Foreign Currency Exchange Fundamentals
- The Mechanics of Increased Earnings


The Foreign Currency Exchange Market is rather simple as is anything once a person has had enough exposure and education. Currencies are traded in pairs, meaning that you are trading or exchanging one currency for another. A simple way to understand this is to consider what you do when you go on a foreign vacation.

Let's say you are an American citizen planning to travel to Canada. You decide to take $10,000 United States dollars (USD) to the bank for exchange into Canadian dollars (CAD). The exchange rate is 1.4000 when you arrive at the bank, meaning for your $10,000 USD, the bank gives you $14,000 CAD.

Now let’s say you do not use cash at all during your vacation and upon returning home you decide to exchange it back to USD currency. The exchange rate is now 1.3700 (a change of 300 pips during the week). Your $14,000 CAD would convert back to $10,218.97 USD.

You are pleasantly surprised that you just made $218.97, a 2.19% increase in cash flow and worth in one week. Congratulations on becoming an expert Foreign Currency Exchange Trader!