FAQ

Frequently Asked Questions

How do I understand a currency quote?

Since 2 currencies are involved in every Forex transaction, currencies are quoted in pairs. For example, EUR/USD means the price of the Euro in relation to the US Dollar. If the price quoted for the EUR/USD is 1.40 this simply means that 1 Euro costs 1.40 US Dollars i.e. in order to buy one Euro one must pay 1.40 US dollars and in order to buy the US dollar one would pay 1 Euro for every 1.40 US Dollars received.

When the EUR/USD goes up in price e.g. from 1.40 to 1.50, this means that the Euro went up in value with respect to the US dollar (since it costs more dollars to now buy the Euro) and when the EUR/USD goes down in price e.g. from 1.40 to 1.30 this means that the Euro went down in value with respect to the US dollar (since it costs less dollars to now buy the Euro). Whenever one currency of a pair weakens the other strengthens and vice versa.

For purposes of simplicity, it is recommended to just focus on the first currency of a currency pair in order not to get confused because the first currency always means one of that currency in relation to the second currency of the pair. It is easier to think in units of one e.g. AUD/USD means the cost of one Australian dollar if someone wanted to buy one Australian Dollar with US Dollars, USD/ILS means the cost of one US dollar if someone wanted to buy one US Dollar with Israeli Shekels.

What is a spread?

It is in one’s interest to pay the smallest spread possible. Just like with stocks or commodities, there is a difference between a selling price and a buying price of a currency i.e. a different bid price and ask price. This is how the dealers who create the market and buy and sell currencies for a living make money. They charge more to the buyers and pay less to the sellers and keep the difference as their profit. Your goal is to keep the dealer’s profit to a minimum so that you keep more money for yourself.

If you want to sell a currency in exchange for another currency, the dealer will pay you less than someone else who is buying the currency from them and if you want to buy a currency, the dealer will charge you more than someone else who is selling the currency to them. E.g. Suppose the EUR/USD has a bid/selling price of 1.40 and an ask/buying price of 1.42. There is a difference of 2 US pennies between the selling price and the buying price of the Euro (against the USD). This means that if you were selling the Euro you would receive only 1.40 USDs while if you were buying the Euro you would be charged 1.42 USDs. The dealer keeps the 2 pennies as the dealer’s profit for arranging the currency transaction between the seller and the buyer.

If you are confused of which quote of the spreads you are entitled to just think of it as follows: You will always get the worst of both prices i.e. if you are selling a currency you will always get the lower price of the two posted prices (i.e. you will receive the bid) and if you are buying a currency you will always pay the higher of the two posted prices (i.e. you will pay the ask).

If you utilize the online platform of Forex Legal Advisors to buy/sell a foreign currency you will not have to worry about bid and ask prices because the platform figures it out for you. You just need to enter what currency you are selling or buying in exchange for another currency.

Beware:Spreads are much narrower for currency traders than for those who actually want to exchange and take physical delivery of a foreign currency. Currency traders who speculate on currency prices do not actually take delivery of the currency they are speculating on and just “settle up” at the end of the day by either getting paid or paying out their profits/losses. The transaction costs involved are therefore less for the dealer and they therefore charge a cheaper spread to currency traders. Currency customers on the other hand actually need the foreign currency they are buying and more costs are involved causing spreads to be higher since it costs money to actually convert and deliver money.

CurrencyAvenue.com posts the spreads offered to traders while Forex Legal Advisors posts the spreads offered to consumers. The spreads posted by Forex Legal Advisors are wider than the spreads posted by CurrencyAvenue.com because they are the spreads offered to those who actually need to take delivery of a foreign currency however they are most likely narrower and better spreads than offered by banks and other money changers.

Spreads are part of life and cannot be avoided however they can be minimized if you know what prices are and where to go to exchange your foreign currency. The goal of CurrencyAvenue.com is to make you a more informed consumer so that you can minimize the spread you pay when performing a currency transaction.

Who is CurrencyAvenue.com?

CurrencyAvenue.com is your avenue to a wealth of free currency information.

CurrencyAvenue.com provides free real time foreign exchange quotes, currency news, global interest rates,

research materials and much more that will enable you to become a more educated consumer.

(See About Section for more info)

Why not just go to the bank or money changer?

A specialist in the field of currencies advocates on your behalf and allows you access to better pricing and to an automated real-time efficient platform that is not available to customers of banks and to customers of overpriced storefront money changers.

Also many banks don’t offer their customers the ability to enter into a currency forward contract.

Is my money safe?

It is unfortunately not unheard of for people to lose their money while attempting to perform a foreign currency exchange transaction. Clients referred by Currency Avenue have the option of depositing their US Dollar deposits in escrow with a NY attorney and insured against misappropriation and FDIC Insured and segregated. Foreign currency funds other than US Dollars are generally deposited in the account of an outside foreign currency facilitator regulated under the Financial Services Authority of the UK. At this time, all funds(whether they are USDs or not) are wired to the UK for actual conversion via an outside foreign currency facilitator regulated under the Financial Services Authority of the UK.

