- About us
- CFD trading
- Markets to trade
- Trading platforms
- Learn to trade
CFDs are complex instruments. 75% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. CFDs are complex instruments. 75% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
Currency appreciation is when one currency in a forex pair increases in value relative to the other currency in the pair. Forex traders often talk about one currency ‘strengthening’ in relation to another, meaning that it would cost more to buy, or that it can buy more of another currency when sold.
Discover how to take a position on the world’s largest financial market.
Forex traders buy or ‘go long' on a currency pair in the hope that the base currency will appreciate relative to the quote currency. To understand currency appreciation, we should briefly look at the intricacies of a currency pair.
A currency pair is made up of a base currency and a quote currency. The base is always worth one, and the quote represents how many of that currency you would need to sell in order to buy one of the base currency.
For example, if the pair was EUR/USD, the euro is the base currency and the US dollar is the quote. If the quote price was 1.25, it means that you would have to spend 1.25 dollars in order to buy one euro.
A forex trader might take a long position on EUR/USD if it started to cost more dollars to buy one euro. In the above example, if the quote price increased from 1.25 to 1.50, it would be said that the euro has appreciated in value next to the dollar, since it now costs more dollars to buy the same number of euros as before.
There are several factors which can cause a currency to appreciate. Two of the most important are:
Where low inflation rates persist, central banks tend to cut interest rates to try and stimulate spending in the economy. A lower interest rates means holding the currency becomes less attractive relative to currencies that pay a higher interest rate. This typically results in less demand for the currency and often causes the currency to depreciate, however it is not always so finely out.
Currencies can also appreciate depending on how ‘safe’ investors view the country’s central bank and government.
For example, Switzerland has long been considered a safe haven for investors, which means the currency appreciates in times of economic crisis. This is because of its historic neutrality in wars and tendency towards political stability and relatively free monetary policy; as well as its openness to foreign investment. These policies have made the Swiss franc one of the most heavily-traded currencies in the world.
Investor sentiment heavily influences the supply and demand for a currency on the open market, which are perhaps the largest drivers behind whether a currency appreciates or depreciates. The currencies which are most susceptible to influence by supply and demand are those that operate on a floating exchange rate.
Discover how to trade with IG Academy, using our series of interactive courses, webinars and seminars.
Questions about opening an account: +44 (20) 7633 5430 or email: firstname.lastname@example.org
Existing client questions:
+44 (20) 7633 5431 or email: email@example.com
We’re here 24 hours a day, except from 6am to 4pm on Saturday (UTC+8).