Foreign exchange trading, English is Forex Trading, foreign exchange trading refers to a trading method in which investors obtain profits by buying and selling the exchange rate differences between different currencies. Currencies of different countries (or regions) have different face value measurement relationships. For transactions between different countries or regions, different currencies need to be exchanged, which is the most basic foreign currency exchange process. The principle of foreign exchange trading is to obtain profits from the exchange rate difference by predicting the exchange rate trends between different currencies, buying or selling currencies. Foreign exchange trading is one of the largest and most active financial markets in the world, involving major currencies such as the U.S. dollar, euro, Japanese yen, and pound sterling, as well as some smaller currency pairs. The main participants in foreign exchange transactions include banks, large multinational companies, investment institutions and individual investors. Foreign exchange trading carries high risks and requires investors to have certain market analysis and risk control capabilities. At the same time, since the foreign exchange market is open 24 hours a day, investors are also required to have strong time management and psychological quality. With the maturity and expansion of the financial field and the growth of online electronic transactions, foreign exchange has begun to have a different trading purpose and become an investment product. However, since foreign exchange trading is an investment that uses leverage, you need to invest with caution. What is the important information you need to know about foreign exchange trading? This article will explain it to you in detail. Forex Trading is different from the stock market which has physical trading venues. The foreign exchange market is a global electronic trading platform, a global network market composed of major banks and other financial institutions in various countries. It is currently one of the most active trading markets in the world, with an average daily trading volume of up to 5 trillion US dollars, much higher than the total value of the U.S. stock market. When conducting foreign exchange transactions, investors trade in the form of currency pairs, that is, they sell one currency and buy another currency at the same time. Each currency in a currency pair is listed with a three-letter code, which consists of two letters representing the country or region in which the currency is located and one letter representing the currency itself. For example, USD stands for United States Dollars, GBP stands for British Pounds, and JPY stands for Japanese Yen. What is a currency pair? Currency pair, English is Currency Pair. For example, a currency pair appears in the form of "GBP/USD". Among them, The first currency (before the "/"), which is the pound here, is called the base currency and is the currency that traders want to buy; The second currency (after "/"), which is the US dollar, is the quote currency, that is, the currency to be sold. For example, the unit trading price of GBP/USD is 1.35361, which means that if you want to buy/obtain 1 GBP, you need to sell/pay USD 1.35361. The base currency value is usually 1, which helps traders intuitively understand the amount of local currency they need to pay. Currently, there are four main types of currency pairs in the foreign exchange market based on different trading volumes: 1. Major currency pairs Major currency pairs are currencies with the United States as the main currency. The current major currency pairs are: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CHF and NZD/USD, which account for 75% of global foreign exchange transactions. 2. Minor currency pairs Minor currency pairs are traded less frequently, and these typically feature major currencies other than the U.S. dollar. Including: EUR/GBP, EUR/CHF, GBP/JPY. 3. Exotic currency pairs An exotic currency pair is one in which a major currency pair originates from a small or emerging economy. Including: USD/PLN, GBP/MXN, EUR/CZK, etc. 4. Regional currency pairs Regional currency pairs refer to currency pairs within a specific geographical region, such as the EUR/NOK pair in Scandinavia, or the AUD/NZD currency pair in Australasia. What is a point (PIP) in Forex trading?
