Many investors who wish to trade forex are determined to do so immediately, but are not sure where to start their first forex trade.
Therefore, we have summarized some basic knowledge of foreign exchange introduction for foreign exchange beginners reference.
Whether you are an experienced investor or a complete novice trader, if you are just starting out in the market or you want to brush up on the basics of forex, our trading guide will first tease you through the following detailed analytical terms and answer common questions that traders may encounter.
I hope this guide will help you to start FX trading faster and with more confidence.
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What is foreign exchange?
forox, short for foreign exchange (sometimes shortened to FX), is a global and decentralized trading market for the world’s currencies.
Traders, investors, banks and exchanges base their trading activities on these currency pairs. Their trades include buying and selling, which in turn sets the exchange rate.
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What is a foreign exchange currency pair?
Foreign exchange trading is essentially trading the currencies of two countries that fluctuate in value.
These two currencies are called “currency pairs” and they are made up of base currency and quoted currency.
The most commonly traded currency pair is EURUSD, usually expressed as EUR/USD.
1. What is base money? This is the first currency in a currency pair.
It is the currency that is bought or sold to obtain the quoted currency.
In the above example, the euro is the base currency.
2. What is quoted currency?
This is the second currency in a currency pair, also known as the “relative currency”.
In the above example, the dollar is the quoted currency.
3.
Open any software or quotation page, we will see the quotation of different currency pairs, so what do they represent?
1. What is the purchase price?
This is the price at which traders are willing to buy currency pairs.
The buying price fluctuates.
2. What is the selling price?
This is the price the trader wants to get when he sells the currency pair.
Selling prices also continue to fluctuate, driven in particular by market demand, but also by economic and political factors.
3. What is a point spread?
The spread is the number you get when you subtract the selling price from the buying price.
The spread is actually a transaction cost and is extremely important to foreign exchange investors.
You often hear the term “low spread” — which means that transaction costs are low.
4. What is point value?
Point value is short for “price point” (it can also stand for percentage points and price points of interest).
Specifically, we use dots to measure price fluctuations and changes in currency pairs.
Points are often accurate to five decimal places.
Four.
How is foreign exchange transaction conducted?
Trading foreign exchange means buying and selling currencies — for profit.
Foreign exchange transactions always involve two currencies – base and quoted currencies.
When prices change, you may make a profit or lose money.
Five.
Is there any risk in foreign exchange trading?
Any financial transaction involves risk and it is important to remember this at all times.
So why do investors (speculators) always engage in risky financial transactions?
Because risky trades like these tend to represent but are also relatively profitable, which is why many people go into forex trading.
If you are new to forex, we recommend that you practice using a simulated account first.
Always consider the risks associated with the transaction when you are preparing to use a real account.
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What is a position?
Trading positions measure the size of trades currently in progress.
In trading, there is a Long (long) Long position and a Short (short) Short position: Long: A trader buys a currency in the expectation that it will rise.
After the currency was sold, long positions were closed.
Short: A trader sells a currency in the expectation that it will fall.
After the currency was bought back, short positions were closed.
Seven.
1. The most actively traded currency pair in foreign exchange trading?
In theory, investors can trade almost any currency pair, but which are the most common and actively traded currency pairs?
The most actively traded currency pairs, known as major currency pairs, make up 80 per cent of the total volume in the forex market.
These major currency pairs are linked to stable economies, so volatility is low and liquidity is high.
Major currency pairs include the previously mentioned EUR/USD, as well as USD/JPY (USD and yen), GBP/USD (GBP and USD) and USD/CHF (USD and CHF).
Another characteristic of major currency pairs is that they are less likely to be manipulated, and spreads are generally smaller.
Major currency pairs are the currency of choice for most investors.
2. What is a cross currency pair?
A cross-currency pair is a currency pair that does not contain the US dollar — it is more volatile and less liquid than a major currency pair.
Major currency pairs all contain USD, while cross-currency pairs involve euro, pound, etc.
Common cross-currency pairs include EUR/GBP, GBP/JPY and EUR/JPY.
3. What is a rare currency pair?
Rare currency pairs – currencies from smaller economies and emerging markets.
They usually form currency pairs with major currencies.
Because of the lowest liquidity and highest volatility among the three currency pairs, they have the highest trading risk.
These include USD/Mexican peso, GBP/Norwegian krone and CHF/Norwegian Krone.
