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What is Forex

1. What is foreign exchange?

Foreign exchange (Foreign Exchange, referred to as Forex), also known as international exchange, is to exchange the currency of one country into the currency of another country, which is a payment method and credit tool for international settlement.

The main varieties of foreign exchange are hard currency and soft currency. Soft and hard are relative terms, and it varies with the economic situation of a country.
Hard currency: The exchange rate in the international financial market is strong, freely convertible, and the currency value is stable. It can be used as an international means of payment or currency, such as the eight major international currencies USD, GBP, AUD, EUR, and CHF. , Japanese yen JPY, New Zealand dollar NZD, Canadian dollar CAD, these are the varieties that are frequently traded and traded in the market.
Soft currency: the exchange rate is weak in the international financial market, cannot be freely exchanged for other countries' currencies, and the currencies of countries with low credit degrees, such as Indian rupee, Vietnamese dong, etc.

2. What is foreign exchange trading?

Foreign exchange trading refers to the trading method in which investors use the changes in exchange rates between currencies to simultaneously buy one currency in a set of currency pairs and sell another currency in the foreign exchange market.

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For example: when you predict that EUR/USD (Euro/U.S. dollar) will appreciate, then you buy EUR/USD, which means that you buy EUR EUR and sell USD USD at the same time.

In the foreign exchange market, the 10 most popular currency pairs to trade are: euro/dollar (EUR/USD), dollar/yen (USD/JPY), pound/dollar (GBP/USD), Australian dollar/dollar (AUD/USD) ), USD/CAD (UAD/CAD), USD/CHF (UAD/CHF), USD/MXN (USD/MXN), USD/CNY (USD/CNH), USD/NZD (USD/NZD) , USD/RUB.

3. What is foreign exchange margin trading?

Foreign exchange margin trading refers to: investors conduct foreign exchange transactions with trusts provided by banks or brokers. In the transaction, it makes full use of the principle of leveraged investment. With small and large, investors and brokers sign a contract to buy and sell foreign exchange, and only need to pay a certain margin to conduct 100% of the transaction.

For example: When you conduct foreign exchange margin trading in a company and predict that EUR/USD will appreciate in value, assuming its leverage ratio is 1:100, that is, the margin ratio is 1%, then when you buy 1 standard unit of EUR, The principal is $100,000, and you actually only have to pay $1,000.

4. History and current situation of foreign exchange margin trading

In 1944, the Bretton Woods system was established, the dollar became the world's only reserve currency, and a fixed exchange rate appeared; in the
1970s , foreign exchange margin trading took shape in London, because a large amount of principal was required for trading, so it was mainly banks and large financial institutions. Institutions and governments are involved; the Bretton Woods system collapsed in
1973 , the fixed exchange rate disintegrated, and was replaced by a floating exchange rate system;
In 1974 , the British financial market began to provide clearing and gold transactions, and the individual foreign exchange market began to emerge; the
mid -1980s , the electronic foreign exchange trading form became popular, namely "Reuters Dealing" developed by Reuters; in the
late 1990s, foreign exchange margin was introduced into the United States, Hong Kong, China, and Japan, and became the first financial product for investors in the Japanese market;
In 1996 , the era of online online trading was opened, foreign exchange trading began to be opened to the majority of retail traders, and the number of foreign exchange margin traders continued to increase. The
2013 BIS report shows that foreign exchange transactions in the United States, the United Kingdom, Japan, and Singapore account for 71% of the world's foreign exchange transactions.

The history and current situation of China's foreign exchange market:
In 1994 , the China Securities Regulatory Commission completely banned foreign exchange futures trading and margin trading; in
2000 , with the development of information technology and the increasing relaxation of domestic policies, internationally renowned foreign exchange companies and brokers began to promote in China, foreign exchange Margin business has gradually developed in China;
In 2004 , China Banking Regulatory Commission "Interim Measures for the Administration of Derivative Products Trading Business of Financial Institutions" stipulates that financial derivatives are a kind of financial contract, and banks can carry out new financial derivatives business without additional approval;
2006 In 2008, CCB, Bank of Communications, Bank of China, China Merchants Bank, Minsheng, etc. successively launched foreign exchange margin business; in
2008 , the China Banking Regulatory Commission issued a notice to prohibit banks and financial institutions from opening or disguised foreign exchange margin business;
2016 CCTV financial program special report, foreign exchange margin The business has become the third "wealth opportunity" in China, and domestic foreign exchange transactions have grown by more than 70% annually. According to a report by Aite Group, a European financial consulting agency, almost half of the top ten foreign exchange brokers in the world derive their income from Chinese investors, and retail foreign exchange transactions involving individuals in China and India account for about 7%-8% of the global foreign exchange market transactions. The average daily trading volume is nearly 400 billion US dollars. China's foreign exchange practitioners, brokers, market size, and number of investors have exploded.