The full name of PIP is Percentage In Point, or Price Interest Point, which is referred to as "point" in Chinese. Represents the smallest unit that can fluctuate in a currency pair, that is, the basic unit of exchange rate change. PIP can be used to measure currency pair movements. In most currency pairs, currency points are sometimes specified as the fourth decimal place of the currency pair. For example, if EUR/USD rises from US$1.35361 to US$1.35371, it means that it has moved one "point". If the quoted currency is a currency with a very small face value, such as the Japanese yen JPY, the second decimal place can be used. For example, if EUR/JPY appreciates from ¥172.119 to ¥172.129, it has moved one point. In Forex trading, the "spread" is the difference between the bid and ask prices of a Forex pair's quoted price. For example, if the buying price of EUR/USD is 1.7645 and the selling price is 1.7649, the spread is 4 points, and the spread will vary from dealer to dealer. What are the types of foreign exchange transactions? There are three main types of foreign exchange trading: spot foreign exchange Forward foreign exchange Futures Forex 1. Spot foreign exchange Spot foreign exchange in English is Spot Exchange Transactions, also known as spot foreign exchange. It is a physical exchange between currency pairs. One of the two parties to the transaction delivers the agreed currency amount to the other party and receives a specified amount of another currency at the spot exchange rate for settlement. The spot foreign exchange market is where currencies are bought and sold based on their trading prices. Spot foreign exchange accounts for the largest proportion of foreign exchange transactions, because spot foreign exchange provides the "basic" physical assets for the other two foreign exchange transactions. The price of a currency pair in the spot market is determined by the relationship between supply and demand, and its influencing factors include the current interest rates, economic performance, and current political situation of the country involved in the currency pair. 2. Forward foreign exchange The English name of forward foreign exchange is Forward Exchange Transaction. Forward foreign exchange is a foreign exchange transaction in which both parties agree to carry out actual delivery at maturity based on specified currency, amount, exchange rate, delivery time and other transaction conditions. This type of transaction often occurs in international trade. In order to reduce foreign exchange risks, exporters with forward foreign exchange income sign a contract to sell forward foreign exchange with a bank. When it expires, the foreign exchange income will be sold to the bank at the contract rate at the contract price to prevent losses due to falling exchange rates. Similarly, importers with forward foreign exchange expenditures can also sign forward foreign exchange contracts with banks and purchase foreign exchange from the bank at the contract price when it expires to prevent the exchange rate from rising and increasing costs. The bank's quotation of forward exchange rate is usually the difference between the forward foreign exchange price and the spot foreign exchange price. The difference may be a negative difference or a positive difference after the forward maturity. Therefore, the forward exchange rate may be higher or lower than the spot exchange rate. 3.Forex futures The English name for foreign exchange futures is Forex Futures. Foreign exchange futures contracts are standardized contracts conducted by both parties on exchanges, such as the Chicago Board of Trade (CBOT). They are futures contracts with exchange rates as the subject matter and are used to avoid exchange rate risks. In the United States, the National Futures Association (NFA) regulates the futures market. The content of foreign exchange futures contracts contains specific transaction details, including target trading rates, number of trading units, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterparty to traders, providing clearing and settlement. When expiration, both parties can settle in cash on the relevant exchange, and futures foreign exchange contracts can also be bought and sold before expiration. Futures foreign exchange are regulated by exchanges, so usually large international companies will use foreign exchange futures contracts to hedge future exchange rate fluctuations, but speculators may also participate in these markets to make profits. How to trade Forex? How to make money in Forex? Before the advent of Internet trading, it was difficult for individual investors to trade Forex. Most Forex traders are large multinational corporations, high net worth individuals or hedge funds because Forex trading requires large amounts of capital.
With the development of Internet technology, many online trading platforms have been established. With the help of these platforms, some secondary markets have emerged that allow individual traders to conduct foreign exchange transactions. Establishing a secondary market through banks or brokers allows retail investors to easily enter the foreign exchange market. Most online brokers or traders provide very high leverage transactions for individual investors, allowing investors to control large transactions with small amounts of money and obtain high profits, but at the same time they also bear great risks. Before individual investors prepare to enter the foreign exchange market and during the transaction process, they need to pay attention to several points: 1. Understand foreign exchange knowledge Although the principles of foreign exchange trading are not complicated, there are still many tips and key information selections in the investment process, which require professional knowledge. For example, the leverage ratio of foreign exchange transactions is higher than that of stocks, the factors affecting exchange rate changes are different from those of the stock market, and how to calculate the profits of foreign exchange transactions. 2. Open a personal account Investors need to open a foreign exchange trading account with a brokerage firm. Typically, online brokers do not charge commissions, but instead earn profits through Forex spreads. Different online brokers will have different requirements for investors' initial investment amounts. For junior investors, choosing a broker with lower initial investment requirements is a better choice. 3. Develop a trading strategy After understanding foreign exchange knowledge and learning market analysis, formulating an effective strategy that suits your own investment style is the best way to avoid risks and earn returns during the transaction process. This strategy can be obtained through self-analysis or through the recommendation and discussion of a broker. Regardless of which approach, investors should consider risk reduction as the first priority. 