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 is foreign exchange?

    Foreign exchange, or Forex, is the conversion of one country's currency into that of another. In a free economy, a country's ... Read Answer >>
  2. How does inflation affect the exchange rate between two nations?

    Understand how inflation can affect foreign exchange rates of a currency and how it is just one of many economic factors ... Read Answer >>
  3. Why isn't the EUR/USD currency pair quoted as USD/EUR?

    In a currency pair, the first currency in the pair is called the base currency and the second is called the quote currency. ... Read Answer >>
  4. How do changes in national interest rates affect a currency's value and exchange ...

    Understand the role that changes in interest rates can play in determining the value and foreign exchange rate of a country's ... Read Answer >>
  5. Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

    All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
  6. What types of companies benefit from reporting results utilizing constant currencies ...

    Understand constant currency figures, and explore some of the reasons why a company is likely to benefit from reporting using ... Read Answer >>
Related Articles
  1. Markets

    What Happens in a Currency Crisis?

    A currency crisis comes from a decline in the value of a country’s currency.
  2. Investing

    Explaining Fixed Exchange Rates

    A government using a fixed exchange rate has linked the value of its currency to the value of another country’s currency, or the price of gold.
  3. Markets

    Why Countries Keep Reserve Currency

    Central banks and financial institutions hold large amounts of foreign money as their reserve currency.
  4. Trading

    Forex Trading: A Beginner's Guide

    Learn about the forex market and some beginner trading strategies to get started.
  5. Markets

    Macroeconomics: Currency

    By Stephen Simpson For citizens of different countries to conduct trade, they have to buy and sell each other's currencies. The price of a nation's currency, expressed as an amount of a second ...
  6. Trading

    Understanding the Floating Exchange Rate

    Floating exchange rate is the exchange rate between two currencies at any given time.
  7. Trading

    Interest Rate and Currency Value And Exchange Rate

    In general, higher interest rates in one country tend to increase the value of its currency.
  8. Trading

    6 Factors That Influence Exchange Rates

    An in depth look at out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  9. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  10. Trading

    How Are International Exchange Rates Set?

    International exchange rates show how much one unit of a currency can be exchanged for another currency.
RELATED TERMS
  1. International Currency Converter

    An electronic program that allows for the quick conversion of ...
  2. Universal Currency Converter

    A program that allows for the quick conversion of currencies ...
  3. Currency

    Currency is a generally accepted form of money, including coins ...
  4. Cross Currency

    A pair of currencies traded in forex that does not include the ...
  5. Currency History

    The historical values of a base currency in relation to the values ...
  6. Currency Convertibility

    The ease with which a country's currency can be converted into ...
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center