Foreign Currency Trading - Understanding The Rates

To many people, it all seems like a tangled bowl of spaghetti; how can one currency trading chart reads that the index for the US dollar is 1.68, the Euro is 1.90, and the Canadian dollar is .73? Understanding the exchange rates for foreign currency trading isn't difficult but it can be a little confusing. By understanding the language of the Forex markets it is easier to understand these rates and untangle the spaghetti.

Basic Foreign Currency Trading Rates

The exchange rates for foreign currency trading are really born out of a simple formula. That formula reads like this: Y-to-X exchange rate = 1 / X-to-Y exchange rate. Because of this inversion, comparing US dollars to Euros is a different number than comparing Euros to US dollars. For example, one Euro is worth 1.34 US dollars but 1 US dollar is worth .75 Euros. Since a Forex trade is bi-directional, so are the ratios.

If it still doesn't seem to make sense, think of foreign currency trading the same way you would if you were converting from metric to English measurement and visa versa. One mile is equal to 1.6 kilometers , yet 1 kilometer is only equal to 0.6 miles .

How to Read Foreign Currency Trading Charts

Forex markets use charts that have a basic structure for foreign currency trading; the first column is the country code, which is a three letter code that designates the currency. For example, the United States dollar is represented by USD, while the Canadian dollar has a code of CAD. The second column in a foreign currency trading chart is the name of the country and its currency. The remaining columns each reflects comparisons between the base currency desired and other currencies. This type of foreign currency trading chart allows for fundamental analysis of the rates for a particular currency against the other currencies of the world.

Sample Foreign Currency Trading Chart

Sometimes using a visual can help make an explanation clearer; note the sample chart below:

Code Country Units/USD USD/Unit Units/CAD CAD/Unit

ARP Argentina (Peso) 2.9450 0.3396 2.1561 0.4638

AUD Australia (Dollar) 1.5205 0.6577 1.1132 0.8983

BSD Bahamas (Dollar) 1.0000 1.0000 0.7321 1.3659

BRL Brazil (Real) 2.9149 0.3431 2.1340 0.4686

CAD Canada (Dollar) 1.3659 0.7321 1.0000 1.0000

This example helps to show the workings of the chart and the relationship between the various currencies. For instance, looking at the row for the Canadian dollar, the foreign currency trading chart shows that the US dollar is worth about 1.37 Canadian dollars, one CAD is worth about .73 USD, and just for assurance 1 CAD is equal to 1 CAD. (That seemed like an investment basic, but aren't you glad it worked out right?)

Looking for Arbitrage in Foreign Currency Trading

Arbitrage is the investment strategy of trading multiple currencies with the intention of profiting from any differences in the exchange rates. For example, we will trade USD, CAD and ARP. We will sell 5 USD and in return get 6.8295 CAD. After this we will sell our 6.8295 and get 14.725 Argentinean pesos. Finally when we sell our pesos and buy US dollars we get 5.00 again. While this example did not yield an arbitrage for us, it is easy to see how it works. If your investment timing is right and you catch volatility between the various pairs, arbitrage has the potential to be very profitable

Conclusion

Foreign currency trading can have its confusing moments, tangled up like a bowl of spaghetti. Once you learn Forex trading, concepts like foreign currency trading charts crystal clear!

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Foreign Currency Trading Tactics

I'm here to share with you a little about my foreign currency trading experiences and the tactics I learned from that. This market offers such an opportunity that is much more than monetary. The chance to tell your boss that you quit is one of the best feelings ever. Knowing you can make money from home, completely on your own skill. The ability to know you don't have to go out and pay outrageously high gas prices just to earn a living. This is by far the best decision I've ever made in my life, regarding my finances, and I highly recommend it to other people.

Since this is a business that relies on you and you alone, there needs to be somethings worked on. You don't have a boss to tell you what to do or to keep you in line, so you're your own boss. I suggest the first thing you try to accomplish is a routine. A routine will allow you to get the most work done without wearing yourself out. You need to try out somethings and learn a little, but your main goal is to figure out what is more important and incorporate it into a routine.

With that said, foreign currency trading isn't this complex and complicated task for making money. Don't allow yourself to build it up in your head as hard. It's often the simple tasks and strategies that will make you money over the long term. You need to focus on keeping it simple and everything will work out.

The Forex Tracer is a tool that can really simplify your working since it is an automated tool for finding good trades. You're not always in the position to watch over the market 24hrs a day and there is no reason for you to miss out on good trades. All traders use software, so you need to get some too.

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