When talking about forex rates, it is easy to get the idea that there is one true exchange rate for each currency pair in each specific moment – but that is not how it works. The global forex trade is not centralized and various prices exists simultaneously, based on the matching of buy-orders and sell-orders from influential buyers and sellers. The only forex rates that really matters for your bottom line at the end of day are the ones you actually have access to on trading platform where you are buying and selling currency today.
It is also worth remembering that a lot of different organisations and companies are publishing forex rates and how they calculate those rates and which data they use as basis for their calculations can vary.
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Forex rates at the Forex Interbank Market
The Forex Interbank Market is a highly influental part of the global forex market and the trading going on at the Forex Interbank Market have a huge impact on forex rates. During each trading day, enormous volumes of currency are traded at the Forex Interbank Market, a market dominated by large banks who act as market makers.
There is no specific exchange or exchange building where you can find THE Forex Interbank Market; it is instead a decentralized market made up by various actors around the world. The trading desks involved in the Forex Interbank Market have access to very large resources and are staffed by high-level professional forex traders. At the Forex Interbank Market, transaction costs are set and calculated differently compared to how small-scale hobby traders pay their brokers.
What is a Forex Rate Table?
A Forex Rate Table will display exchange rates for currency pairs. Understanding how to read and interpret a Forex Rate Table is essential if you want to learn more about forex trading and forex rates.
A good table will provide you with a wealth of information, such as:
- Last price
- Bid price
- Ask price
- Actual price change
- Price change in %
- Daily open
- Daily high
- Daily low
- Volatility
- Current price trend
- Oversold/overbought conditions
Understanding a Forex Rate Table
- The Bid price shows what market participants are willing to pay. The Ask price shows what market participants are willing to sell for. The Last price show a recent pricepoint where a deal actually went through.
- If you are looking at a live Forex Rate Table, it will typically display the prices for Bid/Ask/Last in red or green depending on their direction (down or up).
- The Mid-point price is the arithmetic average of the Bid price and the Ask price. Some tables will only show the Mid-point price instead of displaying both Bid price and Ask price.
- The Actual price change is the difference between the current price and today´s opening price. If you look at the number for price change in % in the table you will get the same information, but displayed as a percentage.
- Some Forex Rate Tables include technical analysis indicators. Usually, they are not updated as frequently as the Bid/Ask/Last information.
- Some publishers of Forex Rate Tables will provide additional information in or adjacent to the table. There might for instance be a news reel with news that have been deemed relevant to the currency pairs included in the table.
Calculating forex rates
Since the global forex market is not centralized, there is no one place where you can go to obtain all the data needed to calculate forex rates and movements. It is not like the stock market where NYSE will be the prime provider of price information regarding a stock listed exclusively on NYSE.
Many different actors are publishing forex rates, e.g. national central banks and large corporations such as Oanda, and the main players do their own calculatations and market analysis to come up with these numbers. Therefore, two forex rate information providers can publish slightly different numbers without any of them having done something wrong. How frequently numbers are updated will also play a role.
Retail traders and forex rates
For a retail trader, it is important to always check the asks and bids for the broker and platform you are using. What is published by a central bank or major forex news outlet may not line up with what you will actually get access to, and you can not look at numbers for the Forex Interbank Market and assume this is what your broker will provide.
Some brokers act as market makers and will guarantee that you get the displayed exchange rate for your deal. Others give you direct access to other traders and there might be some slipage before your orders are matched with corresponding orders.
This doesn´t mean that information from the Forex Interbank Market is useless for the hobby trader. On the contrary, it can be a good idea to keep up with what´s going on there and analyse the trends to better predict what the future will bring. It will also be easier for you to evaluate your broker and see if they are actually following the major movements or if they seem to be making up numbers randomly for their own gains.