Foreign exchange | The most hard-core dry goods in the whole network. This is enough for the introduction of foreign exchange!

foreign exchangeThe most hardcore dry goods on the entire network, just read this introductory article on foreign exchange!

Interesting souls will eventually meet. I amKMiss, based in London, engaged in finance.Follow official account: LondonKmissUnderstand the latest global financial information and gain insight into investment opportunities.

Summary of this article:

• Foreign exchange（FX）The market is a global market for exchanging domestic currency.
• Due to the global presence of trade, commercial, and financial businesses, the foreign exchange market is often the world's largest and most liquid asset market.
• Currency acts as an exchange rate for mutual transactions. For example:EUR/USD It is a currency pair used to trade the euro against the US dollar.
• The foreign exchange market exists in the form of spot (cash) market and derivative market, providing forwardfutures、optionAnd currency swaps.
• Market participants use foreign exchange to hedge international currency and interest rate risks, speculate on geopolitical political event, and diversify portfolios.
  
  

WhatIs it the foreign exchange market?

Foreign exchange is the process of converting one currency into another for various reasons, usually used for commerce, trade, or tourism.Foreign exchange is the world's largest financial marketAccording to the Bank for International Settlements (a global bank of central banks) 2019 Annual triennial report,2019 Annual foreign exchange daily trading volume reached 6.6 Trillion US dollars,Exceeding the New York Stock Exchange200Many times!

The foreign exchange market is the place where currencies are traded. Currencies are important because they enable us to purchase goods and services locally and across borders. International currencies need to be exchanged for foreign trade and commercial activities.

If you live in the United States and want to purchase cheese from France, then you or the company you purchased cheese from must pay in euros(EUR) Pay the cost of cheese to the French. This means that US importers must transfer the equivalent amount of US dollars(USD) Convert into euros.

The same goes for travel. French tourists in Egypt cannot pay in euros to visit the pyramids because it is not a locally accepted currency. Tourists must convert euros into local currency, i.e. Egyptian pounds, at the current exchange rate.

A part of this international marketThe unique aspect is that there is no central foreign exchange market。 On the contrary, currency transactions are adoptcounter(OTC) Conducted electronicallyThis means that all transactions are conducted through computer networks among traders around the world, rather than on a centralized exchange.Every week in this market5 Half a day, every day 24Hours open, currencies are traded globally in major financial centers such as Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich, covering almost every time zone。 This means that when the US trading day ends, the foreign exchange market will restart in Tokyo and Hong Kong. Therefore, the foreign exchange market is very active and prices are constantly changing.

ExternalOverview of the foreign exchange market

The foreign exchange market is the place where currencies are traded.It is the only truly uninterrupted trading market in the world.In the past, the foreign exchange market was dominated by institutional companies and large banks, who acted on behalf of clients. But in recent years, it has become more targeted towards retail investors, with many traders and investors with holdings starting to participate.

An interesting aspect of the world foreign exchange market is that there are no physical buildings that can serve as trading venues for the market. On the contrary, it is a series of connections established through trading terminals and computer networks. The participants in this market are institutions, investment banks, commercial banks, and retail investors.

Foreign exchange is mainly achieved throughTrading takes place in three markets: spot market, forward market, and futures market.The spot market is the largest of all three markets as it is the 'fundamental' asset on which the forward and futures markets are based.When people mention the foreign exchange market, they usually refer to the spot market. The forward and futures markets are often more popular among companies or financial firms that need to hedge against foreign exchange risks on specific future dates.

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Spot market ofForeign exchange transactionsIt has always been the largest because it trades the largest underlying physical assets in the forward and futures markets.Previously, the trading volume in the forward and futures markets exceeded that in the spot market. However, with the emergence of electronic trading and the surge of foreign exchange brokers, the trading volume of the foreign exchange spot market has been boosted.

The spot market is a place where currencies are bought and sold based on transaction prices.This price is determined byDetermined by supply and demandAnd it is calculated based on several factors, including current interest rates, economic performance, emotions about the current political situation (local and international), and views on the future performance of one currency against another.The final transaction is called spot trading.It is a bilateral transaction in which one party delivers an agreed quantity of currency to the counterparty and receives a specified quantity of another currency at the agreed exchange rate value.After closing the position, settle it in cash. Although the spot market is often referred to as a market for handling current (rather than future) transactions, these transactions actually take two days to settle.

In the United States, the National Futures Association(NFA) Supervise the futures market.Futures contracts have specific details, including the number of units traded, delivery and settlement dates, and the minimum price increment that cannot be customized.The exchange, as the counterparty of traders, provides clearing and settlement services.

