone. You should consider whether you understand how forex and CFDs work and whether you can afford to take the high risk of losing your money.

The forex brokerages displayed shall disclaim the overall performance of traders in their platforms. Oanda warns that 76.8% of retail forex traders lose money trading CFDs. XTB warns that 80% of retail forex traders lose money trading CFDs. The forex broker Fxcm warns that 69.66% of retail forex traders lose money trading CFDs.

The performances aforementioned are not related to Wiseinvest AI forex trading and AI forex signals system. You can check the performance of our AI forex system on our dashboard.