Introduction to foreign exchange speculation: What is foreign exchange trading exactly?

What is foreign exchange trading?

Forex trading, in simple terms, is the process of exchanging one currency for another. Many people participate in CBCX throughforeign exchange marketTo understand the exchange rate fluctuations between different currencies.

How does foreign exchange trading work?

This question covers a wide range of topics, and I will introduce them to you one by one.

First, the transaction method

Spot foreign exchange transaction: also known as spot foreign exchange transaction, is a foreign exchange transaction method in which both parties agree to handle delivery within two business days after the transaction.

Forward transaction: also known as foreign exchange transaction, foreign exchange transaction is not immediately delivered after the transaction, but according to the contract provisions in the future time for delivery of foreign exchange transactions.

Arbitrage: Arbitrage refers to the use of different foreign exchange markets, different currency types, different delivery times, and differences in some currency exchange rates and interest rates to buy from the low-priced side and sell from the high-priced side to make profits.

Carry trade: A trading method that takes advantage of the difference in interest rates between the two countries' currency markets to move funds from one market to another in order to make a profit.

Swap transaction: refers to the combination of two or more foreign exchange transactions with the same currency, but opposite transaction directions and different delivery dates.

Foreign exchange futures: The so-called foreign exchange futures refer to futures contracts based on exchange rates, which are used to avoid exchange rate risks. They are the earliest varieties in financial futures.

Foreign exchange options trading: Foreign exchange options trade in foreign exchange rights, that is, after the option buyer pays the corresponding option fee to the option seller, he obtains an option to buy and sell currencies at an agreed time at a predetermined exchange rate, and the buyer can also choose not to execute the contract.

II. Classification of transactions

The foreign exchange market, also known as the "foreign exchange" or "FX" market, is the largest financial marekt in the world, with more than $1.50 trillion of capital flowing in it every day on average, equivalent to more than 30 times the sum of all securities market transactions in the United States.

Classification of foreign exchange transactions

From the perspective of the nature of transactions and the types of implementation, foreign exchange trading can be divided into the following two categories:

1. Basic foreign exchange transactions to meet the real trade and capital transaction needs of customers;

2. On top of basic foreign exchange transactions, foreign exchange derivatives transactions are conducted to avoid and prevent exchange rate risks or for investment and speculative needs.

The basic foreign exchange transactions that belong to the first category are mainly spot foreign exchange transactions, while foreign exchange derivative transactions include forward foreign exchange transactions, foreign exchange elective transactions, swap transactions, and swap transactions.

There are two main reasons for foreign exchange trading. About 5% of daily trading turnover is due to companies and government departments buying or selling their products and services abroad, or having to convert their profits earned abroad into domestic currency. The other 95% of trading is for profit or speculation.

The best trading opportunities for speculators are always the most frequently traded and liquid currencies, called "major currencies," which today account for about 85 percent of daily trading, including the dollar, yen, euro, pound, Swiss franc, Canadian dollar and Australian dollar.

This is an instant 24-hour trading market. Forex trading starts every day in Sydney, and as the earth turns, the business days of each financial center around the world start in sequence, first in Tokyo, then in London and New York. Unlike other financial marekts, Forex trading investors can react to foreign exchange fluctuations caused by economic and social events that occur during the day or night at any time.

The foreign exchange market is an over the counter market, as transactions between two parties are usually conducted by telephone or electronic trading networks, unlike stock and futures transactions, which are centralized on a single exchange.

III. Fundamentals of foreign exchange

Fundamental analysis is based on the study of macro fundamentals and the impact of changes on exchange rate trends, and draws conclusions about the supply and demand relationship between currencies to judge exchange rate trends. Research objects include economics, politics, humanities, geography, emergencies and other aspects, generally used to judge long-term exchange rate trends.

The long-term development trend of the exchange rate obtained by fundamental analysis is more reliable and has an advance, but its disadvantage is that it cannot provide the starting point and ending point of the exchange rate rise and fall and the time of change. Sometimes, the change of the exchange rate does not fully follow the fundamental change. Therefore, fundamental analysis needs to be studied in combination with technical and market psychology and other factors.

Main factors affecting exchange rates

Political situation: Changes in the international and domestic political situation have a great impact on the exchange rate. If the situation is stable, the exchange rate will be stable, and if the situation is volatile, the exchange rate will fall. Areas to pay attention to include international relations, the situation of important government officials, etc.

Economic situation: The overall effect of a country's economy is the most direct and important factor affecting the exchange rate of its currency, mainly considering the level of economic growth, the balance of payments, the level of inflation, and the level of interest rates.

Government, central bank policy: The government's fiscal policy, foreign exchange policy and the central bank's monetary policy play a very important role in the exchange rate. For example, interest rate rises and falls, market intervention, etc.

Market psychology: The psychological expectations of foreign exchange market participants seriously affect the direction of the exchange rate. After the market forms a certain consensus, the exchange rate will change for a certain period of time, and sometimes the exchange rate may be completely divorced from the fundamentals.

Speculative trading: As the process of financial globalization accelerates, the flow of international funds in the market is becoming increasingly large, and the scale of its transactions is huge, sometimes having a profound impact on exchange rate movements.

Emergencies: Some major emergencies can affect market psychology and cause changes in exchange rates. For example, some natural disasters or unexpected events may have an impact on currencies in the short term.

IV. Foreign exchange of various countries

US Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound Sterling (GBP), Swiss Franc (CHF), Hong Kong Dollar (HKD), Canadian Dollar (CAD), Australian Dollar (AUD), New Zealand Dollar (NZD), Singapore Dollar (SGD), Patacas Dollar (MOP), Malaysian Ringgit (MYR), etc.

