How To Find Out The Fair Value Of A Currency?

The fair price of a currency is a rough idea of what that currency is actually worth, for example as everyone is familiar with property prices, everyone knows roughly what a house in your area is worth. You may not have an exact figure but a general indication of price, if you go to the nice part of town houses are roughly around x amount and if you go to the worse end of town house prices cost y amount, so everyone has a fair understanding of property prices as it is engrained into us from a very young age.

Currencies are the same as they also have a fair value and they should have a price which you know roughly is what it is worth, now very often their price will shift away from its fair value whether that is above or below. This grants an opportunity to get into the market and trade those currencies back to their fair value price, so how do we as traders gauge what a currencies fair value is?

The process is quite simple, if you need to know the fair value of a currency what you need to do is tune into the market via the news and analysis. So for example GBPUSD you need to follow the news and what is happening relating to that pair, so XYZ happened today and the GBPUSD went up for that reason once you piece together all the reasons that are driving that price you can say to yourself, well ok when XYZ was happening the price got to such a level and then the price has dropped but nothing has changed in terms of further news releases and the dip in cost has been accredited to profit taking etc by that I mean nothing tangible in terms of data points or further news relating to that pair.

We then know that as there hasn’t been any change in the variables that the fair value of the currency is actually where it reached prior to the dip in price, the fair value is thus based on the news moving the markets, so we can ascertain the fair value by reading keeping up with the news, find an economic news site that you feel comfortable with and observe how news events affect a currency by going to your charts and just watch how price levels shift with the release of the data.

Once you’ve ascertained a rough fair price for the currency you can get an idea of where you want to be getting in to this pair to trade and also roughly where you want to be taking your profits based around that fair price.

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