5. The emergence of the foreign exchange market

The foreign exchange market refers to a trading place that engages in foreign exchange trading internationally and adjusts the supply and demand of foreign exchange. Its function is to manage monetary commodities, that is, the currencies of different countries.

1. Internationally, due to trade, investment, tourism and other economic exchanges, if you want to pay abroad, you must first buy foreign currency in your own currency, which leads to the exchange of domestic currency and foreign currency.

2. Speculation - The comparison between the two currencies is called the exchange rate or exchange rate. In order to implement foreign exchange policies, the central banks of Western countries often affect the exchange rate of foreign exchange and often buy and sell foreign exchange.

3. Hedging - Due to fluctuations in the exchange rate between the two related currencies, companies that own foreign assets (such as factories) may be exposed to some risk when translating these assets into their home currency. When a foreign asset denominated in a foreign currency does not change in value over a period of time, a gain or loss occurs when the value of this asset is translated in the domestic currency if the exchange rate changes. Companies can eliminate this potential gain or loss by hedging. Gains and losses on foreign currency assets due to exchange rate changes are offset.

The foreign exchange market is a cash inter-bank market or inter-dealer market. It does not have a physical venue for transactions. Transactions are conducted all over the world by telephone and through computer terminals. The direct inter-bank market is qualified for foreign exchange clearing transactions. Most of them are traders, and their transactions constitute large-value transactions in the overall foreign exchange transaction. These transactions create a huge transaction volume in the foreign exchange market and make the foreign exchange market the most liquid market.

The foreign exchange market is the largest financial market in the world. According to the 2016 BIS triennial central bank survey, the daily trading volume of the foreign exchange market averaged $5.1 trillion. (Note: The BIS three-year central bank survey is the most comprehensive and authoritative source of information on the size and structure of the global foreign exchange and OTC derivatives markets)

6. What are the major foreign exchange markets in the world?

There are eight major foreign exchange trading centers in the world, in order: United Kingdom -London, United States-New York, Japan-Tokyo, Singapore, Switzerland-Zurich, Hong Kong, Australia-Sydney, France-Frankfurt. London is the world's largest foreign exchange trading center.

7. Who are the main players in the foreign exchange market?

Central banks, commercial banks, investment banks, brokers (foreign exchange dealers), multinational companies, fund companies, and individuals
can be summed up as: central banks, liquidity providers, brokers, and end customers

8. The main advantages of the foreign exchange market

• 24-hour trading: Due to the different geographical locations of major financial centers in the world, there will be time differences, but the time difference relationship has instead promoted the formation of a huge market that operates 24 hours a day in the foreign exchange market. Markets will be closed only on Saturdays, Sundays, and major national holidays.
• Huge liquidity: The foreign exchange market is the world's largest financial trading market, with a daily trading volume of US$5.1 trillion, far exceeding that of other financial markets such as stocks and futures.
• There is a market but no market: the foreign exchange market is an invisible market, which can be traded through communication network equipment and electronic computers. In any place, you can use telephones, mobile phones, computers, pad electronic equipment, and under the condition of global network connectivity Trade quickly and accurately.
• Two-way trading: No matter whether you are long or short, bull market or bear market can be traded.
• Leverage mechanism: Small funds can be invested by magnifying multiples, that is, small and large.
• Low transaction costs: There is no handling fee for foreign exchange transactions, and the cost is relatively low compared to others.
• Fair and transparent: The foreign exchange market has a huge transaction volume and is the market with the highest capital liquidity. No individual, institution or even country can manipulate it. All financial news is released by the official government at the same time in the world, which makes it the most fair and transparent in the world. market.