Both types of contracts are binding and are usually settled in cash at maturity in related transactions, although contracts can also be bought and sold before maturity. Currency forward and futures markets can provide risk protection when trading currencies. Usually, large international companies use these markets to hedge against future exchange rate fluctuations, but speculators also participate in these markets.

In addition to forwards and futures, option contracts can also be traded on certain currency pairs.Foreign exchange options give the holder the right, but not the obligation, to engage in foreign exchange trading at a predetermined exchange rate on a future date before the expiration of the option.

Fast Fact: Unlike the spot market, forward, futures, and options markets do not trade actual currencies. On the contrary, the contracts they handle represent claims on a certain currency type, specific prices per unit, and future settlement dates. That's why they are called derivative markets.

How do currencies trade?

goodsCurrency pair

Every currency in the world has a three letter code. These symbols are similar to those used on stock exchanges to identify specific companies, such as in the London marketDiageo of DGE。

The currency with the largest global trading volume is the US dollar, with its code beingUSD。 The second most popular one is the euro（EUR）Followed by Japanese yen（JPY）GBP（GBP）AUD（AUD）, Canadian dollars（CAD）Swiss Franc（CHF）And New Zealand dollar (New Zealand dollar). Global co ownership170 Multiple currencies.

In foreign exchange transactions, currency is always traded as a 'currency pair'. This is because when you purchase one currency, you will also sell another currency.

The following currency pairs are referred to as "major currencies" and account for approximately three-quarters of all transactions in the foreign exchange market:

·Euro/dollar

·USD/Japanese yen

·GBP/dollar

·AUD/dollar

·USD/Cad

·USD/Swiss Franc

·New Zealand dollars/dollar

baseBase currency and quotation currency

The base currency is always on the left side of the currency pair, and the quotation is always on the right side. Base currency always equals1The quotation currency is equal to the current quotation of the currency pair- This indicates how much the quoted currency will cost to purchase one of the base currencies. Therefore, when you trade currencies, you are always selling one currency to buy another.

For example, considering currency pairsGBP/EUR = 1.19。 The base currency is GBP(GBP)The pricing currency is Euro(EUR)。 Pairing means that if you decide to purchase,1GBP value1.19 euro. In other words, purchasing1 Pound needs1.19 euro.

When you purchase a currency pair, the price you pay is called the "asking price", and when you sell it, it is called the "bid".

ExternalNumber of sink points

The number of points in foreign exchange is usually a single digit change in the fourth decimal place of a currency pair. Therefore, if the pound sterling/USD from1.35361 USD rise1.35371 The dollar has already moved by one point. However, if you are trading yen crosses, the number of points is the second decimal place change.

ExternalThe purpose of the foreign exchange market

yesOffsetting foreign exchange

Companies conducting business abroad may face risks due to fluctuations in currency value when purchasing or selling goods and services outside the domestic market. foreign exchange market Provided a By determining the completion rate of transactions A method to hedge currency risk.

To this end, traders can advance their futures Or buying and selling currencies in the swap market to lock in exchange rates. For example, suppose a company plans to invest in euros and dollars(EUR/USD) The exchange rate between is 1Euro vs 1 At the parity of the US dollar, American made mixers are sold in Europe.

The manufacturing cost of this mixer is100 In US dollars, this American company plans to150 It is sold at a price in euros - which is competitive compared to other mixers made in Europe. If this plan is successful, then due to the euro/The exchange rate of the US dollar is parity, and the company will receive50 Profit in US dollars. Unfortunately, the US dollar began to appreciate against the euro until the euro/The exchange rate of the US dollar is0.80This means purchasing now1.00 Euro needs0.80 USD.

The problem faced by the company is that although manufacturing mixers still requires100 USD, but the company can only offer150 Selling the product at a competitive price in euros - converted to US dollars, only120 USD（150 euro × 0.80 = 120 USD). The strengthening of the US dollar has resulted in profits far below expectations.

Mixer companies could have reduced this risk by selling short euros and buying dollars at parity. In this way, if the US dollar appreciates, trade profits will offset the decrease in profits from selling blenders. If the US dollar depreciates, a more favorable exchange rate will increase the profit from selling mixers, thereby offsetting losses in trade.

This type of hedging can be applied in currencies Futures market.The advantage of traders is that futures contracts are standardized and cleared by central institutions. However, the liquidity of currency futures may be lower than that of the forward market, which is dispersed and exists in interbank systems around the world.

throwMachine foreign exchange

interest rateTrade flow, tourism industry, economic strength, and Geopolitical risks Equifactor It will affect the supply and demand of currency, leading to daily fluctuations in the foreign exchange marketwave。There is an opportunity to profit from changes in the value of one currency relative to another. The prediction that a currency will weaken is essentially the same as assuming that another currency in the pair will strengthen, as currencies are traded in pairs.

