Forex Trading and Remittances: Understanding the Relationships

Forex trading can often be a risky business – after all, no-one can say exactly what will happen to the value of a currency at any given time. Despite this, it has been proven that there is a certain relationship between remittance and currency value. Let’s take a look at this association of forex remittance.

Currency Pairs

What Causes Change in Foreign Exchange Trading Markets?

Currency prices are determined by supply and demand.

When I use New Zealand dollars (NZD) to import goods from the United States, I am supplying NZD (thus potentially lowering the value of the NZD) and demanding USD to buy the American goods with (thus increasing the value of the USD).

Many different things influence the supply and demand of a currency, such as interest rates, investment prospects within a country, and exports.

Having said this, however, if one New Zealander buys a TV from China, it will have little to no visible effect on the value of the dollar – as it is too small a transaction. Only when a large number of people buy Chinese TVs will it impact the value of the NZD/Yuan. It must be a trend among people, or particularly large transaction (such as an action taken by a central bank involving billions of dollars).

How Does Online Remittance Affect Currency Value?

When people from the UK send money to India, they are demanding Rupees and therefore increasing the value of the Rupee compared to the Pound. So as expatriate workers in the UK send money home to India collectively, in large amounts, they essentially cause the Rupee to go up.

Often particular spikes can be seen in remittance heavy currencies around the holidays, (November/December) usually because many workers are sending money home for festivities. This can be seen in currency graphs tracking the Pound/Rupee value. If you’re into forex trading, you could do well to remember this and plan accordingly in order to capitalise on this cycle.

Foreign Exchange Trading is Always a Two Sided Coin When it Comes to Forex Remittance

While foreign remittance influences the value of a currency, often the value of a currency can also influence the amount of foreign remittance being sent. If each Pound is worth 150 Rupees, workers will be more inclined to send extra money home than if each Pound was worth 50 Rupees – as they’re essentially getting more for their money.

While a poor exchange rate certainly doesn’t stop all remittance, as people still wish to send money home to family regardless, it does influences the amount of extra remittance sent.

OrbitRemit offers set fees for all foreign currency trading, rather than a percentage. This makes the service perfect for currency traders looking to move earnings around, as sending currency in large volumes costs no more than trading smaller volumes. Use our money transfer calculator on the right hand side of the screen to see exactly how much your exchange is worth.