9. Trading hours in the foreign exchange market

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Novice guide

1. What should newbies pay attention to when entering the market?

1) Before stepping into the foreign exchange market, be sure to correct your thinking in the foreign exchange market. Trading in the foreign exchange market is not based on luck, nor is it based on gambling. Many times, investors who first enter the foreign exchange market often do not recognize the market situation, and finally lead to deviation from the correct direction;
2) There must be a reasonable capital budget, and investment funds should be used as risk funds. Foreign exchange transactions cannot guarantee 100% gain. Therefore, don't affect your normal life and financial budget because of the investment funds;
3) Before investing real funds, investors should not only establish their own transaction models, but also start to simulate transactions. This kind of simulated trading must be regarded as a real account and must be traded meticulously, so that you will pay less tuition in the future real trading;
4) When setting the amount of capital to invest, you must think clearly about the profit And the possibility of loss, don't overload your account. Because foreign exchange transactions can magnify the amount of capital control, usually the ratio is 100:1. It means that $1,000 can control $100,000, so this function of capital amplification is like a double-edged sword, and high returns are accompanied by huge risks. Therefore, prudent investors usually control the maximum loss of each time within 5%, and the profit will be stable and long-term;
5) Use stop loss to reduce huge losses
. When you make a trade, you should establish a tolerable loss Use stop loss to reduce losses, so as not to cause huge losses. The loss range is set according to the account funds. It is best to set it at 3-5% of the total account amount. When the loss amount has reached your tolerance limit, don’t make excuses to try If you are desperate to wait for the market to turn around, you should close your position immediately;
6) To establish an effective trading system that suits you.
What is a trading system? From a simple concept, a trading system is a three-dimensional system of systematic trading thinking. Systematic trading thinking is a concept, which is reflected in the overall observation of price movement and the continuous observation in time in the judgment and analysis of market conditions. A comprehensive reflection of the three elements. There is a lot of content involved in systematic trading thinking. No matter whether you are a novice or a veteran, you always use a variety of different methods, systems, and strategies to earn profits by speculating on the price fluctuations of products. Each trading system also has its strengths and weaknesses. The key to winning the speculative market is to develop a simple trading system and strictly abide by the trading rules.

2. How to select a high-quality foreign exchange platform

1) Supervision; whether it belongs to one of the three highest-standard financial regulatory agencies in the world (USA, FCA, NFA);
2) Fund security; the overall strength, net assets, reputation, etc. of the platform business;
3) Whether the deposit and withdrawal of the platform is normal , convenient;
4) The stability of the transaction; whether there is frequent chucking, slippage, and disconnection, the response to the market gap, whether the quotation is delayed or repeated, and whether the order placement and execution speed are delayed too much;
5) Liquidity ; Whether the liquidity of the platform is good, the liquidity is good, the spread is low, and the transaction cost is low;
6) Customer service; timely and reliable customer service is very necessary. If the platform is disconnected, can you contact customer service in time to close the position by phone ; Whether customer service can solve transaction problems for customers in the shortest time.

3. How the platform connects with banks

End customers include institutional investors, funds, and individual investors. They want to connect orders with international banks, but because the amount of funds is too small to be reached, they rely on broker Broker to complete orders. However, not all brokers can connect with banks to obtain bank quotations directly, so liquidity providers LP are needed to provide brokers with liquidity - that is, real-time quotations from banks, but the quotations obtained by LPs are integrated by PrimeBroker. That is, the quotations of many large banks such as Deutsche Bank, JPMorgan Chase, Citibank, HSBC , BNP Paribas, etc. are centralized and integrated.

4. How to make an order

As shown in the figure on the right, usually in the STP-ECN trading mode, the ECN matching system will first send the quotation order to the MT5 terminal server. The customer places an order after seeing the quotation on MT5, and enters the ECN matching system through the STP bridging technology. , and the ECN matching system brings together all liquidity providers such as international banks, non-banking institutions, hedge funds, etc., so the customer orders that enter the ECN trading environment will be automatically matched and executed instantly.

5. How to identify the STP-ECN platform and the MM platform

There are two main types of online foreign exchange trading platforms: Dealing Desk (DD) and No Dealing Desk (NDD).

A foreign exchange trading platform with a processing platform model (DD) is also called a Market Maker (MM).
The foreign exchange trading platform of the non-processing platform mode (NDD) can be subdivided into STP-ECN, STP, DMA/STP.

MM usually has a trading desk or a dealing desk (Dealing Desk) to process orders and set the spread type to fixed. And profit through the spread, trading in the opposite direction with the client when needed. That is to say, when a trader wants to buy, the market maker sells to the trader, and when the trader wants to sell, the market maker buys it, and the market maker will always be in the opposite position of the trader , as opposed to the trader's position. The trader sees that the buying and selling price is different from the actual price in the inter-bank foreign exchange market. In order to complete the trader's order, the market maker has the opportunity to reverse the transaction to control the price when needed. Because the market maker can control the price, if the market maker sets the spread to be fixed, the risk is very small.

Of course, as a trader, there is no need to panic because market makers can control these, because the competition among foreign exchange brokers is very fierce, so the prices provided by market makers are very close to the interbank foreign exchange market ( Interbank Market) price, if not exactly the same. In addition, the existence of market makers enables the majority of small and medium-sized investors to participate in the foreign exchange trading market. Its universal existence is a historical necessity, and it is market makers that promote the rapid development of the foreign exchange retail trading market.