4. Master account information Once you start trading, be sure to check your account at the end of each day, because the foreign exchange market is different from stocks, etc., in that there are prescribed trading hours at a specific exchange, and foreign exchange trading is conducted continuously for 24 hours. This means that when investors end the day's trading without closing the position or closing the transaction in time, they may suffer losses during the period of departure. Of course, it is also possible to obtain returns, but for the sake of safety, it is a necessary good habit to check the account status when closing the transaction. 5. Maintain a good attitude The foreign exchange trading process is often full of ups and downs like a roller coaster. When the worst happens, whether you can face it calmly and decisively choose to add or stop loss is a required course for beginners and a must-have quality for advanced investors. Many beginners are prone to large losses, but when they calm down and analyze again, they often come to the conclusion that "it shouldn't have been like this just now." However, like any investment, there is no regret medicine in foreign exchange and they are willing to admit defeat. Therefore, maintaining a good mentality is an ability that should be possessed at all investment stages. After understanding the process and necessary conditions for foreign exchange trading, how do you benefit from foreign exchange trading? The principle is indeed very simple, it is the price difference between the rise and fall of the currency pair and the selling and buying spreads provided by the broker. The dealer or bank will provide the current sell price and buy price of the target currency pair. 6. Buy Buying can also be called going long. For example: the current price of EUR/USD is 1.07170/1.07190. If an investor thinks that the euro will rise and decides to buy the euro now, he will buy it at the price of 1.07191. If the euro rises, when its price rises to 1.07370/1.07390, the investment will rise by 20 points. If you decide to close the position now, you will sell it at the price of 1.07370 and earn a return of 18 points. The dealer or bank will charge a commission of 2 points from the transaction process. 7. Sell Selling is also called shorting. If an investor believes that the euro will fall, he decides to establish a euro selling position, that is, to sell his holdings. Because it was a sell, the price was 1.07170. Then the euro rose and reached 1.07370/1.07390. At this time, the transaction lost 20 points. If you choose to close the position, you need to buy at a price of 1.07390, which means the investor actually lost 22 points. The 2-point difference is the commission charged by the dealer or bank for setting the buying and selling spread. .
It can be seen that due to the spread between the selling price and the buying price in foreign exchange transactions, the profit and loss are not in a 1:1 ratio, and this part of the spread will vary according to different brokers, and will also directly affect the investors' income. During the transaction process, investors do not need to pay all investments in full, but pay a certain proportion of margin (Margin) to trade. When closing a position, they will earn a corresponding proportion of returns or lose a corresponding proportion of funds, which has a leverage effect. What are the US foreign exchange trading platforms? Online brokers that can conduct foreign exchange trading in the United States include TD Ameritrade, Ally Invest, and Interactive Broker, as well as several other well-known brokers or banks. IG IG Forex Trading IG, full name IG Group, was founded in 1974 by Stuart Wheeler as the world's first foreign exchange spread betting company and is part of IG Group Holdings Plc, a publicly traded conglomerate listed on the London Stock Exchange: IGG. IG Group officially entered the US market in early 2019. Support users to make foreign exchange investments in multiple currency pairs with a spread of 0.59. IG adopts the company philosophy of "go big or go home", and with low spread costs, emphasis on customer service and education, actionable research and functional user interface, it has become highly competitive in the online foreign exchange broker market in a short period of time. IG Group was named the Best Forex Broker for US Traders in 2020 by Investopedia. Saxo Bank SAXO Founded in 1992, Saxo Bank operates a number of regulated banks and is licensed in six Tier 1 jurisdictions, making it one of the safest brokers for trading FX and CFDs. Saxo Bank is the exclusive broker and requires a minimum deposit of $10,000 to open an entry-level account. Saxo Bank’s Platinum and VIP accounts cost $200,000 and $1,000,000 respectively. Saxo Bank offers commission-free trading on 182 FX pairs with spreads as low as 0.4. Investors who trade less than $50,000 per month are required to pay a $3 monthly account fee. Saxo Bank is committed to the FX Global Code*, an evolving interbank standard built around enhanced disclosure of information and execution of optimal delivery, to promote integrity and transparency in the global FX market. *FX Global Code – FX Global Code: Introduced in August 2018. is a set of global principles for good practice in the foreign exchange market, designed to provide a common set of guidelines to promote the integrity and efficient operation of the wholesale foreign exchange market. It was developed in collaboration with central banks and market participants from 16 jurisdictions around the world. The purpose of the Global Code is to promote a strong, fair, liquid, open and appropriately transparent market in which diverse market participants, supported by resilient infrastructure, can trade confidently and efficiently at competitive prices that reflect the available market and provide information in a manner consistent with acceptable standards of conduct. The Global Code does not impose legal or regulatory obligations on market participants, nor does it replace regulation, but is intended to complement any and all local laws, rules and regulations by identifying global good practices and processes. CMC Markets CMC Market Founded in 1989, CMC Markets is publicly traded and regulated in four Tier 1 jurisdictions and two Tier 2 jurisdictions and is one of the safest brokers for trading FX and CFDs. CMC Markets is the leader in low-cost trading, offering FX trading costs that are significantly lower than the industry average.
