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Basic knowledge of foreign exchange

Basic knowledge of

Understand foreign exchange quotes

Understand foreign exchange quotes:
1.The former is the base currency
2.The value of base money is always 1

The base currency is the main pair of dollars

As the protagonist of the foreign exchange market, the dollar is often used as the base currency in foreign exchange quotes. When the dollar is the base currency, you can think of foreign exchange quotes as how much a dollar is worth in another currency. When the dollar is the base currency, if the exchange rate rises, it means that the dollar appreciates and depreciates against the other currency of the dollar. The price rise means that the dollar is now convertible into more other currencies than before.

The base currency is not a major pair of U.S. dollars

The base currency can be sterling (GBP), Australian dollar (AUD), or euro (EUR) in addition to the U.S. dollar. When the dollar is not used as the base currency, the price rise indicates the depreciation of the dollar, and the dollar can now buy less of another currency than in the past. In other words, a rise in the price of a currency represents an appreciation of the base currency, while a fall in the price of a currency represents a depreciation of the base currency.

Cross currency pair

If the dollar is not included in the currency pair, the currency pair is a cross currency pair.

Selling price, buying price, and point difference

As in other markets, foreign exchange quotes are made up of bids and asks. The difference between the buying price and the selling price is called the spread, and traders profit from the spread.

The price (bid) Is the price at which you sell the base currency

Purchase price (ask) It's the price at which you buy the base currency

The spread is the difference between the selling price or the buying price and is the cost of the transaction. In the forex market, spreads are relatively low compared to other markets, making the trade more cost-effective for smaller price movements.

What is a "dot"?

Foreign exchange quotes fluctuate frequently and are calculated in "dots". A dot is the fourth decimal place, or 1% of a hundredth.

The last number of the exchange rate price is called a point. If USD/JPY is 0.01 in 119.11 and EUR/USD is 0.0001 in 1.2801, they are called a point. This is the minimum basic unit of exchange rate change. The exception is the Japanese yen, for which the dot represents the second place after the decimal point.

Profit and loss calculation

although Hongze(Hong Kong) Investment Consulting Limited Gaoxi's online forex trading platform can automatically calculate profits and losses for investors, but we still recommend you to understand the basic principles of forex trading gains and losses.

The following example will demonstrate the break-even calculation process:

Assume that the current EUR/USD quote is 1.2801/03, meaning that at this point you can buy 1 euro for $1.2803, or you can sell 1 euro and buy $1.2801.

Suppose you predict that the euro will appreciate against the dollar, so you are willing to buy EUR (and sell USD) and wait for the exchange rate to rise. So you buy 100,000 euros (100,000 x 1.2803) for $128,030. With a 100:1 margin leverage ratio, you need to have $1,280 in your margin account. When the market goes as you expect, EUR/USD rises to 1.2807/09. To make a profit, you sell 100,000 euros at 1.2807 and get $128,070.

You bought 100,000 euros for 128,030 dollars, and now you sell 100,000 euros for 128,070 dollars. The difference between these is four points, or $40 ($128,070 - $128,0300 = $40).

Total profit: $40

In the same example, suppose you buy 100,000 euros at 1.2801/03 EUR/USD for $128,030. However, this time EUR/USD is down to 1.2795/97. To reduce the loss, you choose to exit at this price, that is, sell 100,000 euros and get back $127,950.

You bought 100,000 euros for 128,030 dollars and now sell 100,000 euros for 127,950 dollars, the difference between eight points, namely 80 dollars ($128,030 - $127,950 = $80).

Total loss: $80

Several factors influence the price of gold

The dollar

First, we can see that most gold prices are denominated in dollars. Part of this rise and fall is due to the strength of the dollar, and part is due to the market supply and demand of gold as a commodity.

Political unrest

Political events could also have a big impact on gold prices. If a conflict in the Middle East, for example, raises concerns about the security of the country's bonds or currency, investors may withdraw money to buy gold as a hedge against the risk. The price of oil and other commodities could also be affected, with the knock-on effect of commodity prices spilling over into the gold market, driving up or down the price of gold in line with the price of oil.

World financial crisis

When the financial systems of big western countries like the United States become unstable, the world's money goes into gold, and as demand for gold increases, the price of gold rises. This is when gold ACTS as a haven. Only if the financial system were stable would investors lose confidence in gold, driving it down.

Gold supply and demand

The price of gold is based on supply and demand. If there is a big increase in gold production, gold prices could be affected and fall back. But if production is halted by, say, a prolonged strike by miners, gold prices usually rise when demand is too high.