Whenever you are looking to buy a different type of money, whether this be for travel, investment or another purpose, you must understand how the currency exchange rate works. This is simply the fluctuating prices of various types of currencies, expressed in another currency. In other words, the currency exchange rate tells you much of a particular currency you can buy, using another type of currency. Knowing how this system works can save you a lot of frustration, especially when first looking at the currency exchange rate.

Basic explanation of currency listings

You will normally see two numbers when looking at the currency exchange rate. In the case of the Pound discussed above, this might be .59467 and 1.68161. This means that for every dollar you spend, you would be able to buy .59467 Pounds. It also means that you would need to sell (or trade in) 1.68161 Pounds in order to receive a single US dollar. That is how to look at the currency exchange rate. Also, understand that the currency exchange rate for the Pound can be expressed in terms of dollars, Euros, Swiss francs, Japanese yen, or any other type of money you wish.

The currency spread

You should also be familiar with the currency exchange rate spread when looking to buy and sell foreign money. This is the way your broker or dealer will make money. Continuing with the example of the Pound (and listing in dollars), you might see a typical spread expressed as 1.72 and 1.64. This simply means that you can exchange $1.72 to buy each pound, or give the dealer £1.64 for every dollar you wish to receive. According to this currency exchange rate spread, the dealer makes .08 Pounds for each dollar-Pound exchange, or a profit of eight percent.

Trading currencies based on the spread

Many people looking to get involved in currency trading or investing do so without a very clear understanding of this currency exchange rate spread. Whatever spread you are able to find will greatly influence how likely you are to make money on this venture. In the example listed above, the currency exchange rate would need to move at least eight percent..and that would only ensure you break even. Fortunately, the Xchange of America always offers their customers some of the best spreads and provides amazing value at the lowest possible prices. Contact XChange of America for more information on purchasing currency or to ask any questions at all.