Anyone who is about to enter the Forex market should be able to answer the question of what is parity. For those who do not trade in the FX market and perform amateurish foreign exchange trading, the meaning of the parity and the parities must be known.
What is Parity?
The numerical value of the two countries’ currencies is called parity. The proportional value measured between two different currency pairs represents the pair.
Take, for example, the EUR / USD currency pair, which is frequently used in our country and in the world. At the time of writing, the EUR / USD pair was at 1.1271. As with all currency pairs, there are always two variables. Thanks to these variables, traders who are engaged in forex or foreign exchange trading earn money through the change in parity value.
Parities can vary within seconds and even in milliseconds, and traders who are generally engaged in professional foreign exchange trading can follow these changes from platforms and take action and take positions based on instant changes.
Sample Parity Indicator
Sample Parity Indicator
In the image you can see the numerical value of the EUR / USD parity. Of course, this value varies according to currency pairs. The main objective of the investor following the parities in order to gain profit is as follows; take it at low, close at high. Thus the investor earns income.
There is another important issue that he needs to know. Again, if we take the EUR / USD parity example, the base currency of the first currency on the left, Euro, is expressed as the counter currency of the currency on the right.
Earning with Parity Tracking
Take, for example, an investor who thinks that the EUR / USD parity will rise and illustrate how this investor can make a profit by following the parity.
The investor thinks that the EUR / USD parity will rise and predicts. For this reason, he buys euros and lends the American dollar in return. If the investor is justified in this prediction, that is, with the increase of EUR / USD parity, the investor returns the Euro after a period of time because of the appreciation of the Euro he / she holds against the dollar. Such an investor will be able to enter more cash than the initial dollar, and the investor will gain.
As the parity can be understood in the examples, we have tried to express on a single currency pair but there are quite a lot of parities in the markets. We also want to explain these parities in detail in the next article. You can now answer the question What is parity?