How to Read and Calculate Currency Exchange Rates

Every trader should know how to read and calculate currency exchange rates. The task is quite simple considering different tools available for investors. They include such instruments as a currency exchange rate converter and niche-specific services where one can track real-time quotes and trend moves. While finding a required quote is not that hard, reading them can sometimes be a challenge, especially for a beginner trader.

currency exchange rates.jpg

In this article, we will discuss easy ways to read the quotes as well as use additional tools to calculate foreign currency exchange rates.

Tips to Find and Read Foreign Currency Exchange Rates

Traders can use various sources to find price quotes and real-time rates. Banks are probably the first and most obvious way. Let’s say, you plan to visit a foreign country and want to use local currency. The first thing you would do is to turn to the nearest bank. Traders would rather use data provided by such websites as EX.com. Here you will find currency exchange rates between all available foreign currencies that are traded globally.

If you are new to this website, the following pints are necessary to consider:

  1. All rates and quotes are provided in pairs showing the current value of one currency to another.
  2. USD and EUR are used as a reserved currency by the majority of banks. This is why they are most commonly quoted.
  3. Major currency pairs are prone to fluctuation and influenced by different economic, geopolitical, and other factors. Additionally, we should take into account the supply and demand, hedging activities, etc. Quote changes that lead to the currency value fraction are known as pips.

How to Calculate Currency Exchange Rates

One may find the process quite simply. However, it only looks easy on the surface. Many amateurs get stuck right from the start, especially if not remembering some maths basics from school. Converting currencies during the financial statement analysis is much more difficult than simply converting $100 into the local currency during a short trip. The result of your analysis will influence each next financial decision greatly.

Example: Let’s say, you trade the EUR/USD pair and want to convert $100 into EUR. At this point, the currency exchange rate is 1.20. It means, that you need to follow the given formula:

$100 : 1.20 = 83.33 euros.

If you want to launch the reversed process, all you need is to multiply euros on 1.20 and get the USD equivalent.

Tools to Calculate Currency Exchange Rates

As stated earlier, the first thing you need is to find a place where to find the current rate. They may involve banks to real-time quote monitoring websites. Additionally, you may need a foreign currency exchange rate converter.

The instrument will prevent you from mistakes that can take place when converting one currency into another manually. Those are automated and free tools that are available as a flash browser or downloadable version. Besides, most brokers offer the tool as part of their service package. Additionally, you can add the one to the MT4 platform for a fast and easy access without the need to switch between different screens.

As for the sources, you can use the following:

  • XE.com – a leading quote provider that is easy to use. Simply choose the currency pair from the dropdown list and convert it with a click. The service also lets you send funds as well as analyse the trend and configure alerts with the built-in functionality.
  • Yahoo Finance – mainly a news portal that provides tons of useful market insights and analytics on major events. The platform also comes with an integrated currency exchange rate converter and calculator.

Both tools are free to use. If you find them quite limited, you may opt for paid mobile and web applications or integrate the one right into the MetaTrader 4 platform.

The Bottom Line

Beginners will hardly face difficulties when finding and reading currency exchange rates, especially considering so many free services and tools that prevent them from mistakes when converting one currency into another. Additionally, it is a good idea to learn some math basics and rules to perform calculations on your own. The simplest way is to add a currency converter to the trading platform and use it whenever needed on the fly.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.