FOREX —The foreign exchange market FOREX is a global decentralized or over-the-counter market for the trading of currencies, and is the largest market in the world followed by the credit market.
This market is a necessity because one unit of currency very rarely equals another one unit of another currency. The FOREX is able to facilitate the receipt or payment of units of currencies that are equal in value.
Bid-Ask Spread —The difference between the bid and ask price. Theoretically, buyers want the smallest possible spreads, while sellers want the highest spreads. Real world currency exchanges with brokers, banks, or businesses do not operate accordingly with precise market rates.
As financial middlemen, most will set exchange rates of their own between currency pairs at bid-ask spreads that return a percentage as profit for doing business. Some call this profit a fee or commission.
Currency Pair —A quote of the relative value of one currency unit against another currency unit. The inverse of the pair is not the same, but results in a different currency pair. Oftentimes, the first is called the base currency while the second is called the quote currency. Major Currencies —This refers to a short list of the most traded currencies, which generally stays the same year-to-year.
Most recently, this includes the U. The USD in a currency pair with any of the others is known as a major currency pair. About fifty years ago, most of the world's currencies ceased having any backing to support their value. At one time, many currencies were backed by silver, gold, or other means — the governments that issued paper currency did so while maintaining some form of support for it.
This is no longer the case for most currencies. The value of a U. The international foreign exchange forex market operates from Sunday night to Friday night non-stop. It trades volumes of hundreds of trillions of dollars' worth of in value of most of the world's currencies a significant exception is the Chinese RMB, however.
As traders exchange dollars for rubles or Swiss francs or whatever currency they choose, they determine the value of these currencies. As a result the exchange rate means just that: The rate obtained for exchanging one currency for another.
This is why the rate is expressed in terms of currency pairs, and is written like this:. These rates change all the time, sometimes from one second to another, because the forex traders work in a global electronic market that functions at high speed. When you go to buy a foreign currency, you will see two prices listed for it: The Buying Rate and the Selling Rate professionals call these the "bid" and "ask" price for the currency pair.
You are going to the bank or exchange broker to buy the foreign currency, so you must pay the Selling price the 'ask' price which is higher than the buying price. Like all merchants, brokers sell dear and buy cheap. When you get back from your destination, you will have some foreign currency left over to sell back to the bank or broker. You will sell it at the Buying Rate "bid" price which is always shown before the Selling Price, and which is always lower.
There are no rules obliging traders to trade for currencies in any specific way. It's up to them. Anyone can become a trader, just by creating an account with forex broker, and there are millions. But it is the really big banks and brokerages, with the most money online, that have the greatest influence on how exchange rates are determined, and these houses proceed according to some basic guidelines. A currency increases in value when the interest rate imposed by the central bank which issues that currency goes up.
This is a certainty, because a higher interest rate means that banks must pay more to obtain the currency, and so it become scarcer. Traders thus react by pushing its value higher. Traders also push up the value of a currency when the economy behind it — usually that of a single country, but in some cases more than one the euro — improves or grows. When the government makes the announcement, for example, that gross domestic product in the last quarter was up 3 percent, the value of the country's currency usually improves as well on the forex market.
Similarly, bad economic news will pressure the value of a country's currency lower. If you are travelling to a country, it's best to look on the Internet and to see how its economy and its currency are doing before you decide to exchange your own currency for that of where you're headed. Find out what to expect: If that country has a very strong currency, you will know that the buying power of your own may be weak at your destination. If the currency is weak, you might plan to make some extra purchases.
It is often better to buy the currency of your destination at a bank at home before you travel. You can often shop around for a good exchange rate, and then order the money in advance. Usually, arriving at your destination and going to an exchange booth will offer you a relatively poor rate of exchange.
The currency calculator permits you to determine how much you will receive in foreign currency in exchange for you own. Input the exchange rate and the amount you wish to exchange. If you do not know the rate, use the link to look up the exchange rate. Financial Fitness and Health Math Other. Show Most Popular Currency Only.More...