How to profit from currency exchange

If you’ve ever travelled or done business overseas you’ve almost certainly done a currency exchange in the past.

Did you know that you can have your own foreign currency bank a/c and change your money online at rates much better than your bank will give you ?

Here we show you how to target an exchange rate for your foreign exchange just like a professional forex trader, so that you get the best possible rate.

And we take you through all the basics you need to know about currencies and dealer quotes.

All of these currencies are “floating” against each other in the international money markets and will rise and fall in value relative to eachother, usually as a result of events in international business.

In business terminology foreign exchange is called Forex or FX for short.

In the currency exchange markets each currency is known by unique 3 letter abbreviation.

Those which you are likely to see most often are the following;

• USD United States Dollar
• EUR Euro (See countries using the euro currency)
• GBP Great British Pound (See territories which accept GBP)
• JPY Japanese Yen
• CAD Canadian Dollar
• AUD Australian Dollar
• CHF Swiss Franc
• SGD Singapore Dollar
• NZD New Zealand Dollar
• ZAR South African Rand [Outbound link each to its central bank ?]

Exchange rate USD Euro

To begin to understand how foreign exchange rates are quoted and what they mean, let’s begin by looking at a currency exchange transaction you will probably have done at some point in your life.

When you conduct a foreign exchange transaction (e.g. sending money to your folks back home) the dealer you conduct the transaction through will show the value of one currency against another expressed as a BUY rate in a currency pair.

E.g. GBP/USD 1.6543. This exchange rate means that £1 GBP (British pound) will buy $1.6543

Don’t be confused by how many digits appear after the decimal point. This simply allows for very large transactions.

So, for example if you are a UK tourist thinking about your holiday spending money for a trip to the US the above rate will simply mean to you that £1 will buy you $1.65 (We’re looking purely at the currency exchange rate here, and ignoring any fees the dealer may charge).

If you’re planning on doing some serious spending on your trip to the US the above exchange rate means that £1,000 will buy you $1,654.30

Hopefully, that’s fairly easy to understand. So, here you’ve been able to see that the first currency shown in a currency pair is always the base currency in that pair,

i.e. the pair is showing how much 1 unit of the base currency (GBP in this example) is worth in the other currency (the USD in this case).

Through out this website you will see various currency pairs listed using the above internationally accepted format.

If on your return from your trip to the US, you find that you didn’t manage to spend all your US dollars and still have $1,000 left which want to convert back into GBP £, the transaction you now want to do is to Buy GBP by Selling the USD.

So, now you would ask your dealer for a USD/GBP buy exchange rate. i.e. for every 1 US dollar, how many British Pounds will you give me ?

If you’re changing money in multiple currencies it’s easiest to think of all transactions in terms of Buy rates as shown above.

A similar table for euro rates can be produced by making the euro the base currency.

However, note how in the above table the dealer is showing a USD retail customer table.

This table has the USD as its BASE currency, and shows customers who earn USDs or live in the US how much it will cost them to buy or sell other currencies.

So for example if this table showed the rates for the JPY to be BUY 94.86 and SELL 95.01 this means;

• For every 1 USD you hand over you will buy 94.86 JPYs

and if you want to convert your JPYs back into USDs you simply use the Sell rate, so

• For every 95.01 JPYs that you SELL to the dealer they will hand you back 1 USD

Hopefully, you can now see why this table is said to have the USD as its base currency, because the rates on the table all show the relationship of the foreign currency (in this example the JPY Japanese Yen) to 1 USD.

You can hopefully also see how this table would really only be useful for people who are only ever buying and selling the USD against other currencies.

For example, it would be of only limited use to say an Australian business woman who maybe wants to sell Australian dollars (AUDs) in order to purchase goods in the US with USDs.

However she receives payment for her services to her Japanese clients in JPYs, from her local clients in AUDs, and needs to pay her local staff in AUDs, and wants to have some EUROs in her pocket for her business trips to Europe.

In her particular life she doesn’t really have one single base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends money in AUDs, USDs and EURs.

So, it will be far more relevant for her to see currency exchange rates expressed as buy rates for AUD/USD or JPY/AUD or AUD/EUR.

And Understanding forex trading.