Imagine a trader who expects interest rates in the United States to rise compared to Australia, and the current exchange rate between these two currencies (Australian dollars/USD is 0.65(i.e., purchase1.00 The Australian dollar requires 0.65USD). Traders believe that a rise in US interest rates will increase demand for the US dollar, hence the Australian dollar/The exchange rate of the US dollar will decline as purchasing the Australian dollar requires fewer and stronger US dollars.

Assuming the trader is correct, interest rates rise, AUD/The exchange rate of the US dollar has dropped to0.50。 This means it needs to0.50 You can buy it in US dollars1.00 The Australian dollar in US dollars. If investors short the Australian dollar and long the US dollar, they will profit from changes in value.

What drives the foreign exchange market?

inCentral Bank of China

The supply of a currency is controlled by the central bank, which can announce measures that have a significant impact on the price of that currency. For example, quantitative easing involves injecting more funds into the economy and may lead to a decrease in currency prices as supply increases. The economic indicators used to analyze the foreign exchange market include interest rates, inflation rates, a country's balance of payments and its economic policies, and the government's attitude towards intervening in the currency market（For example, the intervention of the Bank of Japan.

newNews report

Commercial banks and other investors often hope to invest their funds in promising economies. Therefore, if there is positive news about the market in a certain region, it will encourage investment and increase demand for the currency in that region. If negative news strikes, demand may decrease. This is why currencies tend to reflect the reported economic health of the regions they represent.

cityField emotion

Market sentiment, which often responds to news, can also play an important role in promoting currency prices. If traders believe that a currency is developing in a certain direction, they will make corresponding trades and may persuade others to follow suit, increasing or decreasing demand.

asWhen to start foreign exchange trading?

Foreign exchange trading is similar to stock trading.

1.    Understanding Foreign Exchange:Although foreign exchange trading is not complex, it is itself a project that requires professional knowledge. For example, the leverage ratio ratio of foreign exchange transactions is higher than that of stocks, and the driving factors of currency price changes are different from those of the stock market. Follow official account: LondonKMiss, there are more dry goods tutorials inside.

2.    Opening a brokerage account:You need to open a foreign exchange trading account with a brokerage company to start foreign exchange trading. Generally, foreign exchange brokers do not charge commissions. Because they make money through the price difference (also known as point difference) between buying and selling prices. Especially for domestic partners, the choice of platforms can be described as ups and downs. As far as I know, the domestic market is uneven, and many of them are black platforms without formal supervision (although some seem to have obtained the license of a small offshore country, there is no supervision and legal protection for investors). official account have been identified as black platforms, which can help you crack down on counterfeits!

3.    Develop trading strategies: Although no one can fully predict market trends, developing trading strategies and firm principles are essential for every trader. A good trading strategy should be based on the actual financial situation and your risk tolerance, as foreign exchange trading is a highly leveraged environment. Of course, it also provides more rewards for those willing to take risks. Human nature is the greatest devil in the transaction process, thereforeKMiss also strongly suggests setting strict profit and loss limits to eliminate greed and obsession.

4.    Cultivate emotional balanceThe transaction is full of emotional roller coasters and unresolved issues. Should we hold longer positions to gain more profits? Please strictly adhere to your trading principles!

Foreign exchange terminology

The best way to start a foreign exchange journey is to learn its terminology.

Foreign exchange account:Foreign exchange accounts are used for currency transactions. There are three types of foreign exchange accounts available based on the number of hands:

• Micro foreign exchange accountAllow you to make a one-time transaction worth up to     1,000 An account in the currency of US dollars.
• Mini Forex Account Allow you to make a one-time transaction worth up to     10,000 An account in the currency of US dollars.
• Standard foreign exchange accountAllow you to make a one-time transaction worth up to     100,000 An account in the currency of US dollars.
  
  

However, currently, domestic foreign exchange platform merchants have minimum deposit requirements and offer more mini and standard accounts.

Please remember that the trading limit for each transaction includes margin for leverage. This means that the broker can provide you with funds in a predetermined proportion. For example, they may pay for every1 USD payment 100USD, which means you only need to use the10 Trading value in US dollars1,000 The currency of the US dollar.

