The foreign exchange market, commonly known as forex, is the largest and most liquid financial market in the world. It is where traders buy and sell currencies, with the aim of making a profit from the fluctuation in exchange rates. One of the key metrics used in forex trading is the percentage increase or decrease in the value of a currency pair. In this article, we will explain how to calculate forex percentage increase.
Before we dive into the calculation, it is essential to understand the basics of forex trading. In forex trading, currencies are traded in pairs, such as EUR/USD, USD/JPY, GBP/USD, and so on. The first currency in the pair is called the base currency, and the second currency is called the quote currency. The value of the base currency is always one, and the value of the quote currency is the exchange rate. For example, if the exchange rate of EUR/USD is 1.20, it means that one euro is worth 1.20 US dollars.
To calculate the percentage increase in a currency pair, we need to compare the current exchange rate with the previous exchange rate. Let’s say we want to calculate the percentage increase in the EUR/USD pair. If the previous exchange rate was 1.10, and the current exchange rate is 1.20, we can use the following formula:
Percentage increase = ((Current exchange rate – Previous exchange rate) / Previous exchange rate) x 100
Substituting the values, we get:
Percentage increase = ((1.20 – 1.10) / 1.10) x 100
Percentage increase = (0.1 / 1.10) x 100
Percentage increase = 9.09%
So the percentage increase in the EUR/USD pair is 9.09%.
It is essential to note that the percentage increase is always calculated from the base currency’s perspective. In the above example, the base currency is EUR, so the percentage increase is calculated from the EUR’s perspective.
Let’s take another example to understand this better. Suppose we want to calculate the percentage increase in the USD/JPY pair, and the previous exchange rate was 108, and the current exchange rate is 110.5.
Percentage increase = ((Current exchange rate – Previous exchange rate) / Previous exchange rate) x 100
Substituting the values, we get:
Percentage increase = ((110.5 – 108) / 108) x 100
Percentage increase = (2.5 / 108) x 100
Percentage increase = 2.31%
So the percentage increase in the USD/JPY pair is 2.31%. As the base currency in this pair is USD, the percentage increase is calculated from the USD’s perspective.
It is also important to note that the percentage increase can be positive or negative. A positive percentage increase means that the currency pair has appreciated, while a negative percentage increase means that the currency pair has depreciated.
In conclusion, calculating the percentage increase in forex trading is a crucial metric that traders use to make informed trading decisions. By comparing the current exchange rate with the previous exchange rate, traders can determine whether a currency pair has appreciated or depreciated. Using the formula ((Current exchange rate – Previous exchange rate) / Previous exchange rate) x 100, traders can calculate the percentage increase or decrease in a currency pair easily. However, it is essential to note that the percentage increase is always calculated from the base currency’s perspective. By keeping a close eye on the percentage increase, traders can make informed trading decisions and maximize their profits in the forex market.