The launch of the Next Generation platform offers a massive selection of nearly 10,000 tradable instruments. It provides an excellent user experience with advanced tools, comprehensive market research and excellent mobile applications, and it only takes three steps to open an account for free. CMC Markets offers these active traders a liquidity rebate of $5 per million dollars when their monthly trading volume exceeds $25 million, up to a maximum rebate of $10 per million dollars for investors whose monthly trading volume exceeds $300 million. Using an average spread of 0.74 pips for the average user, the total cost for the highest level user is 0.64 pips. Forex trading hours The biggest difference between foreign exchange and other financial investments is the trading time. Unlike trading in a certain center, which has fixed trading hours, the trading hours of foreign exchange are mainly distributed in four major foreign exchange trading centers in different time zones: London, New York, Sydney and Tokyo. Since there is no centralized trading place, foreign exchange transactions continue to take place in different regions around the world 24 hours a day. In the United States, the main trading hours for investors are: from 5 pm EST on Sunday to 4 pm EST on Friday. However, since the foreign exchange market operates around the clock, investors cannot trade around the clock. This means there may also be a difference in FX prices between Friday's close and Sunday's open. Investors need to pay attention to weekend foreign exchange trading hours and change their positions accordingly. In addition, the opening hours of the global foreign exchange market will vary in March, April, October, and November because countries change to use daylight saving time on different days. What are the Forex trading strategies? Formulating a trading strategy is a very important part of the foreign exchange trading process, which will directly lead to the execution and cessation of transactions, thereby affecting investors' profits or losses. For novice traders, you can first learn about several basic foreign exchange trading strategies. 1. Follow the trends Use Forex trading technical analysis tools to identify market trends, that is, the direction in which the market is moving, or more accurately, the fluctuation trend of the Forex market, because the Forex market does not move in a straight line, but continuously fluctuates, with obvious peaks and troughs. By analyzing the peaks and troughs, we can understand the trends of the foreign exchange market, which mainly include upward trends, downward trends and stable trends. In response to these three types of trends, most ordinary investors will take buying, selling and wait-and-see operations. 2. Breakout Trading Breakout trading is one of the simplest strategies in Forex trading and a good choice for beginners. A "breakout" is a price movement outside of a support or resistance area. The support level refers to when the price falls to a certain point and begins to rebound due to the influence of market capital injection. The resistance level refers to when the price rises to a certain point and stops rising and begins to fall. When price rises above a resistance area, a breakout may occur, known as a "bullish" breakout pattern. When price falls below a support area, it is called a "bearish" breakout pattern. Regardless of the pattern, a breakthrough means that a new round of market volatility may begin, and investors who join the trade can use volatility to their advantage by joining the new trend. 3. Range trading Range trading is just the opposite of breakout trading. It involves trading within a relatively stable range. Its profit is based on the fact that prices usually remain within a stable and predictable range within a certain period of time, and investors use price judgment to conduct short-term multiple transactions to obtain returns. 4. Fundamental analysis In fundamental analysis, traders look at a country's economic fundamentals to determine whether the local currency is undervalued or overvalued, and to predict the future trend of this currency against another currency. Fundamental analysis can sometimes be complex, involving numerous factors in a country's economic data that can indicate future trade and investment trends. Experienced investors will simplify it by focusing on a few major indicators, including GDP, gross industrial production, inflation data, and housing data. 5. Arbitrage trade Arbitrage trading is an investment strategy in which investors take advantage of interest rate differences between countries to profit. Investors using the carry trade "borrow" a currency with a low interest rate to buy a currency with a higher interest rate.