V. Trading hours

24-Hour foreign exchange market

Opening and closing times of major international foreign exchange markets (Beijing time):

New Zealand Wellington Foreign Exchange Market: 04:00-12:00

Australian Foreign Exchange Market: 6:00-14:00

Tokyo Foreign Exchange Market, Japan: 08:00-14:30

Singapore Foreign Exchange Market: 09:00-16:00

London Foreign Exchange Market: 15:30-00:30

Forex Market in Frankfurt, Germany: 15:30-00:30

New York foreign exchange market: 21:00-04:00

Sixth, the reasons for the emergence of the foreign exchange market

The foreign exchange market refers to the place where foreign exchange is bought and sold, or where various currencies are exchanged with each other. The foreign exchange market exists because:

1. Trade and investment: Importers and exporters pay in one currency when they import goods and receive in another when they export goods. When they settle their accounts, they need to convert some of the currency they receive into a currency that can be used to buy goods. Similarly, a company buying foreign assets must pay in the currency of the country concerned.

2. Speculation: The exchange rate between two currencies changes with supply and demand. Traders can make a profit by buying a currency at one rate and selling it at a more favorable one.

3. Hedging: Companies with foreign assets may be exposed to risks when converting these assets into their home currency due to fluctuations in exchange rates between two related currencies. Companies can hedge against this potential gain or loss through foreign exchange transactions.

VII. History and current situation of the foreign exchange market

In the course of the development of the futures market from 1992 to 1993, many Hong Kong foreign exchangebrokerLaunching foreign exchange futures trading business on the mainland without approval has attracted the participation of a large number of domestic enterprises and individuals. Due to the participants' lack of understanding of the foreign exchange market and trading, blind participation led to large-scale losses.

In August 1994, the relevant departments completely banned foreign exchange futures trading. Since then, the domestic foreign exchange margin trading has been negative.

At the end of 1993, banks began to allow domestic banks to carry out real foreign exchange trading business for individuals. By 1999, with the standardization of the stock market, some investors began to enter the foreign exchange market, and domestic foreign exchange real trading gradually became an emerging investment method. Foreign exchange trading has become a larger investment market besides stocks.

Compared with the domestic stock market, the foreign exchange market is more standardized and mature, with a daily trading volume of about 1,000 times that of the stock market. Although the trading rules are not fully in line with international practices, the personal real foreign exchange trading business opened by domestic banks still attracts many participants.

Introduction to foreign exchange trading

Learning foreign exchange trading is a necessary preparation stage for every investor to enter this field. Learning foreign exchange trading is not only to improve additional income, but also to cultivate an awareness of investment and financial management. Newcomers can refer to the following points:

1. It is recommended to choose a regulated mainstream platform. Different countries have different regulators, such as the FCA in the UK. Choosing a compliance platform helps to ensure the trading environment.

2. It is necessary to improve the basic knowledge. You can learn some introductory books, understand basic trading concepts, and experience simulated trading, which will help to improve your skills and confidence.

3. Know yourself objectively. Although there are many market opportunities, your own opportunities are limited. Only by recognizing your own strengths and weaknesses can you clearly position yourself. Good discipline is the first step to learning.

4. Maintain hobbies. Mentality management is a major challenge in foreign exchange trading. Investors should maintain their hobbies and be relaxed and relaxed.

Accumulate and learn slowly, and you can gradually master relevant knowledge and skills. It is recommended not to enter the market blindly, but to see the market clearly and seize the opportunity to operate again. The following analysis of each time period is for reference only.

The market at 5-14 am is generally relatively light, mainly due to the small driving force of the Asian market. Generally, the fluctuation range is within 30 points, mostly adjustments and pullbacks, and the direction is not obvious.

At this time, the market direction is not clear, you can observe the fluctuation pattern, perform small operations when the market fluctuates to both ends, and set take profit and stop loss.

14-18 noon is the European morning market, and there is usually a market after 15 o'clock. After Europe starts trading, funds increase and market volatility increases. At this time, data is often released, and the fluctuation range is around 40-80 points.

From 18 to 20 in the evening, it is the noon break in Europe and the early morning in the American market. The market is relatively light.

20:00-24:00 is the afternoon session of the European market and the morning session of the American market, generally above 80:00. This time will run in the direction of the day and needs to be judged according to the general trend.

After 24:00 to early morning, it is the afternoon session in the United States. At this time, it has emerged from the larger market, and the follow-up is mostly technical adjustments.

Foreign exchange traders in China have a good time advantage and can seize the most volatile period between 15:00 and 24:00. This time is suitable for non-foreign exchange professional investors to trade in their spare time after get off work.

Investors who can't catch up in the afternoon can wait until after 20:30 pm, which is usually the time when the second market starts. If there are important data announcements, you need to be cautious and do not blindly copy orders.

IX. Risk management

1. Strengthen account management and actively adjust assets and liabilities. Assets and liabilities expressed in foreign currencies are easily affected by exchange rate fluctuations, and accounts need to be arranged reasonably.

2. Choose a favorable denomination currency and use soft and hard currencies flexibly. Foreign exchange risk is closely related to the currency. In principle, we should strive to receive foreign exchange in hard currency and pay in soft currency.

3. Enter currency preservation clauses in the contract. There are various types of currency preservation clauses, and the purpose of preservation can be achieved as long as both parties agree, such as hard currency preservation, "basket" currency preservation, etc.

4. Allocate risk through agreement. Both parties to the transaction can determine the base price and basic exchange rate according to the agreement, and negotiate the exchange rate change range and apportionment ratio.

5. Flexibly grasp the receipt and payment time according to the actual situation. In the context of rapid changes in the international foreign exchange market, advance or delayed receipt and payment can generate different benefits, and we should be good at seizing the opportunity.