What is Forex Exchange Rate?
In the Forex Exchange market, two distinct currencies are involved in one currency pair. How the relationship is formed between one currency pair is known as Forex Exchange Rate. It plays a vital role in the forex business. Why? The reason is to understand the forex exchange rate for the prediction of the right time to buy or sell in the market. How much amount of one currency is needed to buy a unit of another currency is usually called forex exchange rate. If you have a good idea and understanding of the basics, you can better understand the forex exchange rate principles. In this article, we will discuss the forex exchange rate and how to calculate it for results.
Consider an example of the foreign exchange rate for your better understanding, how it works in case of Euro with United States dollar. Suppose on a certain condition the Euro is able to buy twenty US dollars, it shows the exchange rate for that time is 1:20 or one to twenty ratios. This ratio is called the forex exchange rate. You can use this ratio to indicate how many Euros a single US dollar can buy. Cross rate is another term used in the foreign exchange when the US dollar is not involved in the trade.
When you are going to open the trade then definitely you will buy and sell something. When you are going to sell your base currency then you will use the BID price and when you buy currency then definitely you will use the ASK price.
Base currency of pair / Quote currency = Bid price / Ask price
Point in percentage (pip) is a term used for the forex rates, defined as a very small measurement of change in a currency pair. If we assume dollar is included in the currency pair then the value of pip will be $0.0001.For example, we are buying EUR/USD at 1.25551 and close the trade at 1.25537 sale price.
1.25551 – 1.25537 = 0.00016 (Spread) or 1.6 (pips)
If the trader is buying EUR and selling USD then the change between USD value and EUR is known as the spread. Forex exchange rates are calculated on the basis of pips.
A lot of factors can change the spread and have an effect on it. These factors include marketplace conditions and investors’ instincts nearly the strength of certain currencies, which may differ greatly from every day. Licensed forex trader can only access the official quoted currency rates and the smaller investors receive their currency from commercial banks at a poor rate.
Online forex quality education is the best tool available on the internet for traders, recommended for every trader. They must go through for the proper prediction of open and close rates; it also helps in making decisions.
You should remember the forex exchange rate is not determined by any government or banks. Supply and demand for specific currency, buyers and the sellers define the exchange rate. After getting the knowledge of how the foreign exchange works you can choose the market or leave.