On the other hand, STP-ECN platforms directly and anonymously place customer orders in the real international foreign exchange market for trading. In the ECN environment, various participants are concentrated, including liquidity providers such as banks, hedge funds, non-bank institutions, and retail customers, etc., and liquidity providers send their competitive bid and ask quotes to the ECN system. , and form trading counterparties with retail customers. The more liquidity providers, the better the liquidity, and the customers can get the best real quotation in the market, and the faster their orders will be filled. Moreover, in the ECN mode, customers can also see the market depth of the order, that is, they can see the buy and sell orders of other participants, that is, know where there is liquidity, so that the transaction is more accurate. In the STP-ECN trading mode, all of them are floating spreads, and customer orders are automatically matched and traded, and there are usually no repeated quotations.

6. How to use the MT5 trading platform (with additional Word)

1) MT5 platform PC side operation guide

2) MT5 Mobile Login Guide

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Forex calculation

1. Cross exchange rate calculation

With the US dollar as the intermediary currency, there are three situations in which the US dollar is positioned in the exchange rate of the two currencies:

• US dollar is the base currency (cross division)
  Known: USD/CAD: 1.31583——1.31608USD/CHF: 0.99905——0.99935 Looking
  for the CAD/CHF exchange rate?
  Bid price=0.99905/1.31608=0.75911
  Ask price=0.99935/1.31583=0.75948
• USD is the settlement currency (cross division)
  Known: EUR/USD: Bid price 1.06432 - Ask price 1.06464
  GBP/USD : Bid price 1.24890 - Ask price 1.24924 Looking
  for the EUR/GBP exchange rate?
  Bid price=1.06432*1/1.24924=0.85197
  Ask price=1.06464*1/1.24890=0.85246
• The U.S. dollar is the base currency in the exchange rate of one currency and the settlement currency in the exchange rate of another currency. (multiplied on the same side)
  Known: GBP/USD: Bid price 1.24968 - Ask price 1.25021
  USD/JPY : Bid price 120.102 - Ask price 120.201 Looking
  for GBP/JPY exchange rate?
  Bid price=1.24968*120.102=150.089
  Ask price=1.25021*120.201=150.276

2. Profit and loss calculation

• of the direct quotation with the settlement currency of USD
  = (ask price - bid price) * lot size * contract unit
  Example: it is known that after the customer made a long (buy) 2 lots of EUR/USD at 1.06586, the EUR rose to 1.06655 on that day and immediately all the Close the position. Seeking the profit and loss of customers?
  Profit and loss = (1.06655-1.06586)*2*100,000=138 USD=profit
• of indirect quotation with US dollar as the base currency
  = (ask price - bid price) / closing price * lot size * contract unit
  Example: it is known that the customer shorted (sold) 5 lots of USD/JPY at 113.732, and then at the price of 112.521 Close the position to buy 5 lots of USD/JPY. Seeking the profit and loss of customers?
  Profit and loss=(113.732-112.521)/112.521*5*100,000=5381.2 USD=profit
• The base currency of settlement currency is non-US cross
  profit and loss = (ask price - bid price) * settlement currency of the cross/USD exchange rate * lot size * contract unit
  Example: It is known that the customer sells 10 lots of EUR/GBP at 0.85160, and then At 0.85012, close the position and buy 10 lots of EUR/GBP. At this time, the exchange rate of GBP/USD is 1.23405. What is the profit and loss of the client?
  Profit and loss=(0.85160-0.85012)*0.85012/1.23405*10*100,000=1019.5 USD=profit

3. Calculation of foreign exchange overnight interest

Overnight interest = annual interest rate difference / 360 days * 1 bid contract unit * lot * exchange rate price (long/short) * interest accrual days

• A direct quotation example of USD as the settlement currency
  EUR/USD: Assume that the customer has a 0.1 lot account and buys 5 lots of EUR/USD on Monday. The market price is 1.06638/1.06659. The overnight interest for customers who enter EUR is:
  0.56%/360*0.1*100,000*5*1.06659*1=0.83 USD
• of indirect quotation with USD as the base currency
  USD/JPY: Assuming that the customer is a 1-bid account, and sells 5 lots of USD/JPY short on Monday, the market price is 113.651/113.680, and the position is held overnight until Tuesday, PrmBuy-2.16%, then the customer sells USD Swap is:
  -2.16%/360*100,000*1*1=7.22 USD
• Crossover
  example: EUR/GBP: Assuming that the customer has a 0.01 hand account and buys 5 lots of EUR/GBP on Wednesday, the market price is 0.85243/0.85275, overnight to Friday, PrmBuy-2.13%, then the overnight interest for customers who buy EUR Yes:
  -2.13%/360*0.01*100,000*5*0.85275*3=0.151 GBP

