What is an exchange rate?

The exchange rate indicates how much a fixed currency is worth in another currency at a precisely defined point in time. The exchange rate records the value of a domestic currency for one unit of a foreign currency. Consequently, the exchange rate determines the price ratio of a currency pair or between two currencies. Consequently, currency trading aims to achieve a more favorable exchange rate on a subsequent sale of a traded currency than at the time of purchase. Market participants can exchange the currencies they purchase for any currency they wish; they do not necessarily have to stay with the original currency pair. Exchange rates underlie the “physical” exchange of bills (currencies), while foreign exchange rates indicate the exchange rates in electronic foreign exchange trading

The indication of currency rates in Forex trading is based on standardized methods. The currency pairs involved are described in short form, indicating the exchange rate. The exchange rate is always given up to the fourth decimal place. The decimal places are given more and more precisely. Meanwhile, many traders already indicate five or six digits after the decimal point. In this way, even small profit margins are realized and documented.