The definition of an exchange rate is how much it costs to exchange one currency for another. They are common for both the international investor and regular traveller, and can be found in a number of different places today. However, while they are easy to find, they are not always as easy to read, understand and make calculations from, especially if an individual isn’t familiar with reading them.
Throughout a normal week, exchange rates also tend to fluctuate due to economic factors such as financial trading and commercial activity. Although exchange rates are continuously fluctuating, however, the changes only amount to tiny fractions of a currency’s value.
To find out more about how exchange rates work, and how to read them, we’ve listed some handy advice below.
Currencies are being bought and sold 24 hours a day during the week. A trade happens when one currency is exchanged for another. For example, if a trader wanted to buy Euros (EUR), they must use another currency, such as US Dollars (USD). This, as a result, will create a currency pair. Currencies are quoted in pairs, as you will need to sell a currency in order to purchase another, or vice versa.
Bid and ask price
If you are going to start trading currencies, it’s vital that you understand which price you need to concentrate on. Two things you need to remember here are the bid and ask price: the bid is the buy price – the price a forex trader is willing to sell a currency pair for – while the ask is the sell price – the price a trader will buy a currency pair at. They’re being constantly updated and are changing all the time, and a trade or a transaction will only happen once the buyer and the seller agree on a price that isn’t higher than the bid, or lower than the ask.
Where to go to find exchange rates
Exchange rates can be located in a variety of different places, including commercial banks, airports, or currency exchange websites. Investors that trade in the foreign exchange market – known as ‘forex’ – can also head to a trading platform to find real-time information.
Learning the language of forex is a necessity if you want to become a successful trader. Whether you are travelling and needing to exchange currency, looking to get into contract for difference (CFD) trading or looking to invest, the tips above will help you to understand the concepts regarding foreign exchange.