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Foreign exchange introduction

Although the foreign exchange market is the most traded financial market in the world, foreign exchange is still a relatively new investment product for the majority of individual investors, as opposed to traditional financial products such as stocks, futures and bonds. This is because most investors lack an in-depth understanding of the foreign exchange market and an understanding of the volatility of the foreign exchange market. Unlike traditional securities and futures products traded on the New York Stock Exchange and the Chicago Mercantile Exchange, Forex is a global 24-hour trading financial product.

What is foreign exchange trading?

For active investors and traders, foreign exchange trading is similar to other financial investment products such as stocks, commodity futures and bonds. As a result of today's economic globalization, regional economic unions, foreign exchange trading as part of your investment portfolio will help balance investment risks and increase revenue opportunities.

Just like financial products such as futures, forex trading allows investors and traders to buy long (Long) or short (short) currency combinations such as: EUR/USD, USD/JPY, GBP/USD, etc.

The price of a currency combination represents the value of one currency relative to another, which embodies the relative market value of the two currencies at the time. The political and economic factors of a currency country affect the value of that currency.

If a country's inflation rate/interest rate is at a relatively stable and relatively low level, the gross national product is strong, and positive factors such as political stability in the country will have a positive impact on the value of the currency. Based on the study of foreign exchange price volatility, fund allocation management and trading discipline, successful investors will benefit from foreign exchange transactions. (risk warning)


Liquidity of currency transactions

Just like securities and bonds, the liquidity between currencies is different. The highly liquid currency refers to the seven countries with the most stable political and economic stability, namely the United States, Japan, Britain, France, Germany, Italy, and Canada. After the European Union began issuing euros, the most liquid currencies were the US dollar, the Japanese yen, the British pound, the euro, and the Canadian dollar. The trading volume of these five foreign currencies accounts for 80% of the global foreign exchange trading volume.

Base currency and target currency

In the foreign exchange market, the exchange rates of the two currencies appear in pairs. The base currency is in the front, the target currency is in the back, and the middle is separated by "/". When calculating the price of the pair of currencies, the base currency is used as the invariant constant and the target currency is the exchange rate variable. Euro EUR is the base currency relative to all other trading currencies, such as: EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD, etc. The pound is the base currency for currencies other than EUR, such as: GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD. Only for the euro is EUR/GBP.

Monetary value

For example, in EUR/USD, based on EUR, if an investor buys 100,000 EUR/USD, he buys 100,000 euros and sells dollars. Regardless of how the exchange rate changes, the value of 100,000 EUR remains the same. However, the target currency, the dollar, will change in value as the exchange rate fluctuates.

The currency exchange rate unit, the fourth smallest digit after the decimal point, is called pips. Forex uses pips to reflect price changes because usually foreign exchange transactions can provide a high leverage ratio, which leads to an increase in the amount of actual trading funds, and a small price change will result in a profit or loss.

Tiancheng provides a default 1:200 leverage ratio for standard accounts. If trading at this rate, a €100,000 contract would require a $500 deposit at a EUR/USD exchange rate of 1.14000. 100,000 EUR = 114,000 USD, 114,000/500 = 228, so the exact leverage provided for the EUR/USD pair is 228 times.

USD value = 1.14x base currency denomination amount = $114,000

Calculating the pip value of the above transaction can be as follows:

USD value = 1.14x base currency denomination amount = $114,000


Forex trading basics

Buy and sell foreign exchange

In reality, you buy and sell when you are practical. For example, you submitted EUR/USD at 1.14000, which means you bought the Euro at 1.14000 and sold the USD. If the exchange rate of the euro against the dollar rises, your trade will be profitable.


Buy/sell price

As with other financial product transactions, foreign exchange quotes consist of buy and sell prices. The purchase price refers to the price of the trader's buying currency. The selling price is the price at which the market maker sells the currency. For traders, the opposite is true. The bid price of the market maker is the seller's selling price, and the market maker's selling price is the trader's bid price.


The difference between the bid price and the ask price is the spread. The spread is the fee charged by the market maker to provide the individual trader with the liquidity of the foreign exchange trading transaction. For example, if the bid/ask price is 1.1451/1.14506, the spread is 0.5 pips.

Traders are always willing and able to establish a market for investors. For the service, he will have a bid price when buying stocks or a selling price when selling stocks and a quote. The difference between the bid/sell price offered by the dealer will fluctuate with the general liquidity of the underlying stock.

The main currency pair trading spreads provided by Tiancheng are generally around 1-2 points. Currency spreads with smaller liquidity will be larger. This reflects the relative liquidity and risk of a particular currency pair in a professional market. Our quotes for trading spreads reflect the risks we bear in a trading market and the costs we bear for providing services to our customers.

The foreign exchange market is the largest and most liquid market in the world, with an average daily trading volume of around $5.3 trillion. Whether it is just entering the market, or after a long battlefield, experienced investors, foreign exchange market transactions are very attractive.


24-hour active trading market

The foreign exchange market has the most flexible trading hours in the financial market, and investors can trade arbitrarily 24 hours a day, five days a week. The traditional foreign exchange market is a currency conversion business for investment purposes through banks. The transaction volume of banks has increased rapidly over time, especially after the emergence of the free floating of major international exchange rates in 1971. Importers and exporters, portfolios, multinationals, speculators, day traders, long-term investors and hedge funds are all using the foreign exchange market to pay for goods and services, trading financial assets, or reducing the risk of currency changes through hedging.

Two-way trading different market trends

Unlike the stock market, which is only "low buy and sell high", short selling or has a fuse limit, the foreign exchange market has no restrictions on the direction of the trade, and traders can buy or sell according to their trading strategies. Use a stop loss order to specify a price, when the market trend is not good for you, close the price at this price; or use a stop loss order, when the market trend turns to the unfavorable direction, you can still lock some of the proceeds.


Low entry threshold

In the foreign exchange market, exchange rate fluctuations are usually driven by actual currency flows and forecasts of global macroeconomic conditions. For the disclosure of major market news, investors who trade foreign exchange in the world will see the same foreign exchange offer. Margin forex trading requires only a minimum investment principal requirement, starting with a standard account of $200. The MetaTrader 4 trading platform can also perform a "mini" 0.01 micro lot trade.


Transparency

Unlike stock markets such as stocks, which face the risk of giant monopoly, the huge trading volume of foreign exchange makes the market less susceptible to price control by a certain bank or institution. Investors can place orders within one second without repeated quotation.


Leveraged trading

One of the advantages of foreign exchange margin trading is the use of leverage to amplify trading assets. 100 times leverage is equivalent to trading $1 for $100. Traders can profit from fluctuations in exchange rates through the proper use of leverage.

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Risk Tip: Your funds are at risk. Leveraged goods may not be suitable for all customers. Please read our risk warning in detail.
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High risk tips. Trading CFDs are risky and not suitable for everyone. Please seek independent advice. The loss may exceed the initial investment. High leverage may or may not be good for you. Before deciding to carry out a CFD, you should carefully consider your trading objectives, level of experience and risk tolerance. The loss may exceed your initial investment, so you should not invest in funds that you cannot afford to lose. You should understand all the risks associated with CFDs. If you have any questions, it is advisable to seek advice from your financial advisor and read the risk disclosure summary. This website should not be regarded as an advertising or solicitation medium, but an information channel. Nothing on this website should be considered an advertisement, offer or lobby to use our services.

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