What is foreign exchange and why use an FX broker?
The world of foreign exchange (FX) can be a strange and complex place. We invited Hannah of Privalgo to lift the lid on what foreign exchange is, and why you would use an FX broker.
Hundreds of currencies are traded across the FX markets and their values are never standing still. Unlike stocks, currencies are always traded in pairs. And the pairs look something like this: GBP/USD 1/1.20 (also written as 1.20). This means £1 can buy $1.2. This figure resembles the exchange rate between the two currencies.
Currency pairs are quoted in pips. Pips are the number of decimal places after the point. Typically, pairs are written to two (as shown above) or four pips. But occasionally they’re written to three or five (in the case of pairs including the Japanese yen, for example).
Now, as we mentioned earlier, currency values are constantly changing. Some currencies are more volatile than others and may see large swings in value.
There are an endless number of factors causing exchange rates to rise and fall. But some common ones include:
· The economic state of the countries involved (this could relate to interest rates, inflation, growth, government debt, etc.)
· Geopolitical tensions, like wars
· Black swan events, like pandemics
Despite what you might hear, no one can predict where currency values will go. Even the most seasoned analysts can’t predict global economic catastrophes like the 2008 financial crash or the Covid-19 pandemic.
This makes life difficult for businesses and individuals who deal with foreign currencies.
There’s no crystal ball to predict the future. However, there are ways you can capitalise on market opportunities and minimise the risk of currency fluctuations affecting your international payments.
For example, a dedicated FX broker like Privalgo can offer you intelligent financial solutions designed to achieve your specific objectives.
These solutions can save you:
Time
Using a product like Privalgo’s Market Order means you can set a target exchange rate and leave the rest to them.
If the market moves and your target rate is met, they will automatically carry out your transaction. This means no more staring at currency charts waiting for the right moment to strike.
Also, Privalgo’s Foreign Exchange Specialists monitor the markets and news for you. They’ll keep you updated with any concerns or opportunities and offer guidance on what to do next.
Money
Privalgo’s Forward Contracts help people keep their money safe from market movements. If you like the look of a current exchange rate but won’t be making a transaction for another six or 12 months, Privalgo can lock this rate in for you.
This means you won’t need to worry if the exchange rate drops when you make your transaction in future.
Additionally, FX brokers like Privalgo typically offer a better exchange rate than commercial banks. So you tend to get a better price when you make your international payments.