• Inquiry:An inquiry (or bid) is the lowest price you are willing to purchase currency for. For example, if you raise a question about sterling     1.1137 The asking price in US dollars is the lowest price you are willing to pay for one pound of US dollars. The selling price is usually higher than the buying price.
• Bid:The bid is the price at which you are willing to sell the currency. The market maker for a given currency is responsible for continuously bidding in response to buyer inquiries. Although they are usually lower than the asking price, in cases of high demand, the buying price may be higher than the asking price.
• Bear market:A bear market is a market where currency prices fall. A bear market indicates a downward trend in the market, which is the result of a downturn in economic fundamentals or catastrophic events such as financial crises or natural disasters.
• Bull market:A bull market is a market where all currency prices rise. A bull market indicates an upward trend in the market and is the result of optimistic global economic news.
• Contract for Difference:Contract for difference(CFD)     It is a derivative that enables traders to speculate on the price changes of a currency without actually owning the underlying asset. Traders who bet that the price of a currency pair will rise will purchase the contract for price difference of that currency pair, while those who believe that its price will fall will sell the contract for price difference related to that currency pair. The use of leverage in foreign exchange trading means that trading errors in contracts for differences may result in significant losses.
• Levers:Leverage is the ratio of trader funds to broker credit. In other words, leverage is borrowing capital to increase potential returns. The characteristic of the foreign exchange market is high leverage, which traders often use to increase their positions.
  Example: Traders may only take out     1,000 Own funds in US dollars and borrowing from brokers     9,000 The US dollar is betting on the euro in transactions against the Japanese yen. Due to their limited use of their own funds, if the trading direction is correct, traders will gain considerable profits. The other side of a highly leveraged environment is the increased downside risk, which may lead to significant losses. In the above example, if the trading direction is opposite, the losses of the trader will increase exponentially.  
• Hand count:Currency is traded in standard hands. There are four common hand counts: standard, mini, micro, and nano. The standard number of hands is determined by     100,000 A monetary composition of units. Mini Hand by     10,000 Composed of units, the micro hand consists of     1,000 A monetary composition of units. The choice of hands has a significant impact on the overall profit or loss of the transaction. The larger the number of hands, the higher the profit (or loss), and vice versa. But currently, the domestic market generally provides moreMini and Standard HandAccount operation.
• bond:Margin is the funds reserved in an account for currency transactions. The margin helps to guarantee the broker that the trader will maintain solvency and be able to fulfill monetary obligations, even if the transaction is not smooth. The amount of margin depends on the balance of traders and clients over a period of time. Margin and leverage (as defined above) are used together for trading in the foreign exchange market.
• Point:The point is the 'percentage of points'. This is the smallest price change in the money market, equal to four decimal places. One point equals     0.0001。100     Point equals     1 cent,10,000     Point equals     1 USD. The point value may vary based on the standard number of hands provided by the broker. stay     100,000 In the standard hands of the US dollar, the value of each point is     10 USD. Due to the extensive use of leverage in currency markets, small price fluctuations defined by points can have a significant impact on trading.
• Point difference:The spread is the difference between the buying (selling) price and the selling (buying) price of a currency. Foreign exchange brokers do not charge commissions; They make money through point differences. The difference charged by each brokerage platform may vary slightly, but we must not be greedy for cheap! Many black platforms may appear to have a small margin, which is beneficial for speculators, but they often make profits without making money. You should know that what legitimate platforms earn is the spread fee, and stable cash flow is the primary consideration for domestic trading!
  
  
  

Basic Foreign Exchange Trading Strategy

The most basic form of foreign exchange trading isLong and Short Trading。 In long trading, traders bet that currency prices will rise in the future, and they can profit from it. Short selling involves betting that the price of a currency pair will decline in the future. Traders can also use trading strategies based on technical analysis, such as breaking and moving averages, to fine-tune their trading methods.

According to the duration and quantity of transactions, trading strategies can be further divided intoFour types:

• Scalping transactionConsisting of positions held for a maximum of a few seconds or minutes, the profit amount is limited by the number of points. Such transactions should be cumulative, which means that the small profits earned in each transaction add up to a considerable amount at the end of a day or period of time. They rely on the predictability of price fluctuations and cannot cope with too large fluctuations. Therefore, traders tend to limit such transactions to the most liquid currency pairs and the busiest trading hours during the day.
• Intraday trading是在同一天持有和清算头寸的短期交易。日间交易的持续时间可以是几小时或几分钟。日内交易者需要技术分析技能和重要技术指标的知识，以最大化他们的利润收益。就像剥头皮交易一样，日间交易依赖于全天的增量收益进行交易。
• stayBand trading中，交易者持有头寸超过一天；即，他们可能会担任该职位数天或数周。在政府发布重大公告或经济动荡时期，波段交易可能很有用。由于它们有更长的时间范围，摆动交易不需要全天持续监控市场。除了技术分析之外，波段交易者还应该能够衡量经济和政治发展及其对货币走势的影响。
• stay头寸交易中，交易者持有货币的时间很长，长达数月甚至数年。这种类型的交易需要更多的基本面分析技能，因为它为交易提供了合理的基础。
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