Innovative

Interest Rates Forex Indicator

Logikfx's 'interest rates forex indicator' helps traders identify the 'hot-money flow' between two currencies. By calculating the Net Interest Rate Differential (NIRD), you'll

get an instant insight into long and short opportunities. 

The rich will always buy the currency that pays the most!

- Marcus, Director at Logikfx

Current NIRD

(%)

GBP/USD

-0.15

Current NIRD

(%)

USD/JPY

0.35

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Why Interest Rates Matter

One of the most influential factors in future forex prices are the changes in interest paid (interest rate) on each currency. These changes are due to an ever changing supply and demand for currencies in the interbank market, driven by many economic variables from the previous month. Thus, causing massive market movements, suggesting interest rates are imperative for Forex traders to consider if they wish to maximise the money they make.

It's common in the industry to think of the interest rates as the 'price of money', the same way goods and services are priced in money, money is priced in interest - Marcus, CEO

For example, if the U.S. dollar has a 2% interest rate, and the British Pound has a 1% interest rate, forex traders would expect the currency pair GBPUSD to fall. The idea is that the High Net Worth (HNW) traders will sell their British pounds in order to earn a higher return by holding U.S. Dollars instead. Therefore, leading to the conclusion that the value of a currency depends on how much interest it earns, sitting in the bank.

How The Indicator Works

The Interest Rate Forex Indicator uses the Net Interest Rate Differential (NIRD) formula, and is automatically updated when new data is released by each central bank.

What is the Net Interest Rate Differential (NIRD)?

Net Interest Rate Differential (NIRD) in the forex markets is the difference between interest rates of two currencies. 

For example, if the U.S. dollar has a 2% rate while the Japanese Yen has a 1% rate, the NIRD would be the difference between the dollars rate and the yen's rate. So, the NIRD in this example would be 2% minus 1% equalling a 1% differential.

How The Indicator Predicts Forex Price

  • If the differential is positive, this is a long bias on the currency pair

  • If the differential is negative, this is a short bias on the currency pair

Therefore, continuing the above example, the positive differential of 1% would generally signal to forex traders that the currency pair USDJPY will long.

What The Indicator Looks Like

Best ways to use the indicator

The Interest Rate Forex Indicator is best used as tool within a larger strategy, like the 'Global Macro Approach'. Here are a few tips: 

  • Always calculate macro currency strength first: It's important to understand the influence of all other economic indicators for each individual currency, before comparing interest rates. This will help increase the confidence level of each forex trade, and the macro currency strength meter does that for you.

  • Check market positioning before entering a trade: Once you have an idea to long or short using the Interest Rate indicator, and currency strength, you need to determine if there's enough fuel in the market. Generally traders use the Commitments of Traders (COT) Report to do this.

  • Manage the risk: To maximise the profit made from using the interest rates, always set your targets and stop-losses based on the the average volatility of the currency pair.

Finally, as with any tool, meter or indicator, it has its limitations. And should be used as part of a wider, more complete system, like the one taught in the logikfx academy.

Start Using The Interest Rate

Forex Indicator For Free Today

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Macro Currency Strength Meter

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GDP Forex Indicator

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Interest Rates Forex Indicator

Updated on change

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Updated weekly

 
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Recognition

Featured as a 'Top Trading Platform Company in the UK (2021)' - by Daily Finance

 

Nominated as ‘Best Forex Education & Training UK 2021’ - by Global Banking and Finance Review

 

Nominated as ‘Best New Forex Education & Training UK 2020’ - by Global Banking and Finance Review

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Headquarters

Logikfx

The Colmore Building, 

20 Colmore Circus Queensway, 

Birmingham 

B4 6AT 

United Kingdom

Business Hours

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Sat: 6am to 11am

Sun: Closed

Disclaimer

Trading in securities can lead to significant losses, that may exceed your initial investment. You should seek advice from a licensed professional to determine if trading is for you. Logik Fx Limited is not an investment advisor. Further, owners, employees, agents or representatives of Logik Fx Limited are not acting as investment advisors. All persons and entities (including their representatives, agents, and affiliates) contributing to the content on this website are not providing investment or legal advice. Nor are they making recommendations with respect to the advisability of investing in, purchasing or selling securities, nor are they rendering any advice on the basis of the specific investment situation of any particular person or entity.

 

All information on this website is strictly informational and is not to be construed as advocating, promoting or advertising registered or unregistered investments of any kind whatsoever. All of the information on this website is for educational purposes only and is not to be construed as investment or trading advice. ​For the full disclaimer click here.