If you’ve ever traveled or done business overseas you’ve almost certainly done currency exchange before. Are you aware that you might have your very own foreign currency bank a/c and alter your hard earned money online at rates far better than your bank gives you ?
Here we explain to you how to target an exchange rate for your personal foreign exchange as being a professional Fx trader, so that you will receive the best possible rate, and we help you get through each of the basics you should know about currencies and dealer quotes.
When you initially begin to cope with foreign currencies several of the terminology might be confusing, not to mention the actual way it all works, so let’s try so it will be much clearer.
A currency is just the kind of money which is accepted as legal tender in any particular country. E.g. in the usa it’s america Dollar, throughout the uk it’s the Great British Pound, and also in the 16 countries of the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
All of these currencies are “floating” against the other person inside the international money markets and will rise and fall in value relative to one another, usually on account of events in international business.
In running a business terminology foreign exchange is referred to as Forex or FX in short. Within the foreign exchange markets each currency is known from a unique 3 letter abbreviation. Those that you will likely see generally will be the following;
USD United States Of America 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 one currency into another)
To begin with to learn how forex rates are quoted and the things they mean, let’s begin with considering a foreign exchange transaction you will likely have done in the course of your lifestyle.
Whenever you conduct an overseas exchange transaction (e.g. sending money in your folks back home) the dealer you conduct the transaction through will demonstrate the need for one currency against another expressed being a BUY rate in the 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 just how many digits appear following the decimal point. This simply enables huge transactions.
So, for example if you are a UK tourist considering your holiday spending money for a trip to the usa these rate only will mean for your needs that 1 GBP will buy you $1.65 (We’re looking purely in the foreign currency exchange rate here, and ignoring any fees the dealer may charge).
If you’re planning on doing a little serious shelling out for your trip to the US the above mentioned exchange rate means that one thousand GBP will buy you $1,654.30
Hopefully that’s fairly clear to understand. So, here you’ve been capable of seeing the first currency shown in the currency pair is always the base currency for the reason that pair, i.e. the pair is showing how much 1 unit of the base currency (GBP in this example) is definitely worth within the other currency (the USD in cases like this).
If on the return out of your journey to america, you discover that you didn’t manage to spend your US dollars and still have $1,000 left which you want to convert back into GBP, the transaction you now need to do is to find GBP by Selling the USD.
So, you now would ask your dealer for a USD/GBP buy exchange rate. i.e. for every 1 US dollar, the number of British Pounds would you like to deliver?
If you’re changing profit multiple currencies it’s easiest to think of all transactions with regards to Buy rates as shown above.
When you visit a foreign currency counter at a bank you will normally view a display showing various exchange rates from the domestic currency of the nation through which your bank branch is located. For instance, in The Big Apple a base currency table shows buy then sell rates for those other currencies from the USD.
When a base currency table showed the rates for that JPY being BUY 94.86 and then sell 95.01 what this means is;
For every 1 USD you hand over you may buy 94.86 JPYs, and if you wish to convert your JPYs back to USDs you simply make use of the Sell rate, so for each 95.01 JPYs that you just SELL to the dealer they will likely hand you back 1 USD.
Hopefully now you can discover why this table is claimed to offer the USD as its base currency, as the rates in the table all show your relationship of your foreign exchange (in this particular example the JPY Japanese Yen) to 1 USD.
It is possible to hopefully also see how this table would really just be useful for individuals that are simply ever buying and selling just the USD against other currencies.
For instance, it might be of just limited use to mention an Australian business woman who maybe wishes to sell Australian dollars (AUDs) as a way to purchase goods in the US with USDs, but who receives payment on her services to her Japanese clients in JPYs, and from her local clients in AUDs, and who must pay her local staff in AUDs, and who wishes to incorporate some EUROs in her pocket on her business trips to Europe !
In their particular life she doesn’t actually have one single base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends profit AUDs, USDs and EURs.