Forex market is largest in the whole world. Daily, over $3 trillion in currency is exchanged on the world’s largest market. Markets were created in 1971 after the shift from fixed rates of exchange to floating rates. Forex has made traders huge money since its inception. The basics can help familiarize you with the way the market operates. For you to achieve true success with your Forex trading, it is necessary that you are guided. For example, you can use the expertise of experienced Forex brokers such as MetaTrader, Dukascopy, AAAFX, etc. But this article aims to clarify the basis of Forex, the exchange rate. More info?
What is a Exchange Rate?
Here is the rate that one currency may be traded for another. If you are traveling to another country you will have to purchase local currency to carry out daily transactions. It is exchange rate that determines the cost of purchasing a foreign currency. The exchange rate for Egypt is, say, 1:5. With every dollar, you could buy 5 Egyptian pounds.
Two methods are used to determine the value of a particular currency.
A floating Exchange rate
Forex trading is founded on a system of demand and supply. This is the foundation of the Forex trading system. The forex broker’s job is to inform the client of the favourable rates to generate a profit. Some of the most prominent brokers are FXCBS, Windsor brokers, FXCM, and FXOpen. Self-correcting is another term for a rate that fluctuates with the market. A fluctuating rate constantly changes.
Fix Rate Exchange
It is the exchange rate that is officially set or pegged by a government. It is a fixed exchange rate that the government (central bank) sets against a major foreign currency. Usually, this currency is the U.S. Dollar. Central banks use the Foreign Exchange markets to trade their currency in order maintain the amount of money and exchange rate. The central banks is the sole provider and printer of currency and banknotes in an economy. When necessary, the central bank may change the rate of exchange.