What are the fees involved?

Currencies trade similar to stocks and the prices thereof are determined by the open market. The real live market price of a currency (just like stocks) is available to the public provided that they know where to find it. One  should beware of “no fee” advertisements by banks and money changers because what that means is that these banks or money changers are just padding/increasing the exchange rate  causing you to just pay more for the actual currency while pretending to you that you are in fact saving money by not paying any additional fees. One is generally better off in demanding the actual market exchange rate and paying an outside transparent fee for the service.

Currency Avenue firmly believes in transparency and prefers for its clients to actually have access to the lowest prices possible and save money even after any fee is incurred.

How do I open an account?

It’s easy, just follow any “Open Account” link on CurrencyAve.com and fill in your name and e-mail address and you will be contacted shortly as to the simple steps required to open an account. If you prefer you can also just Contact Us.

Due to anti money-laundering and anti-terrorism laws, potential clients must first prove their identity and place of residence prior to establishing an account  (generally with a copy of their passport and utility bill or other proof of residence).

What are the risks and rewards involved in owning foreign currencies?

Everyone is the owner of a foreign currency, it just depends what country’s citizen you ask. Your currency is considered foreign to citizens of other countries who do not share your currency.

There is a risk to owning any currency even your own. The risk is of inflation, that the value of your currency plummets with respect to the price of goods you need to purchase. Sometimes inflation gets so out of hand that paper money becomes almost worthless. This is known s hyperinflation. The risk of inflation is a risk associated with owning money in general vs. assets or goods.

The additional risk of owning a foreign currency is that the foreign currency weakens against your base currency at the time you want to buy your base currency back. For example, if you bought 1,000 US dollars for 1,000 Australian dollars and then needed the 1,000 Australian dollars back. If at the time you needed to buy the 1,000 Australian dollars back, you needed more than 1,000 US dollars (i.e the US dollar weakened against the Australian dollar and 1,000 AUD dollars now costs 1,050 US dollars ) you would lose money on the transaction. On the other hand, prices could have gone the other way with the US dollar strengthening against the AUD dollar affording you with more AUD dollars than you started with.

You should be aware that owning your own country’s currency can be riskier than owning a foreign currency if your country is suffering from inflationary pressures or if your currency is weakening against other currencies of the world. Additionally, different countries offer different interest rates to depositors something also to take into consideration and to be elaborated upon below.

How can I earn higher interest rates offered by foreign banks?

This is a true and not so well known fact. Different countries offer different interest rates to depositors. In Australia you may be able to earn nearly 5% per annum on your money by depositing your money in the bank while in Japan you would earn just about 0%.

The various economic leaders of various countries around the world set their country’s interest rates at different levels based on their different viewpoints of their country’s economy. If someone is willing to bear the currency risk involved in converting their currency to a foreign currency they can earn greater interest on their money than they would earn in their home country. The currency they buy may also increase in value thus providing them with even a greater return.

This can be accomplished either by converting money to a foreign currency and depositing the money overseas or by taking advantage of something known as interest rate parity and accomplishing the same goal by purchasing a forward contract on a higher yielding foreign currency while depositing the majority of one’s funds in an FDIC insured bank.

By opening an account you can purchase forward contracts of various currencies and obtain the interest rates offered by the banks of that particular country.

More information on this matter can be found in our Research Center. Also, make Sure to read our article (posted in the Research Center) titled Foreign Currency Deposits Unveiled.

How do I understand a currency quote?

Since 2 currencies are involved in every Forex transaction, currencies are quoted in pairs. For example, EUR/USD means the price of the Euro in relation to the US Dollar. If the price quoted for the EUR/USD is 1.40 this simply means that 1 Euro costs 1.40 US Dollars i.e. in order to buy one Euro one must pay 1.40 US dollars and in order to buy the US dollar one would pay 1 Euro for every 1.40 US Dollars received.

When the EUR/USD goes up in price e.g. from 1.40 to 1.50, this means that the Euro went up in value with respect to the US dollar (since it costs more dollars to now buy the Euro) and when the EUR/USD goes down in price e.g. from 1.40 to 1.30 this means that the Euro went down in value with respect to the US dollar (since it costs less dollars to now buy the Euro). Whenever one currency of a pair weakens the other strengthens and vice versa.

For purposes of simplicity, it is recommended to just focus on the first currency of a currency pair in order not to get confused because the first currency always means one of that currency in relation to the second currency of the pair. It is easier to think in units of one e.g. AUD/USD means the cost of one Australian dollar if someone wanted to buy one Australian Dollar with US Dollars, USD/ILS means the cost of one US dollar if someone wanted to buy one US Dollar with Israeli Shekels.