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The Value of Foreign Exchange Currency Conversion

Converting the value of one currency into another through a forex calculator is the fundamental basis for international trade and commerce. This process is carried out countless times on a daily basis for every imaginable reason. The classic example is travellers who need to know how much foreign currency they’ll need for their trip and the ability to check the exchange rates for purchasing various currencies. It also represents one of the most popular web pages as our current era because the information is easily available instantaneously and institutions have a vested interest in your securing the information from them because it is both a service that can be rendered for a percentage fee and it can serve as an entree for rendering other services. Particularly for currencies which are not widely disbursed (relatively illiquid), foreign exchange currency conversion. And while the vast majority of this price discovery occurs in trading markets, increasingly it is cfd trading that gives individual traders the most liquidity.

Often, while direct cross rates between many major currencies exist, not all transactions qualify for cross rates and so the rates shown are indicative only and do not guarantee execution at such terms.

Additional Features

Other information likely to be offered on internet sites supporting foreign exchange currency conversion include:

Precious metal data — retail purchase opportunities, mining data, refining services, prices, both spot and derivative, present and historical, denominated in US dollar, British Pound and Euro
Charts — Depending on the associated activity, historical and live charts are likely to be offered. Increasingly, with interactive features and associated tools to fully utilize available forex signals. Often, these charts are available for you to embed on your websites. The functionality granted requires little from the chart originator while the benefit to him reference to and traffic through his site makes this worthwhile for all parties involved.
News — Foreign exchange currency rates respond to news and forex signals. News can be both breaking developments and analysis of behind-the-scenes events. Often times, a mash-up of different feeds gives a more comprehensive picture. Finally, news can include educational offerings.
Commentary — Both regular and occasional opinion pieces are often offered in hopes of giving forex signals.
Mobile Apps — With continual access to the vast computing and communication power of the internet, mobile apps are the new growth field for foreign exchange currency conversion. With information as diverse as market alerts, price discovery and calculation available anywhere all the time, this field offers interest to both provider and consumer. The vast majority of development resources in this field are for forex calculators on the major Android and iOS platforms. The world of cfd trading is especially appropriate for the mobile platform as the confluence of technologies is appropriate for the cloud-based platforms.

Forex Regulation Considerations

This process also has a regulatory aspect. European purchasers must comply with the provision contained in the Payment Services Directive (PSD) that requires transparency of exchange rate information. Title III of the PSD that apply to payment services made in Euro or any of the official EEA currencies.

All about forex exchange rates

The forex exchange rate is the ratio of currencies’ worth, one to another. Usually, it is expressed as how much of one currency it takes to buy one unit of the other. In addition to staying on top of forex news, a deeper understanding of the mechanism is required for a successful approach to forex trading.

What is forex trading

The largest counter-party in forex trades is the US Dollar (USD), accounting for 87% of all trades. The Euro (EUR) was the second most traded currency, but its share fell to 33% in April 2013 from 39% in April 2010, while the EUR/USD pair accounted for some 10 billion daily trades in August 2015. In addition to the Euro, other popular counter-parties to USD trade include: GBP (the British pound sterling), JPY (the Japanese yen), and CHF (the Swiss franc). Occasionally, AUD (the Australian dollar) is also among this group of currencies called “the Majors” (because they represent the majority of the currencies traded in Forex).

Forex exchange rates terminology

Terminology is important in understanding both the framework and available actions. The numerator (the counter or quote currency) is called the “base currency” and the denominator the “quote currency”. The (denominator) base currency is thus given a value of one. So the exchange rate informs the purchaser how much of the quote or counter currency must be offered to get 1 unity of the base currency. Similarly, the exchange rate informs the seller of the value of what he is to get in the counter or quote currency when offering 1 unit of the base currency.

An additional term in general use is “cross rates” which usually refers to the currency exchange rate between two currencies, neither of which is the official currencies of the nation which the forex exchange rates quotes are given in. Often times, forex signlas are first detected through cross rates. This expression is also occasionally used to mean currency quotes which don’t include USD, irrespective of which country the quote is supplied in and are an integral part of the definition of what is forex trading.

A further concept of significance is the unit of measurement in which the trade is denominated, basis points (pips). These measurements denoted fx rates measured in ratios of up to 4 decimal places, both for positive and negative trends. For example, if you wanted to trade USD with JPY at a value of 122.5430, but if USD rate goes up to 122.5440, the difference would be a ten-pip gain.

Furthermore, traders must also understand the multi-tier nature of the foreign exchange system. Inherent in any market trader transaction is an agency premium, most commonly reflected in a bid-ask spread. Only licensed Forex brokers can access official quoted rates. Retail customers must pay a premium to several levels which usually include brokers and commercial banks.

Purchasing Power Parity

This discussion has focused on actual rates and not delved into the concept of real rates, as defined by purchasing power parity (PPP). PPP is both an abstract and actual formulation most famously calculated in the “Big Mac” index whereby currencies are deemed over – or under-valued based on the price of a McDonalds Big Mac. Alas, tariffs, and other institutional barriers demonstrate that prices for the same good can remain significantly different for extended periods of time, stifling what should be forex signals, despite the abundance of forex news innundating traders and regulators.

