More and more people have been exchanging currencies online in recent years. There are many advantages to this service, compared to traditional exchange services. It’s easier, it’s faster, and it’s safer. However, not everybody has had the best experience. There’s a downside to everything if you’re not careful.
All you have to do is follow a couple of rules, and you’ll make currency exchange easier than ever. Making a nice profit trading currency online is quite possible if you approach it like you would any other business – you should know the market and use the right tools. We have listed the 5 key rules we think you should keep in mind while exchanging online.
Table of Contents
1. Choose the Right Online Currency Converter
Doing your research to find the right online currency converter is the first step in the process. Like any other research these days, this one will also include some googling. Don’t be afraid of opening Google’s infamous second page – a lot of the first page’s results are just ads.
Of course, you’re looking for the cheapest exchange rates, but also pay attention to discounts. Some services will offer free shipping for large amounts of cash. What is the right converter for you also depends on what you want to use it for.
Some converters are better if you’re interested in making money buying and selling currencies. Other converters are meant for converting money for traveling and similar purposes.
In the second case, you should look up the best exchange services for the currency of the country you’re visiting. Whether you’re trading for a profit or you’re going on a vacation, you should pay attention to the rates that an online converter is showing you. This next rule will help you with that.
2. Learn How to Read and Calculate the Exchange Rates
Let’s say you want to get some euros. Once you have found an online currency converter, it will show you something like EUR/USD is 1.19, right? A lot of people get confused here and don’t know what 1.19 stands for. You should always keep in mind that the first code mentioned in pairs like these stands for one unit of that currency.
In this case, it means that EUR stands for €1, and it costs $1.19 to buy it. If you want to know how much it costs to buy one USD, just divide 1 by 1.19. You’ll get that it costs €0.8403 to buy $1. Of course, you’d also get this result by simply switching the code positions in the converter (to USD/EUR), but it’s important to understand how this works.
So now that you know how to read the exchange rates, you’re set to go, right? Well, not exactly. This is the first step in successfully trading currency online. You have just learned how to read market prices, but you still have to learn about markups.
3. Learn the Difference Between the Market Rates and Conversion Spreads
We all know there’s no such thing as free service. You’ll always end up paying somehow. Well, that stands for online currency exchange services too. When you google USD to EUR you’ll get the market price.
However exchange services will markup the price to make a profit, so you’ll end up paying more than the market price. Markup is the difference between the market price and what the exchange service will charge you. Looking at our previous example, EUR/USD would now cost 1.23, instead of 1.19, which is the market price.
There’s no way around this, but once you’re aware of the fact, you can keep an eye and compare the difference between various services. Eventually, you will find the cheapest one. While the markup may seem insignificant if you are exchanging small sums, it is not something you should ignore when the amount is large.script async src="//pagead2.googlesyndication.com/pagead/js/adsbygoogle.js">
4. Pay Attention to the Fluctuations
Due to constant trading, currency rates always fluctuate. You have to keep in mind that the currency rate you’re looking at right now won’t necessarily be the same tomorrow. This makes another specification when looking for the right currency exchange service. The good ones update hourly and show fluctuation trends.
For example, you’ll see the trending value of the euro compared to the US dollar, but that doesn’t necessarily tell you anything about the euro’s stability, it also speaks for the dollar. If you really want to know how the euro’s doing, you should compare its fluctuation trend to other major currencies, such as GBP or CHF.
Once you understand the basic principle of currency fluctuations, you can even make some profit-making assumptions. Predicting fluctuations is the bread and butter of making a profit in currency trading.
5. Beware of Scams
The internet has made everything more approachable to us, but that also includes scammers. Even though online currency exchange is safer, it’s not 100% safe. The good news is it’s easier to avoid a scam online.
You’re sitting in your chair, you have the time and comfort to avoid impulsive decisions. You just need to keep your eyes open and pay attention to some red flags. Avoid robot trading systems, as robots can’t foresee global events that impact currency rates. Life is just not that easy. Persistent marketing can also be a sign of a scam.
You shouldn’t let anyone trade with your money, no matter how persuasive they sound. A guarantee of success doesn’t exist in currency trading, so making such promises is a sign of fraudulent behavior. Unfortunately, there are many ways that scammers work online, but the more you educate yourself, the more you’re protected.
There’s no doubt that online currency exchange is the future. Basically, anyone can do it if they follow these ground rules. The internet has made the whole world become your neighborhood, but with infinite options.
You no longer have to spend your time, your gas, and your money finding the cheapest currency exchange service. You can now do it from your office while having a cup of coffee and have the money delivered to you the same day.