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Definition of foreign exchange

Foreign exchange refers to the simultaneous purchase of a currency and the sale of another currency in the OTC market.

A currency is a unit of trading issued by a national government or a central bank, with monetary value as the unit of measure for the transaction.

A base currency is the first currency in a currency pair, and a fixed currency in determining the price of a currency pair. The US dollar (EUR) and the euro (EUR) are the most important base currencies for daily trading volume in the foreign exchange market. Sterling (GBP), also known as sterling, is the third-largest base currency. Currency-denominated currencies include USD / JPY, USD / CHF and USD / CAD; currencies in Euros include EUR / USD, EUR / JPY, EUR / GBP and EUR / CHF . Sterling is the base currency for the pound / dollar and pound / yen pair. Australian Dollar (AUD) is the base currency for the Australian Dollar (AUD / USD) currency pair.

How the foreign exchange market works

Unlike most financial markets, the foreign exchange market does not have a specific trading floor. The operation of the whole foreign exchange market is based on the electronic network between banks, institutions and individuals. According to the time difference, foreign exchange transactions from Sydney every day, and then turned to Tokyo, London, New York.

Foreign exchange prices

Foreign exchange markets and prices are mainly affected by international trade and investment flows. To some extent, foreign exchange prices are also influenced by national economies and policies, such as interest rate adjustments, inflation, and political unrest (which seriously affect the stock and bond markets).

What makes foreign exchange so attractive

Economic and policy changes can only have a short-term impact on foreign exchange, so when these factors lead to adverse stock and bond market trends, while the foreign exchange market can provide investors with a richer choice and opportunities.

Buy, sell, spread

Foreign exchange prices or quotes, like other financial markets, include buy and sell prices.

Suppose the dollar / yen is trading at 117.33 / 117.36. If you believe the dollar will weaken, you can sell the pair at 117.33.

The difference between the bid and ask prices is the spread. Also refers to the cost of transactions in the transaction.

Basis point

Currencies are usually quoted in four decimal places, such as EUR / USD quoted at 1.2400 / 1.2403, the decimal point is the last one. The base rate for most currencies is 0.0001. And 0.01 for the Japanese yen.

Forecast the foreign exchange market trend

For how to predict the movements of the foreign exchange market, traders are usually divided into two camps. Technically-based traders use charts, trend lines, support / resistance, mathematical models, and other methods to identify opportunities and make trade decisions.

Another type of trader tends to analyze fundamentals, analyzing economic indicators and market drivers that reflect the national economy, such as GDP growth rates, inflation rates, and interest rates.

In addition, there are some traders tend to frequent short-term trading.

Why Forex Trading

Truly open 24 hours, the most liquid market

Forex is the most liquid market in the world, meaning that the spreads in the foreign exchange market tend to remain low for most of the day, and traders are confident that positions and orders can always be executed. By the government, the central bank, financial institutions, enterprises, professional and retail traders together to build the foreign exchange market daily trading volume reached 5.3 trillion US dollars, becoming the world's largest financial markets. In contrast, the New York Stock Exchange daily trading volume of about 50 billion US dollars.

In Fubon, you can trade in dozens of currency pairs including major, minor and foreign currency pairs. Since there is no centralized trading of the exchange, 24 hours a day (US Eastern Time Sunday 17:15 pm to 16:30 pm on Friday) can be traded. This means that traders can enter the market at any time, you can for any economic events or news to make their own trading decisions.

Very few transaction costs

Most forex brokers do not charge a transaction fee, only through the spread (buy and sell the price difference) profit.

Margin trading

Foreign exchange transactions take leverage. This is a more efficient way of trading, the leveraged rate refers to the traders to buy the currency margin to increase the value of return, without increasing the amount of investment. The amount is expressed as a multiple, and the nominal amount of the transaction is greater than the margin required by the exchange. For example, if the nominal amount of the transaction is $ 100,000 and the required margin is $ 1,000, the trader can take 100 times leverage ($ 100,000 / $ 1,000).

Of course, while the gains are magnified, the losses may be magnified, and the risk of using leverage to invest is high, as you may lose all of your investment. You must recognize that foreign exchange trading using leverage is a considerable risk and may not be suitable for everyone. If the market trend against you, your loss may exceed the original investment. We offer a number of trading tools to help you manage your trading risks.

To do more or short

Unlike the traditional securities market, foreign exchange allows you to profit from the price rise or fall. As a forex trader, when you expect the first currency in a currency pair to be stronger than the second currency, you can do more (buy) the currency pair and your earnings will increase as the foreign exchange price rises rise. When you expect the first currency in a currency pair to be weaker than the second, you can also short (sell) the currency pair and your profit will rise as the foreign exchange price falls.

Market volume is conducive to price stability

The daily volume of the foreign exchange market is over $ 5.3 trillion, the largest volume in the world (Source: Bank for International Settlements, April 2013).

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