Calculation of interest accrual days:

Monday: 1 day overnight interest. Trading on Monday, settling on Wednesday, holding positions on Monday to Tuesday, the settlement day is from Wednesday to Thursday, so 1 day interest is paid;
Tuesday: 1 day overnight interest. Trade on Tuesday, settle on Thursday, hold positions on Tuesday to Wednesday, and the settlement day is from Thursday to Friday, so 1-day interest is paid;
Wednesday: 3-day overnight interest. Trade on Wednesday, settle on Friday, hold positions on Wednesday to Thursday, and the settlement day is from Friday to next Monday, so 3 days of interest must be paid; therefore, on every Thursday, the overnight interest added or subtracted will be 3 times that of weekdays. Because there are two days between Saturday and Sunday;
Thursday: 1 day overnight interest. Trading on Thursday, settlement on the next Monday, holding positions on Thursday to Friday, the settlement day is from next Monday to next Tuesday, so 1 day interest is paid;
Friday: 1 day overnight interest. Trading on Friday, settlement on next Tuesday, positions held on Friday to next Tuesday, settlement day is from next Tuesday to next Wednesday, so 1 day interest is paid.

*According to international banking practice, foreign exchange transactions are settled after 2 trading days, and overnight interest is settled on the settlement date.

4. Point value calculation

point
between the buying price and the selling price when conducting foreign exchange transactions, that is, Pip Value. The pip value depends on the trading volume.
Description of the quoted currency for pip value calculation :
The later currency in the currency pair is the quoted currency, for example: CHF in USD/CHF is the quoted currency.

Basis point description: For conventional currency pairs, the fourth decimal point is the basis point (0.0001), for example: EUR/USD 1.10687
Japanese currency pair, the second decimal point is the basis point (0.01), for example: USD/JPY 113.261
Spot gold, after the decimal point The first digit is the base point (0.1), for example: XAU/USD 1213.59
In short, in the CXM Direct LLC five-digit quotation system, the second-to-last digit is the base point.

Point value calculation formula:
Point value = Contract Size * Tick Size * Quote Currency Rate

example is as follows:
1. Take USD/CAD as an example:
Assuming that the current exchange rate of USD/CAD is 1.30681, the point value for each standard lot traded by the customer is:
USD/CAD point value=100,000*0.0001*(1/1.30681) = $7.652

2. Taking GBP/USD as an example,
assuming that the current exchange rate of GBP/USD is 1.25169, the point value for each standard lot traded by the customer is:
GBP/USD point value=100,000*0.0001*1.25169=$12.5169

3. Take GBP/JPY as an example:
Assuming that the current exchange rate of GBP/JPY is 139.485 and the current exchange rate of USD/JPY is 113.261, the point value for each standard lot traded by the customer is:
GBP/JPY point value=100,000*0.01 *(1/113.261) = $8.829

4. Take GBP/NZD as an example:
Assuming that the current exchange rate of GBP/NZD is 1.71082 and the current exchange rate of NZD/USD is 0.72001, the point value for each standard lot traded by the customer is:
GBP/NZD point value=100,000*0.0001 *0.72001 = $7.2001

5. Margin calculation

Used margin = lot * contract unit /
used margin of leveraged gold and silver = lot * contract unit * market price / margin of leveraged
CFD CFD is a fixed
free margin = equity - used margin - spread

Example: The customer opens an account and deposits $5,000, selects a leverage of 1:100, and trades EUR/USD (Euro/USD)

a. If you trade 1 standard unit of EUR/USD at 1.06611, the spread is 2
Used margin = 1*100,000/100*1.06611=1,066.11 USD Free
margin = 5000 – 20 (2*10)(spread) – 1066.11 = 3913.89 The US dollar
means: 3913.89 US dollars can bear about 391 (3913.89/10=391.389) points of reverse market volatility.
If the market moves in the opposite direction by more than 391 points, the account will be liquidated.

b. If trading 2 standard units of EUR/USD, the spread is 2
used margin = 2*100,000/100*1.06611=2132.22 USD
free margin = 5000 – 40 (2×10×2) (spread) – 2132.22 = 2827.78 The US dollar
means: 2827.78 US dollars can bear about 141 (2827.78/(10×2)=141.389) points of reverse market volatility. If the market moves in the opposite direction by more than 141 points, the account will be liquidated.

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