Sharesies has just celebrated the release of US shares on their platform. Firstly, congratulations to them for this significant milestone that increase the investment options on their platform several-fold. I signed up for early access to the US shares, so I have had longer than the general public to use the new function and my overall opinion so far is very positive.
Now, for those that don't know, ForEx stands for Foreign Exchange and generally means the exchanging of money between different currencies such as the New Zealand Dollar (NZD) and the US dollar (USD). Sharesies allows you to exchange money between NZD and USD (for a small fee) so you can buy shares on three US stock exchanges- the New York Stock Exchange (NYSE), the NASDAQ and the Chicago Board Options Exchange (CBOE).
When exchanging money between currencies, there is the potential to gain and lose money. Whenever you exchange money, the amount you get is dependant on the exchange rate. Currently, the USD/NZD exchange is at approximately 0.67 USD per NZD, meaning you get 0.67 USD per 1 NZD you exchange. However, you will likely get charged a fee (0.4% on Sharesies) and there is always the potential for the exchange rate to change, i.e. one currency becomes more or less valuable than the other.
Imagine this example. You have NZ$100 and wish to exchange it to DGD (Daniel's Great Dollars). The exchange rate is 0.5 DGD/NZD and the fee is 1%. Thus, the amount you exchange is NZ$100 - 1% = NZ$99 and you would get 0.5 × NZ$99 = DG$45.5. The next day you wish to change your DGD back to NZD, but the exchange rate has changed to 1 DGD/NZD. Now you end up with NZ$45.05, much less than the original NZ$100 you started with. However, if the exchange rate had changed to 0.25 DGD/NZD, then you would have gotten back NZ$180.18.
This is an extreme case and it is highly unlikely that currencies would change by this much over the course of a day. However, over the course of months or years, it is possible that the currencies may change significantly. Factors affecting exchange rates can be inflation, politics/geopolitics, quantitative easing and many more.
As my first go at foreign exchange, my first instinct was to set up a spreadsheet to help me keep track of how much I was exchanging and at what rates. The true rate is the exchange rate including the fee.
I then added to this a section that would calculate what I needed the exchange rate to be for me to breakeven and the profit if I exchange back at the current rate.
I was then able to use this data to create a chart that shows the exchanges I have made (blue dots), the current exchange rate (red line), the true rate (blue line) and the breakeven rate (green line).
When the red line is below the green line, then I will have made an average profit across all the exchanges I had made.
When looking at exchange rates, USD/NZD means that amount of USD you receive per NZD exchanged. To figure out how much you NZD you would receive if exchanging USD, divided 1 by the USD/NZD rate (NZD/USD = 1 ÷ USD/NZD).
Also, 1 New Zealand dollar = 1 NZD = NZ$1, but $1 NZD is technically incorrect as what you would be saying is 'One dollar New Zealand Dollar'.
