Exchange Rate

The exchange rate is simply the price of one currency expressed in another. EUR/USD at 1.0850 means one euro costs 1.0850 US dollars. Exchange rates fluctuate continuously during market hours based on supply and demand — influenced by interest rates, economic data, political events, and market sentiment.

Exchange rates can be quoted in two ways: direct and indirect. A direct quote shows how much domestic currency you need for one unit of foreign currency. An indirect quote shows how much foreign currency one unit of your domestic currency buys. Most trading platforms use the standard pair conventions (EUR/USD, not USD/EUR), so you don't have to worry about this much in practice.

The exchange rates you see on your trading platform differ slightly from the rates banks offer for physical currency exchange. Banks and money changers add significant markup (sometimes 2-5% above the interbank rate), which is why forex brokers with tight spreads offer much better conversion rates. This is also why some travelers use forex concepts to find better exchange deals.