There is nothing new to say about Forex. Most people know about it. However, do you know the meaning of Forex? Yes, it is the abbreviation of Foreign Exchange (Forex). So, if you don’t have enough knowledge about the regular currency exchange rate, Forex market is not for you. But why it is so important? Read this informative article to get your answer.
Importance of knowing Currency Exchange Rate for Forex Trading
Currency exchange rate plays a vital role in Forex trading, and it is essential to know how it makes a difference. Global currency exchange rates affected by various causes. As an example, the fluctuation can highly effect on the return on your investment. Suppose, you’ve bought CAD against USD with an exchange rate of 1.30 CAD = 1 USD. If the rate decreases in 1.27 due to fluctuation, you will lose your money at the end of the day for selling the CAD at a lower rate. On the other hand, you can make a profit if the rate rises than your buying rate.
Currency exchange rates are very unpredictable and change rapidly even in a day. Remember that, a tiny change in the exchange rate can make a huge profit and significant loss on your investment. So, it is crucial to know about the current exchange rate if you want to make a profit in Forex market. Before start trading currency with another country, it is better to know about the fluidity of this currency and the economic, government policies, trade policies, and the political situation in the country to make a profit in Forex trading by staying beyond the risk.
What is Currency Exchange Rate?
Currency exchange rate means the comparison between the currency of two countries. As an example – if you compare 1 USD with your domestic currency then you can know the exchange rate between USD and your country.
There are different Types of Exchange Rate
Sell rate: Selling foreign currency for exchanging local currency is called sell rate. Suppose you are a freelancer and your client pay you in USD. While you exchange the dollars with your local currency, it is called as selling rate of the USD against your local currency.
Buy rate: Selling local currency for exchanging local currency is called buy rate. Suppose you need USD for buying gems for Clash of Clans. If you buy USD from anyone by exchanging your local currency, then it is called as buying rate of the dollar against your local currency.
Spot rate: It is also known as interbank rate. When banks and financial institutes charge each other for exchanging huge amounts of foreign currency, then it is called as Spot rate or interbank rate. It is likely to the difference between retail price and wholesale.
Spread: It is the difference between the buying and selling rate which is offered by any foreign money exchange provider like the US.
Cross rate: Exchanging currencies which are involved with the local currency is known as Cross rate.
Read this Important Message Before Starting
Forex is the world’s largest and virtual currency exchange market which is ten times bigger than New York Stock Exchange. However, You can make 1000% profit in Forex with proper knowledge and accurate decision, but if you make any mistake, you will lose 100% of your money. So, which is better? 1000% profit or 100% lose? So, if you are a newbie and want to be a profitable Forex trader, follow Alfatrade’s beginner course to make yourself as an expert trader. Moreover, you will get all forex tools, Forex news, and other trading information from Alfatrade’s MT4 platform.