A forex currency rate, also known as the exchange rate of a commodity, is simply how much it costs to exchange money from one currency to another. Every forex trader needs to understand the theory of exchange rates because it will help with making trade decisions. Currencies are traded every second in the forex market, and the currency rates keep fluctuating as a result (amidst many other factors). This is why it is important to understand how these forex currency rates work; price action is everything in the forex market.
READING A FOREX CURRENCY RATE
To read a forex currency rate, there must be a pair of currencies in play. If John is to buy US dollar with another currency, then that currency combined with the USD to form a currency pair. Assuming that pair in question is USD CAD; John should be concerned about the rate of exchanging USD for CAD, or the other way round. If a different currency comes into play, say JPY, then the currency rate of exchange will change. This is to say that the rate for USD CAD is different from that of USD JPY. The same goes for every other currency pair that can be exchanged for USD, or any other currency in the world.
The forex currency exchange rates between different currencies are what determine when a trader may wish to either buy or sell a commodity. Here is a simple illustration of currency rate between a currency pair.
If the exchange rate between the USD and CAD is USD CAD 1.28, it means that it takes 1.28 CAD to acquire one USD. The first currency listed in the pair is assumed to be valued at one. The value listed after the pair is for the CAD. With this information, it is quite simple to calculate the amount of forex currency you want in exchange for the one you have. If John has 10 USD that he wishes to convert to CAD, all he will have to do is use the USD CAD rate to calculate how much he expects to get. So, for 10USD, the value in CAD will be 12.8CAD.
The exchange of a currency pair is in relative to another, and differs from one to the other. Also not that the manner in which the currency pair is arranged also matters. Once the trader have the right arrangement and the rate of the currency pair of interest, then it is possible to calculate whatever amount.
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