If you’ve ever traveled or done business overseas you’ve almost certainly done a foreign exchange during the past. Were you aware that you might have your personal foreign exchange bank a/c and change your money online at rates much better than your bank provides you with ?
Here we explain to you the way to target an exchange rate for your forex trading being a professional Fx trader, so that you get the very best possible rate, and that we need through all the basics you should know about currencies and dealer quotes.
When you first begin to handle foreign currencies a few of the terminology might be confusing, in addition to the way it all works, so let’s try to really make it much clearer.
A currency is just the type of money which happens to be accepted as legal tender in a particular country. E.g. in the usa it’s america Dollar, within the uk it’s the truly amazing British Pound, and in the 16 countries in the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
All of these currencies are «floating» against the other person within the international money markets and definitely will rise and fall in value relative to each other, usually as a result of events in international business.
In business terminology forex trading is termed Forex or FX for brief. In the foreign currency exchange markets each currency is well known by a unique 3 letter abbreviation. Those which you will probably see in most cases would be the following;
USD U . S . Dollar
GBP Great British Pound
JPY Japanese Yen
CAD Canadian Dollar
AUD Australian Dollar
CHF Swiss Franc
SGD Singapore Dollar
NZD New Zealand Dollar
ZAR South African Rand
Currency Trading rates (Changing money within one currency into another)
To start out to learn how foreign currency rates are quoted and the things they mean, let’s start with considering a forex transaction you will likely have done during your lifetime.
When you conduct a foreign exchange transaction (e.g. sending money for your folks back home) the dealer you conduct the transaction through shows the price of one currency against another expressed to be a BUY rate inside a currency pair.
E.g. GBP/USD 1.6543. This exchange rate means that 1 GBP (British pound) will buy $1.6543
Don’t be confused by what number of digits appear right after the decimal point. This simply makes it possible for large transactions.
So, for example when you are a UK tourist contemplating your holiday spending money for a visit to the US the above mentioned rate only will mean to you personally that 1 GBP will buy you $1.65 (We’re looking purely at the foreign currency exchange rate here, and ignoring any fees the dealer may charge).
If you’re thinking about doing a little serious shelling out for your vacation to the US the aforementioned exchange rate signifies that 1,000 GBP will buy you $1,654.30
Hopefully that’s fairly easy to understand. So, here you’ve been able to see that the first currency shown within a currency pair is always the base currency for the reason that pair, i.e. the pair is showing how much 1 unit of your base currency (GBP in this example) will be worth in the other currency (the USD in such cases).
If with your return from the vacation to the united states, you find that you didn’t have the ability to spend all your US dollars and still have $1,000 left which you would like to convert back to GBP, the transaction at this point you would like to do is to purchase GBP by Selling the USD.