Rather than talking about the Forex Edge Model right off the bat, let’s take a look at what Forex models there are available as the Forex Edge Model will include some of them. We figured we’d get some readers on the right track perhaps without buying the system as there’s a lot of information available online for free and it can be used to educate yourself without having to pay.
So here are some of the popular Forex trading models you might use.
Balance of Payments Model
This model maintains that a Forex rate should be at its equilibrium level. The rate at which a stable current account balance is produced is referred to as equilibrium level. Foreign exchange reserves are reduced when a nation experiences trade deficit. This in turn lowers the currency value. Balance of payments model mostly focuses on goods and services that can be traded hence giving little attention to the great role of global capital laws.
Purchasing Power Parity (PPP) Model
This approach approximates the quantity of adjustment required on the exchange rate between countries. The process enables the exchange to be equal to the purchasing power of each currency. Put differently, the exchange rate is adjusted so that similar goods that originate from two different countries have the same price once currency is exchanged. PPP exchange rates offer means to guard against misleading international comparisons that may arise after market exchange rates are used.
Interest Rate Parity (IRP) Model
This model equates the differential interest rate between two countries to the one between forward and spot exchange rates. IRP plays a fundamental role in Forex markets by connecting interest rates, foreign and spot exchange rates. The model analyses the relationship between corresponding future currency and at the spot rate. It further equates the forward premium size on a foreign currency to the differentials interest rate.
This model is used in describing the economy’s monetary side, which depicts an interaction between spend by people and the money supplied by the government. It is commonly used by policymakers in understanding how the decisions that make will affect the economy. Flexible monetary model assumes that there is an instant change in prices when the monetary policy varies.
Real Interest Rate Differential Model
This refers to the difference in interest rates between two paired currencies. Traders in the Forex market use this model when evaluating forward exchange rates. Interest rate differential is the fundamental element of the carry trade. It refers to the amount an investor expects to benefit using the trade. Profit is ensured if the exchange rate remains constant.
Asset Market Model
The approach proposes that the currency may appreciate in value when its demand is high. This may occur if capital flowing into other financial markets of a country such as bonds and equities increases. The model strongly emphasizes financial assets.
Currency Substitution Model
This model attempts to describe the shift in public and private portfolios in different nations to significantly influence the exchange rates. Currency substitution model also involves the use of foreign currency in making transactions instead of the domestic currency. High rate of currency substitution leads to monetary disturbances, which are caused by foreign currency change.
Forex Edge Model
In par with other Forex models, however it’s not a traditional model per se. Rather it uses a combination of the above and includes training so it’s more beginner friendly approach to Forex trading.