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
The Forex Exchange Market is where currencies are being traded and where the value 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 to trade high amounts and has therefore several benefits for currency traders who are looking to optimize their profit. It is open 24 hours daily, except weekends, which means that traders are able to act at any time. This makes it very appealing for those going to school or to work during daytime. The forex is unique not only for its opening times but also for its trading volume size, for the number of people participating, for the easiness of trading and the accessibility to the market. Further benefits are the limited rules that traders have to follow when investing: no clearing houses, no central bodies that supervise the market, and, last but not least, no fees to pay.
What are Bid, Ask and Forex Spread
When currencies are being converted, the “ask” (or buy rate) is how much you are being charged for buying a currency, whereas the “bid” (or sell rate) is the amount you are charged for selling a currency for another. The ask rate is always higher. This means you will get a higher amount when buying a currency than when selling it. The difference between the amount of the ask price and the bid price is called “bid-ask spread” and equals to 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.
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