Revaluation Rates

What Are Revaluation Rates?

The term "revaluation rates" refers to rates that are commonly used to determine the performance of currencies. Traders use these market rates to assess whether a currency realizes a profit or loss at any point in time.

Key Takeaways

  • The revaluation rate is considered the closing rate for the previous trading session. 
  • Revaluation rates show the change in a currency, investment, or portfolio's value at any given point in time.
  • Revaluation rates help traders assess the performance of currencies at specified time intervals.
  • Commonly associated with the currency market, revaluation rates can apply to other markets as well.

Understanding Revaluation Rates

The revaluation rate is primarily considered the closing rate for the previous trading session. Commonly used to reference currency rates in the currency market, revaluation rates are used in other markets.

Revaluation rates show the change in a currency, investment, or portfolio's value at any given point in time. To assess a trader's profit or loss, they use the closing rate from the day before, today's revaluation rate, as a baseline to compare today's closing rate. If the rate increases, the trader makes a profit. If it drops, there is a loss.

Many equity and bond portfolio managers use the daily WM/Reuters rates to revalue their portfolios. These rates are calculated using an average rate over a one-minute trading period, which is 30 seconds before and 30 seconds after 4:00 pm London time. This gives investors a precise value of the portfolio at the given time interval.

WM/Reuters was previously known as WM/Refinitiv, but changed its name in November 2020.

Equity portfolio managers can show fund gains or losses by comparing the values of their fund at the specified time, such as the closing value of the fund yesterday compared to its closing value today.

The revaluation rate is important for retail investors. If a position is revalued at a significant loss, the investor may be margin-called and they may be required to further fund their account if they wish to continue holding the position. Brokers regularly revalue positions at the close of the day and issue margin calls to those who violate their margin requirements.

Revaluation is a calculated move that happens when a country's official exchange rate is adjusted upward compared to a specific baseline.

Example of Revaluation Rates

To show how revaluation rates work in the foreign exchange market, assume a trader has a position in EUR/USD worth $100,000 and the last closing price for this currency pair was 1.1450. The close of the following day is 1.1425. The prior day's close (1.1450) becomes the revaluation rate used to assess the position's profit or loss and the rate reveals that if the trader sells that day, they make $250 (1.1450 - 1.1425 x $100,000), or 25 pips.

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  2. Refinitiv. "WM/Refinitiv FX benchmarks - Announcement."

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