If you’ve ever traveled or done business overseas you’ve more than likely done currency exchange in past times. Do you know that you could have your personal foreign exchange bank a/c and change your money online at rates a lot better than your bank will give you ?
Here we show you the way to target an exchange rate for the forex trading similar to a professional Trader, so that you will get the very best possible rate, therefore we help you get through each of the basics you should know about currencies and dealer quotes.
When you initially begin to manage foreign currencies some of the terminology might be confusing, not to mention how it all works, so let’s try to really make it much clearer.
A currency is simply the sort of money which can be accepted as legal tender in almost any particular country. E.g. in the states it’s the US Dollar, throughout the uk it’s the fantastic British Pound, as well as in the 16 countries in the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
Many of these currencies are “floating” against the other person from the international money markets and definately will rise and fall in value relative to one another, usually on account of events in international business.
In business terminology foreign currency is known as Forex or FX in short. Inside the currency exchange markets each currency is well known by a unique 3 letter abbreviation. Those that you are likely to see most often are definitely 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
Forex Trading rates (Changing money from a single currency into another)
To begin to know how forex trading rates are quoted and anything they mean, let’s start with taking a look at a currency exchange transaction you will probably have done at some point in your way of life.
Once you conduct a foreign exchange transaction (e.g. sending money for your folks back home) the dealer you conduct the transaction through can have the price of one currency against another expressed as a BUY rate in 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 the amount of digits appear following the decimal point. This simply provides for huge transactions.
So, for example should you be a UK tourist contemplating your holiday spending money for a vacation to america the above rate only will mean for you that 1 GBP will buy you $1.65 (We’re looking purely at the foreign exchange rate here, and ignoring any fees the dealer may charge).
If you’re thinking about doing a little serious shelling out for your journey to the US these exchange rate ensures that one thousand GBP will buy you $1,654.30
Hopefully that’s fairly clear and understandable. So, here you’ve been capable of seeing that the first currency shown in the currency pair is usually the base currency because pair, i.e. the pair is showing simply how much 1 unit of your base currency (GBP with this example) will be worth within the other currency (the USD in this instance).
If on your own return from the trip to the united states, you find that you didn’t are able to spend all of your US dollars and still have $1,000 left which you need to convert back to GBP, the transaction you might like to do is to Buy GBP by Selling the USD.
So, you now would ask your dealer to get a USD/GBP buy exchange rate. i.e. for every 1 US dollar, the number of British Pounds are you going to deliver?
If you’re changing money in multiple currencies it’s easiest to think about all transactions when it comes to Buy rates as shown above.
If you go to a forex counter at the bank you will normally notice a display showing various exchange rates against the domestic currency of the nation where your bank branch is positioned. As an example, in Ny basics currency table shows buy and sell rates for all those other currencies against the USD.
When a base currency table showed the rates for the JPY being BUY 94.86 and SELL 95.01 what this means is;
For every 1 USD you give you are going to buy 94.86 JPYs, and in order to convert your JPYs back in USDs you only utilize the Sell rate, so for each 95.01 JPYs which you Target the dealer they will likely hand you back 1 USD.
Hopefully you may now discover why this table is claimed to achieve the USD as the base currency, as the rates about the table all show the connection from the foreign exchange (in this example the JPY Japanese Yen) to 1 USD.
You may hopefully also observe how this table would actually basically be useful for people who are only ever selling and buying just the USD against other currencies.
For instance, it could be of just limited use to express an Australian business woman who maybe would like to sell Australian dollars (AUDs) so that you can purchase goods in america with USDs, but who receives payment for her services to her Japanese clients in JPYs, and from her local clients in AUDs, and who should pay her local staff in AUDs, and who wishes to incorporate some EUROs in their pocket on her business trips to Europe !
In their particular life she doesn’t have one base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends cash in AUDs, USDs and EURs.