If you’ve ever traveled or done business overseas you’ve more than likely done currency transfers in the past. Are you aware that you may have your personal foreign currency bank a/c and alter your hard earned money online at rates much better than your bank will provide you with ?
Here we explain to you the way to target an exchange rate to your forex as being a professional Fx trader, so that you get the best possible rate, so we get you through each of the basics you should know about currencies and dealer quotes.
When you initially begin to cope with foreign currencies a number of the terminology could be confusing, not forgetting how it all works, so let’s try making it much clearer.
A currency is just the type of money which happens to be accepted as legal tender in every particular country. E.g. in the usa it’s the usa Dollar, in britain it’s the truly amazing British Pound, as well as in the 16 countries of the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
Every one of these currencies are “floating” against the other from the international money markets and may rise and fall in value relative to each other, usually as a result of events in international business.
In running a business terminology foreign exchange is known as Forex or FX in short. Within the forex markets each currency is famous by way of a unique 3 letter abbreviation. Those which you may very well see usually are definitely the following;
USD United States 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 rates (Changing money from a single currency into another)
To begin with to understand how foreign exchange rates are quoted and what they mean, let’s begin with looking at a currency exchange transaction you will probably have done at some stage in your life.
If you conduct a foreign exchange transaction (e.g. sending money to the folks back home) the dealer you conduct the transaction through will demonstrate the price of one currency against another expressed being a BUY rate within a currency pair.
E.g. GBP/USD 1.6543. This exchange rate implies 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 allows for large transactions.
So, by way of example if you are a UK tourist thinking of your holiday spending money for a visit to the united states the above rate only will mean to you that 1 GBP will buy you $1.65 (We’re looking purely with the 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 vacation to the US the above exchange rate implies that 1,000 GBP will buy you $1,654.30
Hopefully that’s fairly easy to understand. So, here you’ve been capable of seeing that the first currency shown inside a currency pair is always the base currency because pair, i.e. the pair is showing exactly how much 1 unit of your base currency (GBP within this example) is worth within the other currency (the USD in cases like this).
If on the return from your journey to the united states, you discover that you didn’t manage to spend your US dollars and have $1,000 left which you would like to convert back in GBP, the transaction at this point you want to do is to find GBP by Selling the USD.
So, so now you would ask your dealer for any USD/GBP buy exchange rate. i.e. for every single 1 US dollar, the number of British Pounds do you want to give me?
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.
Whenever you go to a forex trading counter at a bank you may normally see a display showing various exchange rates from the domestic currency of the country through which your bank branch is found. By way of example, in New York basics currency table can have buy then sell rates for many other currencies versus the USD.
If your base currency table showed the rates for the JPY to become BUY 94.86 and SELL 95.01 this means;
For every 1 USD you hand over you will buy 94.86 JPYs, and if you wish to convert your JPYs back in USDs you simply make use of the Sell rate, so for each and every 95.01 JPYs which you Target the dealer they may hand you back 1 USD.
Hopefully now you can realize why this table has been said to achieve the USD as its base currency, since the rates around the table all show the connection from the foreign exchange (with this example the JPY Japanese Yen) to 1 USD.
You can hopefully also find out how this table would really only be useful for people who are merely ever buying and selling only the USD against other currencies.
As an example, it might be of just limited use to express an Australian business woman who maybe wishes to sell Australian dollars (AUDs) as a way to 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 must pay her local staff in AUDs, and who wants to have some EUROs in her pocket on her business trips to Europe !
In the particular life she doesn’t genuinely have one single base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends cash in AUDs, USDs and EURs.