Arbitrage trading is one of the most popular trading strategies in the foreign exchange market, but it still has certain risks. For example, such transactions are usually highly leveraged, leading to overcrowding and limited liquidity. Is foreign exchange trading risky? Are there greater risks compared to stock trading? Foreign exchange trading, like any kind of trading, is affected by many risk factors. In addition to the economic conditions and political situation of the country where the currency is held, there are also some influencing factors during the trading process. A. Leveraged trading The biggest risk in foreign exchange trading lies in its leveraged trading model. Bulk investors are allowed to enter the market with a lower multiple of investment amount and conduct high-multiple foreign exchange transactions. Although once a profit is made, the rate of return is very considerable, the risk is also increased proportionally, and may even cause investors to lose all their initial capital. Learning how to manage risks is particularly important for foreign exchange trading. B. Transaction object In the foreign exchange market, the investor's currency pair is traded with his or her own broker, which means that the investor's counterparty is the broker. The main risk caused by this is that once the broker goes bankrupt, it will be unable to complete the subsequent redemption of income, etc. Therefore, investors should not only ensure that they cooperate with a licensed and regulated broker, but also consider the financial strength of the broker. C. Compared to stocks The trading hours of foreign exchange are 24 hours a day, which means that unless investors have sufficient risk management capabilities or close their positions at the end of the transaction, their assets may be affected by the market during any rest period. This does not exist in the stock market with fixed trading hours. In terms of market volatility, foreign exchange is affected by far more factors than the stock market, which results in its volatility being also greater than the stock market. Greater volatility may be a good thing or a bad thing for trading. In terms of market transparency, because foreign exchange is a global market and there is no specific agency to enforce information disclosure, etc., this makes the foreign exchange market less transparent than the stock market. As a result, fraudsters are more likely to appear in the foreign exchange market, causing investors to suffer unexpected losses with false information. In terms of risk diversification, foreign exchange has certain advantages over stocks. Due to the high liquidity of foreign exchange, it is unlikely that the stock market will be unable to sell. Once the risk is detected, operations can be executed immediately to stop losses. FAQ Question 1: What is foreign exchange trading? Foreign exchange trading in English is: Forex Trading, or Foreign Exchange. However, the two translations differ in meaning. Foreign Exchange is the basic function of foreign exchange. It is the process of exchanging one currency into another currency for various reasons. It is generally designed to exchange physical currency. Forex Trading is a name in the financial field. During the transaction process, the purpose is generally not to exchange currency in kind, but to obtain profits based on a prediction of the exchange rate. The place where foreign exchange transactions are conducted is called the foreign exchange market. See more Question 2: What are the foreign exchange trading platforms? Online brokers that can conduct foreign exchange trading in the United States include Interactive Broker, TD Ameritrade, and Ally Inves, as well as several other well-known brokers or banks, such as IG, Saxo Bank, and CMC Markets. See more Question 3: What are the foreign exchange trading hours? In the United States, the main trading hours for investors are: from 5 pm EST on Sunday to 4 pm EST on Friday. However, since the foreign exchange market operates around the clock, investors cannot trade around the clock. This means there may also be a difference in FX prices between Friday's close and Sunday's open. Investors need to pay attention to weekend foreign exchange trading hours and change their positions accordingly. See more Question 4: Is foreign exchange trading risky?
Foreign exchange trading, like any kind of trading, is affected by many risk factors. In addition to the economic conditions and political situation of the country where the currency is held, there are also some influencing factors during the trading process. The biggest risk in foreign exchange trading lies in its leveraged trading model. Bulk investors are allowed to enter the market with lower investment amounts and conduct high-multiple foreign exchange transactions. Although once profits are made, the rate of return is very impressive, but the risk is also increased in proportion, and may even cause investors to lose all their initial capital. See more