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Forex Currencies Rates

Exchange rates of foreign currencies relate to the costs involved in exchanging the currency of one country for the currency of another. If you were to travel to the USA for a holiday, you would need to pay the bills of your food, accommodation, fees for admission, souvenirs and other costs in US Dollars. If you have only British pounds, you will be required to sell your British pounds to purchase American dollars.

Suppose you visit your bank prior to traveling to the US and purchase £1,000 worth of US dollars. If you get in return £1767, it means every pound is equal to 1.767 pounds. This is called the rate of exchange with regard to conversion of dollars into pounds.

If that sum is inadequate for your holiday, you can exchange some more American US dollars for pounds when in England. Suppose you purchase $1,000 more in British pounds from an English bank and receive £557.02 for $1,000. It means the dollar-pound exchange rate has dipped from .56583 to .55702, which means US dollars are now worth less in comparison to pounds than before the time you started off on your vacation.

This example clearly shows the fluctuation in rates of currency exchange. When the value of a currency falls or rises in relation to another, it is the right time for traders to make a decision whether to sell or buy currencies in order to earn profits. Retail clients may also take part in forex market activity. They are generally seen as speculators hoping to make a profit from these fluctuations in rates of currencies.

There are three ways in which foreign currencies can be traded. They are:

1. On a regulated exchange i.e., one that is regulated by the Commodity Futures Trading Commission (CFTC).The Chicago Mercantile Exchange, for example, offers forex options on futures and products. Forex futures as well as options exchanged or traded give users a liquid, minor market that deals in forex for contracts having a fixed unit size, a set date of expiry and clearing that's centralized.

2. On exchanges that are regulated by the SEC, the Securities and Exchange Commission. The Philadelphia Stock Exchange, for example, is offering currency options -- the right but not compulsion to sell or buy a currency at a fixed rate in a specific time. Currency options that are exchange-traded have characteristics like options and futures that are exchange-traded -- a liquid, minor market with a fixed size, a fixed expiry date and clearing that's centralized.

3. Currencies can also be traded in the off-exchange, a market which is known as OTC or over-the-counter. Retail customers trade directly with another party. No clearing house or exchange exists for them to sustain the transaction. This kind trading has limited regulatory overseeing.