An Exchange Rate is the price at which a country’s currency will be exchanged for another currency. It is also known as the relation between two different currencies and is determined by the Foreign Exchange Market.

The Forex Exchange Market is where currencies are traded and where the values of the exchange rates are determined. Also known as “FOREX”, it is the marketplace for buying, selling, exchanging and speculating on currencies. It is considered to be the largest financial market in the world and its participants are mainly international banks, investment management firms, hedge funds, brokers and investors. The forex market allows for trading in high amounts and has therefore several benefits for currency investors who are looking to optimize their profit. It is open 24 hours a day, except on weekends, which means that investors are able to act at any time. This makes it very appealing for those going to school or work during the daytime. The Forex is unique for its opening hours, its trading volume size, the number of participants, the ease of investing and the accessibility to the market. Further benefits are the limited rules: no clearing houses, no central bodies that supervise the market and, last but not least, no financial transaction tax to pay.

When currencies are converted, the “ask” (or buy rate) is the price of buying a currency, whereas the “bid” (or sell rate) is the price of selling a currency for another. The ask rate is always higher. This means you will always buy a currency at a higher price than when selling it. The difference between the amount of the ask price and the bid price is called “bid-ask spread” and equals the difference between the price of a currency when being bought and the price when being sold. The gap that arises from these two transactions, represents the profit of the dealer.