FOREX

Trading on the foreign exchange market is primarily run by what is known as an interbank market. This is where large corporations, banks, insurance companies and other financial institutions handle and take care of the risks inherent to fluctuations in currencies. How these major institutions trade certain currencies is what basically determines the Forex rate between them - the basis of all foreign exchange market trading.
One of the biggest perks to Forex trading is its high liquidity; large amounts of money can be moved and traded with a minimal price movement. This means that in Forex trading, what you see is pretty much what you get. There are not a lot of hidden fees or other mysterious sums to take into account when trading foreign currencies. This trait of the Forex market is one reason so many people find it easier to deal with than traditional stock exchange markets, and why so many people become so successful at it.

Another reason that Forex trading looks so attractive to investors is its low transaction cost. The cost for most Forex transactions - the spread, or the difference between its buying and selling cost - is built into their price. This increases the transparency of these transactions, adding to their simplicity and the ability for so many people to make real money by engaging in this trading market. Forex truly is much more accessible to larger numbers of people than many other financial markets, and its low transaction cost is a huge reason.
Investors in the Forex market are also quite fond of it due to its good leverage. Forex brokers allow investors to use leverage, or to trade more money than is actually in their account. In this way, Forex can really propel an investor into huge profits, and its also what makes Forex trading so entertaining as well. Using leverage, investors can move much larger sums of money than they otherwise could.

How Interest Rates Play a Role in the Currency Markets?
Interest rates play the foremost important role in moving the prices of currencies in the Forex market. As the institutions that set interest rates, central banks are therefore the most influential factors. Interest rates dictate flows of investment. Since the currencies are representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the Forex market to experience movement and volatility. In the realm of Forex trading, accurate speculation of central banks’ actions can enhance the trader's chances for a successful trade.

An increase in interest rates encourages traders to invest within that market and causes the demand for the currency to rise. As demand rises, the currency becomes scarcer and consequently more valuable. Investors are drawn to the currency, causing it to appreciate, because they will gain a higher yield on their investments, as in the Jane example. In order to purchase the country's assets (stocks or bonds), Jane will have to convert her domestic currency to the target country's currency also increasing demand. Conversely, a fall in interest rates discourage investors from purchasing assets in that particular economy, as the return on their investment is now smaller. The economy's currency will depreciate as a result of the weaker demand.