Instructions

Know how to interpret currency exchange rates. Exchange rates are quoted in terms of a base currency followed by the second currency. The quote tells you how much of the second currency is required to buy one unit of the base currency. For example, EUR/USD = 1.250 means it takes $1.2500 in U.S. dollars to buy 1 euro.

Calculate the cost of foreign exchange transactions by multiplying the spread times the number of currency units traded. For example, if you buy $100,000 worth of euros (a standard trading lot) with a 4 pip spread, the transaction cost is equal to $0.0004 x 1000,000, or $40.

Tips & Warnings

References

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