What is a Forex Calculator?
A forex calculator, at least the type that most everybody is familiar with, is a program that converts the value of one currency against another. As the name implies, the program calculates the converted value of one currency based on a specific rate of exchange (usually the interbank rates). They are more commonly called currency converters since most calculations are done with the view in mind of converting from one currency into another.
The online versions of these currency converters are usually linked to a terminal that supplies spot currency rates and calculates conversions on real time. All you need to do is supply the quantity of a currency you wish converted and choose the currency you want it converted into and it will automatically make the calculations and supply you with the conversion value in a jiffy. The manual type of currency converters is more primitive. You need to input the exchange rate on which you wish the calculations to be made.
However, you have to understand that the conversion value you get from online forex calculators will be different from the actual conversion values you will get from retail money changers and banks because the rates they use are different. Money changers and banks have to make a little profit from the transactions and will have to build in their margins of profit into their rates of exchange. And online currency converters simply do not take this into account.
On top of that, some banks follow certain currency exchange rate fixings done by certain central banks and use this as their basis for calculating the rates of exchange for various currencies for the day. Sometimes their rates can change a couple of times a day when the currency markets become extremely volatile.
Forex calculators of this type are used mainly by international travelers who’d like to have an idea of how much they would need to bring for use in their destination countries. They are also used by travelers who wish to lock in to a particular rate of exchange before they travel and convert their own currency to the local currency of the destination country before they embark on their trip. Importers and exporters use them as reference values in preparing budgets for their imports or to calculate margins of profit for their exports. However, they should use these currency converters for reference purposes only since the actual rates of exchange will be determined by the banks or money changers in the destination countries.
Currency converters are of no significant value to forex traders though. They are merely of value for 1:1 retail conversions. Forex traders trade currencies on wholesale basis (bigger volumes) and use real time spot currency rates. They are more interested on the running balance of their investments based on the current rates which can change in just a split second. They use different types of forex calculators for this purpose and they are usually incorporated into their trading platforms.
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