1. Why invest in foreign exchange
1. Large trading volume and high market transparency
The global foreign exchange market has an average daily turnover of 3.2 trillion US dollars. There is no banker in such a large market, and the object of foreign exchange investment is the national economy. Data and news are shared globally.
2. Flexible leverage and light transaction costs
Adjustable leverage ratio can effectively reduce transaction costs and improve capital utilization.
3. Two-way trading, profits are not limited by market conditions
Foreign exchange trading can be bought up and sold down, regardless of bear market or bull market, as long as the market fluctuates, there is a chance to make a profit.
4. T+0 trading 24-hour market
The global 7x 24-hour foreign exchange market is different from stocks. Foreign exchange is a T+0 transaction and can be traded at any time.
5. The risk is controllable, and the stop loss and price limit point can be preset
By setting stop loss and price limit points, it can help traders control losses or lock in profits in time.
6. The transaction is fast, and there is no need to wait for instant transaction
Under normal market conditions, all orders can be executed instantly at a specified price or within a specified range.
2. Basic knowledge of foreign exchange
Know the foreign exchange market
The foreign exchange market, also known as the "FOREX" or "FX" market, is the world's largest financial market, with a daily trading volume of $3.2 trillion. The huge trading volume makes it impossible for any institution to manipulate the market, and the price movement is regular and fair to ordinary investors.
The foreign exchange market is a global market in the true sense. At present, there are more than 30 major foreign exchange trading markets in the world. Due to the time difference, the transaction in one country will start in other countries, thus forming Monday to Friday. 7x 24-hour uninterrupted global foreign exchange market. The 24-hour market allows foreign exchange traders to arrange trading time according to their own living habits, and respond to foreign exchange fluctuations caused by economic, social and political events that occur in each period, and obtain trading opportunities. This is also one of the reasons why many office workers choose to speculate in foreign exchange.
Understanding Forex Trading
Foreign exchange trading means that investors use the changes in the exchange rates between currencies to earn the difference. Because the exchange rate is the exchange rate between two currencies, foreign exchange is traded in currency pairs.
Each currency pair has a specific symbol, such as Euro/U.S. Dollar (EUR/USD) or U.S. Dollar/Japanese Yen (USD/JPY). Buying and selling a currency pair actually means buying and selling the rise and fall of the exchange rate between the two currencies.
How to read a quote
For novices, it seems difficult to understand a foreign exchange quotation. In fact, as long as you master two basic knowledge points, reading the quotation will become very convenient: ①The currency in front is the base currency. ② The value of the base currency is always 1.
For example: USD/JPY (US dollar/Japanese yen) 90.94 in this group of quotations
USD is the base currency. USD/JPY90.94 means that 1 US dollar is equal to 90.94 yen. Whether you buy/sell, you are trading the base currency. A rise in the quotes of a currency pair represents a relative appreciation of the base currency, while a fall in the quotes of a currency pair represents a relative depreciation of the base currency.
In foreign exchange trading, you will see a two-sided quote, consisting of a bid and an ask. When you think that the quotation of this currency pair will rise, you place a buy order, and the transaction is executed at the buying price; otherwise, you think that the quotation of this currency pair will fall, you place a sell order, and the transaction is executed at the selling price. There is a difference between the buying price and the selling price, and this difference is the fee you have to pay to the dealer, called the spread.
how to buy and sell
Similar to stocks, there is also the concept of "hand" in foreign exchange trading. Foreign exchange transactions are also executed in units of lots.
In the eyes of many beginners, foreign exchange trading = currency exchange, but this is not the case. In foreign exchange trading, the goal of our buying and selling is the rise and fall of the exchange rate, not the specific currency. Assuming we buy GBP/JPY, we don't exchange JPY for GBP, which is why we only deposit USD in our trading account, but we can trade eight currencies and even gold.
However, the rise and fall of the exchange rate is an abstract concept, so we need a unit to measure what we are dealing with, and the unit of this transaction is called a "contract". In other words, margin trading is actually based on "contract" as the transaction unit, so it is also called contract trading. What traders buy and sell is not the currency itself, but a certain number of standard contracts. These words may confuse beginners, but in fact, there is no need to delve into the meaning of the contract, just remember that the value of a standard contract is 100,000 US dollars.
A standard contract is called a transaction lot. (We also often say that the contract value of one lot is 100,000 US dollars)
Understanding Margin System
Margin is a method of using leverage ratio to increase purchasing power. We know that the smallest transaction unit in foreign exchange trading is one lot, which is 100,000 US dollars. So without leverage, we need at least 100,000 US dollars in our account to trade.
Let's take a look at the situation with leverage. If you have a margin of US$2,000 in your account and set a leverage ratio of 100 times, then you can make a transaction of US$200,000. In other words, you have the purchasing power of US$200,000. (The calculation method is amount of margin x leverage multiple).
How to calculate profit and loss
In foreign exchange trading, we use "points" to measure profit and loss. The smallest unit of exchange rate fluctuations is called a point.
Simply put, the last digit of the quotation is called a point. Such as the change of EUR/USD from 1.4300 to 1.4305, we call it a fluctuation of 5 points.
*We use an example to illustrate the process of profit and loss calculation
Assume that there is a deposit of USD 2,000 in the account and a leverage ratio of 100 times is set. Then we can do a $200,000 trade ($2,000 x 100 times).
The current EUR/USD quote is 1.4130/33. We predict that the euro will appreciate against the dollar, so place a buy order and wait for the exchange rate to rise. The amount of margin occupied at this time is 100,000/100=1,000 US dollars. The calculation method is: contract value of one lot / leverage ratio = amount of margin occupied.
As we expected, EUR/USD rose to 1.4230/33. In order to realize the profit, we close this order. At this time, we have made a profit of 97 points. The calculation method is: 1.4230 – 1.4133=0.0097. On the trading platform, profit can be displayed by points or by amount. Right-click the order to change the display method of profit.
From this example, we found that there are two determining factors for the profit: price and the number of hands. In the case of correct judgment on the trend, the greater the exchange rate fluctuation points, the more profit. The profit is 97 points, so if you make N hands, the profit is N times 97 points.
It should be noted here that the leverage ratio is a double-edged sword.
In the above example, we set a leverage of 100 times and can trade up to 2 lots, but if we set a leverage of 200 times, we can trade up to 4 lots. If we occupy 100% of the margin, it is called a full position, and the calculation of profit/loss at this time is as follows:
Fluctuation points
97 points
Leverage
100 200
Full position
2 hands
4 hands
Profit/Loss Points
97 x2 97 x4