Understand the Forex Rate with Tools, Charts and Converters

The factors determining forex rates are many, across all defining characteristics. The causal reasons are so varied that individual traders are advised to focus their efforts on a limited information set and expand their range through a gradual process. In this manner, the “known-unknowns” can be identified and dealt with scientifically.

All manner of forex factors warrant consideration and among the leading determinants are the movement and valuation of other currencies. Thus, a forex converter is a key tools in the arsenal of ongoing evaluation. In order for traders to be able to instantaneously evaluate a currency’s worth, he must be able to understand it in relation to other outstanding benchmarks of national worth — through a forex converter.

For market participants who are not principals (that is, who are not money-center banks or major security dealers), securing the services of a forex broker is a critical element in a successful trading strategy. In today’s world of abstraction and hyper-processing power, a contemporary trading platform would include a seamless and full-featured interface across the entire range of environments.

What is Forex Trading

With the development of Contracts for Difference (CFDs) and other proprietary trading platforms, the definition of “markets” has become blurred and the distinction between a trader’s broker and counter-party has increasingly lost meaning and context. With ever-lower margins and fees, the essential question of “what is forex trading?” comes to the fore. From the trader’s perspective, the issues remain as always:

timely and relevant knowledge
speed and reliability of order execution
transaction cost (in the full sense of the concept)

Given the universality of high-speed internet and increasing access to cloud-based computing power, ours is an era of Do-It-Yourself algorithmicists, with each trader creating and operating his own forex converter. More so than at any previous time, the forex rate is driven by the collective opinions and judgements of the “market.” The question of “what is forex trading” is thus distilled to its essence of millions of different viewpoints taking positions reflecting their collective wisdom and acumen.

On the other hand, ours is an era of hyper-regulation and regulatory overload. Add to this, unprecedented and unimaginable amounts of national debt created since the 2008 financial crisis and the conclusion emerges that currently, central bank governors and treasury clerks are the real arbiters of national currency value and hence driving the forex rate. It is to the detriment of all market participants that Main Street and even Wall Street count for so little. When traders are focused on deciphering the entrails of pronouncements out of Brussels rather than analyzing real economic activity, an artificiality and distortion of the whole effort results.

Furthermore, central bankers also fall prey to a self-aggrandizing conception that not only can they drive forex rates with their monetary aggregates and interest rate tinkering but they can also use these blunt tools to manage the real economy. Over the last few years, as the world economy has recovered tepidly despite unprecedented liquidity and monetary accomodation, neither they, nor treasury minions have understood that without pro-growth fiscal policies, their monetary largesse is increasingly for naught.

Best FX Exchange Tips and Tricks for Trading Profits

Traders of all stripes — from the wizened profitable pro to the chastened newbie loser — are often at a ‘loss’ in trying to explain the logic and system of their modus operendi, “method to their madness”, if you will. Even the most sophisticated of algorithmic systems require constant tuning. Man-machine combinations, whatever their level of sophistication must continually innovate to out-smart other man-machine combinations pursuing the same fx exchange profit. This inherent multi-dimensionality means that both circumstances (physical realities) and perceptual responses (human motivation) should, in the larger sense, be continually accounted for.

Into this daunting conflagration, the individual trader should be using all the tools at her disposal, including forex converters and forex calculators. A top-notch forex broker, with rapid execution and propagation of fx exchange rates is also essential.

FX Exchange Explained

A special mention of the role of interest rates is also warranted. When any of the 8 major central banks change their interest rates — whether in response to endogenous or exogenous economic or political causes — the delicate balance of cross-rates in existence must realign to restore an equilibrium. In general, an increase in a currency’s central bank interest rate level increases demand for that currency on the practical and theoretical levels. A change in interest rates requires new input to forex converters and forex calculators in arriving at sustainable equilibrium rates.
Of equal importance is the inflation rate. As per forex converter, countries enjoying relatively low inflation benefit from increasing purchasing power relative to higher inflation countries. This differential translates into an appreciating currency. With the super-low inflationary regime hoisted on the world economy by the world’s central bankers since the financial crisis of 2008, this factor has been suppressed, but with the massive expansion of global sovereign debt, the resurgence of inflation is only a matter of time.
Another critical macro-economic determinant is the current account deficit which represents the excess of imports over exports between a country (or bloc) and its cumulative trading partners. While logic determines that this ratio account cannot remain out of balance indefinitely, the time horizon to correct it can be decades.
Similarly, a country’s terms of trade, that is the ratio of its export to import prices, must also return to a parity, but again the process is only assured in theory, which could require years to clear at the margin.
FX exchange traders value consistency, discipline and fortitude in an economy and one proxy for this is the level of public debt. Particularly if the debt is owed externally, uninvited shocks can convulse an economy, and its currency worth, if collective wisdom deems it ripe for failure. While domestically owed debt can be ameliorated with money printing or government bond issuance, here again, the day of reckoning is inevitable.
Similarly, countries with political stability and overall positive economic performance are rewarded by forex brokers and forex traders with premiums on their currency

