What are the Different Types of Forex Rates

The foreign exchange rate is no doubt the most important rate that traders must know in the forex market. However, there are several different forex rates that they should consider during forex trading.

Different Forex Rates in Forex Trading

To make well-informed trading decisions, traders should ideally know the following forex rates:

Exchange Rate: Among the various forex rates, the exchange rate between any pair of currencies is the simplest to compute. All it requires is to get the latest prices of the two currencies in the forex market. This rate is the actual price that one pays in terms of the first currency to get the second currency. For instance, if the EUR/CHF is trading at 1.3271, this implies that 1 Euro is priced at 1.3271 CHF.

Pip Value: Pip stands for Percentage in Point. A pip is the smallest possible incremental move a currency can make. The value of a pip can be different in different markets. For the EUR/USD currency pair, an increment from .8994 to .8995 is one pip. In this case, a pip is 0.0001.

Spread: This is the difference between the bid price and offer price. For instance, if the bid price of EUR/AUD is 1.3639 and the offer price is 1.3647, the spread would be 1.3647 - 1.3639 or 0.0008. Many forex brokers earn profits from the spread in a currency pair, rather than from charging commissions.

Rollover Rate: In a transaction, the difference between the interest rates of any two currencies is the rollover rate. It is debited or credited to a trader’s account when s/he holds positions overnight. For instance, if the interest rate on the Pound is 1% and on the Swiss Franc is 0.25%, the difference in the interest rates is 0.75%. If you are holding a long position in the GBP/CHF you will earn interest i.e. rollover and by holding a short position, you will pay interest to reflect the different.

Leverage and Margin: In the forex market, leverage is the ability through which forex traders can put their account in a greater position than their account margin. On the other hand, the margin is the deposit made to open or maintain a position. The margin requirement increases with an increase in the leverage a trader uses. Margin requirements may vary among different brokers. However, traders can compute the minimum requirement.