A:

All currencies are quoted in pairs - one country's currency against another country's currency. A currency converter is used by traders to check the current exchange rates between two chosen currencies. You'll find that most currency traders will use price charts to determine the direction of any given pair. A chart shows the price (or exchange rate) of the currency pair, which plotted on the y axis, over the time period, which is plotted on the x axis. A chart can be constructed for any time frame - from months, weeks, and days to hours and minutes; it can provide the trader with a historical perspective on the range of exchange rates over a period of time.

Chartists believe certain repeatable patterns allow them to gain an edge in determining the future movement of rates. Thus, when a currency trader wants to buy or sell a currency, he or she will use a chart for guidance to determine the likely currency rates in the future. Chart patterns, areas of support or resistance, and the consequent trading range within which a currency may fluctuate all factor into speculation on future rates. Once trends on future rates are decided upon, a trader will turn to a currency converter to determine the current rate of exchange.

A trader's use of a currency converter is similar to the need for any visitor to another country to physically exchange the currency of his or her home country for that of the host country. He or she will have to refer to a currency converter to obtain the current rate of exchange. When the trader finally converts the currency from his or her local currency into that of the country being visited, he or she will have to pay whatever rate is being charged by the local bank.

(For more on this topic, see Forces Behind Exchange Rates.)

This question was answered by Selwyn Gishen.

RELATED FAQS
  1. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  2. Where did the term 'pip' in currency exchange come from?

    The term pip is an acronym for percentage in point or price interest point. It measures a unit of change within a pair of ... Read Full Answer >>
  3. How do changes in national interest rates affect a currency's value and exchange ...

    All other factors being equal, higher interest rates in a country increase the value of that country's currency relative ... Read Full Answer >>
  4. What is the difference between pips, points, and ticks?

    Point, tick and pip are terms used to describe price changes in the stock market and other markets. While traders and analysts ... Read Full Answer >>
  5. How do I use Stochastic Oscillator to create a forex trading strategy?

    The stochastic oscillator is a momentum indicator that is widely used in forex trading to pinpoint potential trend reversals. ... Read Full Answer >>
  6. How does the balance of payments impact currency exchange rates?

    A change in a country's balance of payments can cause fluctuations in the exchange rate between its currency and foreign ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding the History of Money

    Money has been a part of human history for at least 3,000 years, evolving from bartering to banknotes.
  2. Forex Fundamentals

    How To Calculate An Exchange Rate

    An exchange rate is how much it costs to exchange one currency for another.
  3. Forex Education

    Four Currencies Under the Spotlight in 2016

    With currencies having become the “tail that wags the dog,” in terms of their impact on the global economy, these four currencies will be under the spotlight in 2016.
  4. Forex

    How 2016 Could Be A Disaster for These Currencies

    Tanking oil prices, slowing BRIC growth, and general instability do not bode well for these currencies.
  5. Forex Strategies

    How To Build A Forex Trading Model

    The forex market is volatile, but a forex trading model with clear, step-by-step rules based on a sound strategy can help decrease losing trades.
  6. Forex Fundamentals

    Explaining Slippage

    Slippage occurs when a trade is executed at a different price than what was expected.
  7. Forex Education

    About the EGP, or Egyptian Pound

    The EGP, or the Egyptian pound, is the currency of Egypt.
  8. Forex Education

    The History Of Money: From Barter To Banknotes

    Money has been a part of human history for at least 3,000 years. Learn how it evolved.
  9. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  10. Forex Education

    Bretton Woods: How It Changed the World

    While the Bretton Woods system is no longer in place, it fundamentally changed the international monetary order.
RELATED TERMS
  1. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
  2. Currency

    Currency is a generally accepted form of money, including coins ...
  3. Transfer Risk

    The risk that a local currency cannot be converted into the currency ...
  4. ICE LIBOR

    See LIBOR
  5. WM/Reuters Benchmark Rates

    Spot and forward foreign exchange rates that are used as standard ...
  6. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center