In this article we have abstracted from the daily headlines and attempted to understand those factors which drive foreign exchange price movement

Forex Market Basics

The term “forex market” refers to both a general concept and a specific institutional setup. As a generic term, it refers to an omnipotent instantaneous equilibrating mechanism whereby anyone on the globe can evaluate the value of anything is his native currency, 24/7. Forex news is justifiably a top feature of most business broadcasts. And as such, it is one of the defining terms of our age. Without it, human activity would rapidly revert to conditions that were in existence as recently as 150 years ago, with 75% of the world’s population in abject poverty and an average life-span of 30 years (as opposed to 10% and 71 years, as exists today).

What is forex Trading?

But it is “forex market” as an active corporeal framework that is of greater interest, warranting elaboration and investigation. This market refers to a variety of means of exchange for currency trading. It is through this clearing mechanism that accounts, both national and personal, are cleared. Even here, the definition is relatively expansive as it encompasses both the institutionally definable, that is banks and other financial institutions whose cash holdings are real monetary claims (currency backed by political sovereignty and agreements) as well as the unquantifiable and amorphous derivative trade. Currency trading in the defined, known institutional markets has a current daily volume estimated in excess of $5 trillion, while estimates on the forex markets, including all derivatives, is a multiple 5 – 10 times that.

Forex market risk

Understanding and managing this derivative market has been a major preoccupation of market participants and regulators alike. Of the 2,300 pages and 398 regulations in the U.S. Dodd-Frank legislation promulgated in the wake of the financial meltdown, a significant fraction deals with the problem of defining and managing forex market risk. As with much of the government response, the attempt is to micro-manage the risk and exposure, by, for example, banning US citizens from trading CFDs was a typical attempt at a legislative dictat of a problem manifestation rather than addressing the cause. This response ignores the moral hazard issue of absolving the party incurring the risk from fully incorporating and accounting for it. It furthermore wades into the definition of “derivative”, an evolving and expansive concept without end. Attempting to impose a fixed static conception will inevitably stifle and distort the underlying processes.

That the informal sector and understanding of “what is forex trading” is larger by a significant multiple than the formal part, forces participants of all kinds to understand how this process arrives at price determination. The forex news of interest is necessarily much wider in scope than that which concerns central bankers. In short, a messy evolving environment that defies the neat regimentation and clarity sought by regulators. Both the informal and formal sectors are active almost 24/5 (22/5 for the most part). Thus, a weekday event almost anywhere on the globe has an immediate immediate forex market implication to be rapidly interpreted by the larger framework and the more narrow currency trading,

Analysts, observers, students, pundits and all sorts of participants are thus well-advised to study the whole of forex news to understand what is forex trading and the subset of currency trading.

Why You Need to Learn Forex Trading

The best way to learn forex trading is to start with a few simple objectives and methods, then slowly progress further into more challenging trading tasks.

The Benefits of Making the Effort to Learn Forex Trading

Some argue that trading cannot be taught by mentors, and some argue that self-taught people usually have fools for teachers, implying that individuals cannot learn by themselves. While neither of these arguments is necessarily definitive, all traders more or less learn from the opinions and analysis of older, more experienced traders. But that doesn’t mean that one cannot question the teachings of a senior trader, no matter how successful they have proven to be. The benefits of making the effort to learn forex trading are in that regardless whether one chooses to learn it all by oneself, or have a mentor to guide them, the objective is to learn how to be an original thinker. All it takes is a small change, and a popular trading strategy becomes almost unique and proprietary. Trading online is quite a challenge, and mentors can hardly prepare you for the psychological aspects of trading and dealing with fast moving live forex rates, while holding onto a losing trade. But there are things to watch out for — psychology first among them — as well as money management and overall account survivability during adverse trading conditions. Every seminar, book or source of information may provide clues as to how to deal with these factors. All these little bits of information can actually, slowly make up a complete trading strategy, one that can deal with markets from A to Z, no matter the conditions. And one which is bound to outperform any automated trading software as well.

Learning and Memorizing

It is best to trade with real money, as we all tend to remember certain events best, when these events happened during intense emotions. We all remember certain events that happened 10, 20 or more years ago, with extreme detail while we forget events that happened only a few days ago. This is because the memorable events occurred during extreme emotional state. These events, bad or good, become strong memories. In order to learn forex trading well, one has to trade with real money, at significant size, and keep a trading journal of the losses, the disappointments as well as the profits and the happy times from the profitable trades. What is forex trading without emotions? It’s a non-event, when someone trades a demo account or with real money at very low size. The whole trading endeavour becomes a minor event, which you will hardly remember a few years down the line. How did the market react when this or that indicator gave off a signal, which indicator let you down, and so many questions of this nature that if not taken into account, we will forget about them and make the same mistake over and over again. Until it happens with relatively large amounts of money, at which point it will become unforgettable.