In finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example an exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 91 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 3.2 trillion USD worth of currency changes hands every day.
The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.
An exchange system quotation is given by stating the number of units of “quote currency” (price currency, payment currency) that can be exchanged for one unit of “base currency” (unit currency, transaction currency). For example, in a quotation that says the EUR/USD exchange rate is 1.4320 (1.4320 USD per EUR), the quote currency is USD and the base currency is EUR.
There is a market convention that determines which is the base currency and which is the term currency. In most parts of the world, the order is: EUR – GBP – AUD – NZD – USD – others. Thus if you are doing a conversion from EUR into AUD, EUR is the base currency, AUD is the term currency and the exchange rate tells you how many Australian dollars you would pay or receive for 1 euro. Cyprus and Malta which were quoted as the base to the USD and others were recently removed from this list when they joined the euro. In some areas of Europe and in the non-professional market in the UK, EUR and GBP are reversed so that GBP is quoted as the base currency to the euro. In order to determine which is the base currency where both currencies are not listed (i.e. both are “other”), market convention is to use the base currency which gives an exchange rate greater than 1.000. This avoids rounding issues and exchange rates being quoted to more than 4 decimal places. There are some exceptions to this rule e.g. the Japanese often quote their currency as the base to other currencies.
Quotes using a country’s home currency as the price currency (e.g., EUR 0.63 = USD 1.00 in the euro zone) are known as direct quotation or price quotation (from that country’s perspective) and are used by most countries.
Quotes using a country’s home currency as the unit currency (e.g., EUR 1.00 = USD 1.58 in the euro zone) are known as indirect quotation or quantity quotation and are used in British newspapers and are also common in Australia, New Zealand and the eurozone.
* direct quotation: 1 foreign currency unit = x home currency units
* indirect quotation: 1 home currency unit = x foreign currency units
Note that, using direct quotation, if the home currency is strengthening (i.e., appreciating, or becoming more valuable) then the exchange rate number decreases. Conversely if the foreign currency is strengthening, the exchange rate number increases and the home currency is depreciating.
Market convention from the early 1980s to 2006 was that most currency pairs were quoted to 4 decimal places for spot transactions and up to 6 decimal places for forward outrights or swaps. (The fourth decimal place is usually referred to as a “pip”). An exception to this was exchange rates with a value of less than 1.000 which were usually quoted to 5 or 6 decimal places. Although there is no fixed rule, exchange rates with a value greater than around 20 were usually quoted to 3 decimal places and currencies with a value greater than 80 were quoted to 2 decimal places. Currencies over 5000 were usually quoted with no decimal places (e.g. the former Turkish Lira). e.g. (GBPOMR : 0.765432 – EURUSD : 1.5877 – GBPBEF : 58.234 – EURJPY : 165.29). In other words, quotes are given with 5 digits. Where rates are below 1, quotes frequently include 5 decimal places.
In 2005 Barclays Capital broke with convention by offering spot exchange rates with 5 or 6 decimal places on their electronic dealing platform. The contraction of spreads (the difference between the bid and offer rates) arguably necessitated finer pricing and gave the banks the ability to try and win transaction on multibank trading platforms where all banks may otherwise have been quoting the same price. A number of other banks have now followed this.
Currency Trading Tutorial – Knowing Your Stuff
The importance of having a proper currency trading tutorial is the difference between making money and losing money. The US dollar fluctuates in value daily, and other trading currencies can be more profitable, some are much better to trade with. The two most common currency pairs to trade in are EUR/USD and GBP/USD.
Any trader can benefit from a currency trading tutorial no matter what the skill level. Most people think they have a basic understanding of the stock market and financial futures, when a lot of the time they could really use a proper trading tutorial. There is never such thing as enough training; it is an on going thing. Keeping yourself up to date with all the latest information is the most important thing in trading. Day trading can be an impressive thing to add to your portfolio, make sure you know the differences between day trading and other trading.
A currency trading tutorial will show you how it is not done in the same manor as the other trading markets. The way the foreign exchange market is setup, it can be fairer and have higher profit potentials than the stock market. It is a less stressful market to be trading in compared to the stock market. The stock market can be sometimes unpredictable and risky, where foreign exchange is a more stable market. If you are just getting seriously involved into foreign exchange, you picked the right market to trade in. The profit potentials are phenomenal.
The most talked about industry today, and currency trading tutorials are the most required thing for the starter trader. There are a lot of people out their claiming to offer the right trading, and all at huge prices, thousands and thousands of dollars. As someone new to this industry, it can be a pretty heavy thing to be forced into these thousand dollar investments for training with no guarantee. What if you could spend way less on something that actually works? There is something in store for you then.
I have done all the leg work for you in finding a currency trading tutorial that actually works, that gets results fast. You could add this little secret to your trading tactics and be on your way to much higher profit margins. Look into my currency trading tutorial, and discover the true potential of such a large market. Imagine being able to work for yourself in currency trades, and enjoy more free time for yourself and your family.
Are You a Forex Currency Trading Beginner
Being a forex currency trading beginner can be a stressful thing considering the forex market is very hard to master. Many traders who are profiting have been trading for many years and know how the market reacts to certain things, this is a skill that can only be learned with time.
This is why it is best to look at your currency trading venture as a long term ordeal. Looking at it as being a two year venture to learn how to trade the market, is much better than just trying to learn how to make as much money as possible as quick as possible. If you stick to the forex market for a certain amount of time then you will eventually learn how to read the market and how to enter and exit profitable trades.
Be sure that you start off with a demo account, because it is a waste to lose your money right away and then become discouraged. Take your demo account and try to double the amount of money that is in it. This may take months, or even a year, but by the time you have done this you will have learned a lot about how the market moves and reacts.
There are some traders who take an alternate route and use “forex robots”. These are software programs that automatically enter and exit trades in the forex market with the intention of turning a profit. Having one of these programs can make trading a lot easier, and can still allow you to profit in the forex market, even while you’re away from your computer.
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