The foreign exchange market is an international investment market with huge intraday trading volume and numerous profit opportunities. Foreign exchange is an investment product with leverage. Leverage brings high returns but also high risks, which is difficult for novices in foreign exchange. How can novice investors trade in order to seize profit opportunities in the foreign exchange market? Let's take a look at the necessary knowledge for getting started with foreign exchange investment?
1. What is foreign exchange?
In the foreign exchange market, the exchange rate between two currencies is the exchange rate. For example, the US dollar is expressed as follows: USD/CNY, USD is the currency symbol of the US dollar, CNY is the currency symbol of the RMB, and USD/CNY means how much RMB corresponds to 1 US dollar. The currency symbol in front is the base currency, and the exchange rate is the number of units of 1 unit of the base currency corresponding to another currency. For example, the EUR/USD exchange rate is 1.1, which means that 1 euro is equivalent to 1.1 US dollars.
For the above-mentioned two currency pair exchange rate representation methods, the base currency is the U.S. dollar is called the direct pricing method, while the base currency is not the U.S. dollar is called the indirect pricing method.
2. What are the basic trading rules for foreign exchange investment?
Foreign exchange trading rules are different from general products. Foreign exchange investment can be traded in two directions, margin leveraged trading, T+0 trading and 24-hour trading.
Two-way trading means that investors can go long or short. This trading method increases investment profit opportunities. No matter whether the exchange rate rises or falls, investors can make profits as long as they grasp the correct trading direction.
Margin trading reduces the threshold for investors and improves the utilization rate and rate of return of investors' funds. At present, most foreign exchange trading platforms need to pay a margin of less than US$1,000 for one lot (100 ounces) of foreign exchange spot gold. In fact, the recent price of 100 ounces of spot gold is higher than US$20,000. If the full amount is traded, many investors will not be able to participate in the transaction.
Leveraged trading allows investors to use small funds to leverage large profits, which further increases the rate of return. For example, if you invest in one lot of foreign exchange spot gold, the margin is 1,000 US dollars (less than 1,000 US dollars in most cases), and the leverage ratio is 100 times. Then, if the gold price rises by 1 US dollar, the profit will be 100 US dollars, and the rate of return will be 10%.
The T+0 trading rule means that a position opened on the same day can be closed on the same day, and the 24-hour trading rule means that investors can invest in spot gold at any time on the opening day. If investors can use these trading rules flexibly, the trading risk will be reduced and the return will be greatly improved.
3. Which trading platform should I choose to invest in foreign exchange?
Anyone who does foreign exchange knows how important it is to find a high-quality foreign exchange platform. The quality of the foreign exchange platform often determines the lifeblood of foreign exchange speculators. Therefore, everyone must be very cautious when choosing a foreign exchange platform. There are three main criteria for choosing a foreign exchange platform, first, having a formal foreign exchange license, second, providing an account with low spreads, and third, having a good service attitude.
The platform meets the first point. Investors don’t have to worry about their funds disappearing. Regulators will supervise the entry and exit of platform funds to ensure the safety of investors’ funds. For example, the EightCap Yihui platform is subject to: British FCA, Australian ASIC, Vanuatu VFSC, Bahamas SCB, Cyprus CySEC and other countries are regulated, and all customer funds are stored in isolation in the customer trust accounts of the National Australia Bank (NAB) and the Commonwealth Bank of Australia (CBA), Lloyds of London Insurance Company Professional Compensation Insurance, Australian Financial Investigator Services Members of FOS – accept external independent supervision, and regularly audited by top external audit companies, which can provide investors with a safer and more reliable trading environment. If the platform meets the third point, it can reduce the transaction cost of investors and increase net profit; if the platform meets the third point, it can help investors reduce transaction risks. Investors can quickly contact the online customer service to help answer questions about account opening, transactions, deposits, withdrawals, etc. The EightCap foreign exchange trading platform meets the above three requirements at the same time. Interested investors can open a demo account to experience it for themselves.
4. Learn technical and fundamental foreign exchange analysis methods
The fundamentals of foreign exchange are the original driving force for exchange rate fluctuations, and changes in the fundamentals of foreign exchange are the cause of fluctuations in the foreign exchange market. The fundamental factors of the foreign exchange market include political, economic, financial and other factors. Analyzing changes in these factors can predict the trend of foreign exchange. In addition to fundamental analysis, technical analysis is also an important tool for judging foreign exchange trends. Generally, the fundamental analysis method is easier to judge the long-term trend of foreign exchange, while the technical analysis method can more accurately determine the specific trading point.
1. How to use fundamentals to analyze foreign exchange trends?
Generally speaking, if a country or region has political stability, economic prosperity, and monetary policy tightening, then the currency value of the country or region tends to increase; otherwise, it tends to depreciate. Investors can guide foreign exchange transactions according to this rule. Please see the case below:
Brexit has had a huge impact on the value of the pound. On the day of the UK referendum to leave the European Union, the pound fell sharply. In 2019, the UK implemented the results of the referendum, and it is very likely that there will be no agreement to leave the European Union. Investors expressed concern about the British economy. Since June 2019, the pound has fallen sharply and has continued to decline. If investors take advantage of the trend and sell short, they can reap huge profits.
2. How to use technical analysis to determine the foreign exchange trading point?
There are many methods of technical analysis, such as average line analysis, KDJ indicators and MACD indicators. Investors don't need to learn all technical analysis methods, they only need to master two or three and strictly implement them.
Summary: To get started with foreign exchange investment, beginners must first understand what is foreign exchange and the trading rules of foreign exchange investment. And if you want to get benefits safely, you must choose a safe and high-quality platform. After opening an account on a regular platform, investors also need to learn fundamental and technical analysis methods. Combining these two methods to invest in foreign exchange can greatly increase the winning rate of transactions.