Exchange Rate 101 For Forex Trading
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Exchange Rate 101 For Forex Trading
By Ryan Williamson
Trading on the Foreign Exchange Market does not differ much from trading on other markets such as the Stock Market. The main idea, simply, is to invest the least amount of money and effort, and get the best, most valuable returns. And understanding exchange rates is crucial to timely information flow and better investment decisions.
Foreign exchange refers to the exchange of one monetary currency to another. In Forex trading, a person buys a one currency and exchanges it for another and sells this currency for a better price. The strength of monetary currencies relies heavily on a country’s unpredictable economic and political status, so make sure that you familiarize yourself with goings-on around the world.
Before finally making money in Forex, it is important to understand some basic facts. The most important thing to know about in foreign exchange trade is, of course, the current exchange rate. The exchange rate is the price for which one currency is available for another currency. Let’s take the US Dollar (USD) and the British Pound (GBP). ¤ 1 is equal to $ 2.01; therefore, the exchange rate of a USD to a GBP is $ 2.01 to ¤ 1.
Note that exchange rates frequently move up and down, sometimes several times in a day.
Since transactions in Forex are always in pairs, they are always represented in twos, e.g. CHF/USD = 0.98.
The currency before the slash is the base currency. The one after the slash is the counter or quote currency. The example states that you can buy one Swiss Franc for $ 0.98
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