Basic Knowledge of Foreign Exchange Trading

What is FX?

The exchange of different currencies such as the US dollar, the Japanese yen, the British pound, and the EU (European Union) euro is commonly referred to as the foreign exchange. The exchange rate (exchange rate) at this time is determined by supply and demand in the market. Also, there are no exchanges for foreign exchange. The interbank market, in which banks around the world trade, is a market on an electronic network that operates 24 hours a day.

“Forex Margin Trading” is a system that incorporates this kind of foreign exchange mechanism like Best Forex EA. Forex is “Foreign Exchange” in English, but people involved in foreign exchange and foreigners called it “Forex”. FX is derived from this “Forex”, and foreign exchange margin trading, which was lifted by the 1998 revision of the Foreign Exchange Law and made it possible for individuals to trade, is called “FX trading”.

“FX Trading” is the easiest way for individual investors to participate in the foreign exchange market. You can leverage with a small amount of money and trade from buy or sell at a low commission.

What is the Foreign Exchange Market?

The foreign exchange market does not mean that transactions are conducted on physical exchanges.

Forex trading is a one-to-one (relative) relationship between sellers and buyers, centered on foreign exchange banks, foreign exchange brokers, central banks, etc., mainly via networks formed by communication lines such as telephones and computers. Transactions are underway to determine currency, quantity, price, etc. Generally, the “interbank market”, which is a market in which only financial institutions participate, is called the foreign exchange market.

Global Market

Forex (FX) is carried out all over the world, and it is a huge market where time and price are linked globally.

Transactions are most active during the business hours of financial institutions in each country, and if you follow the movement of the day, it starts with New Zealand, Asia such as Japan, the Middle East, Europe such as the United Kingdom and Germany, and finally the United States. In addition, due to the time difference, the lively time zone is connected like a relay without interruption for 24 hours.

The time zone when transactions are active is called the “market, and the New York market, London market, and Tokyo market are called the three major markets.

Although the foreign exchange market is a market that does not sleep 24 hours a day, on weekends (Saturdays and Sundays) and New Year’s holidays when financial institutions in each country are closed, there are no financial institutions participating in the interbank market, so in principle transactions are not possible. It will not be done.

Bilateral Trading

Forex trading is a “counter-trade” in which a transaction is concluded between the “selling” and “buying” parties if conditions such as rate and quantity are met. In the case of stock trading and commodity futures trading, since it is an “exchange trading” in which all market participants place orders on the exchange, the stock prices and commodity prices traded at the same time will be the same price.

On the other hand, in foreign exchange, many participants around the world trade in “counter-trade”, so there are multiple “exchange rates” even at the same time.

The “exchange rate” reported in newspapers and television is roughly the time when information distribution companies provide information to the news media to obtain information from multiple market participants. It is a reference value published as an exchange rate, and does not mean that you can trade at that exchange rate.

Variable Factors

Fluctuations in the exchange rate are a complex combination of various factors that move the market at any given time.

Political Factors

The market price will change due to monetary policy by the central banks of each country and the statements of domestic and foreign leaders and financial officials. Wars and terrorist incidents are also factors.

Economic Factors

Economic disparities, interest rate disparities, economic indicators, stock prices and trade transactions at home and abroad are also closely related as factors of exchange rate fluctuations. Natural disasters such as earthquakes and hurricanes can also be the cause. In this way, the exchange rate fluctuates due to the combination of various factors.

Buy and Sell Quotes

“Buying price” means that there is an order that “you can buy”, and “selling price” means that you can sell US dollars. Indicates that there is an order “good”. Since FX is a bilateral transaction, if the customer buys US dollars, it will be closed against the selling price, and if it sells US dollars, it will be closed against the buying price.

In addition, it seems that there are many companies that call the bid price Bid and the sell price Ask in the over-the-counter FX.

Caution

Swap points do not occur in day trading (daily trading).

As a general rule, if you hold a position across 17:00 NY time, you will get one day’s worth of swap points for each of the buy and sell positions. Also, if you hold a position from Wednesday to Thursday, you will in principle get 3 days worth of swap points.

Please note that swap points fluctuate daily due to the interest rate policy of each central bank and fluctuations in exchange rates.

Features of FX

  1. Start with a small amount
  2. Buy or sell, whichever comes first

Forex trading can be started from “sell” or “buy”.

  1. Easy to understand is also the appeal of FX

In the case of stock investment, there are more than 3,500 listed companies alone,  and it is difficult to narrow down which stock to choose.

  1. There is no settlement deadline for transactions

In Forex, there is no settlement deadline. As a general rule, you can keep the position you once took. In the foreign exchange market (interbank market), it is customary to settle funds for foreign exchange transactions in two business days.

However, in Forex, by postponing the settlement date to the next day every day, the profit and loss is settled in the trading account at the time of closing the position. Carrying over this position to the next business day is called rollover.

  1. Can be traded for almost 24 hours

Forex trading is basically always done all over the world.

Trading is carried out 24 hours a day, changing the main location from Tokyo to London to New York to Sydney to Tokyo. Most of the current Forex trades via the Internet, so it is possible to trade in real time 24 hours a day.

However, since trading is not performed on holidays such as Saturdays and Sundays, trading is possible from Monday 7:00 am Friday New York time.

In comparison, with foreign currency deposits, the mid-price is set before 10 o’clock every day, and trading is done at that rate for the day. Considering that it can respond flexibly to exchange rate fluctuations, it is a great advantage.

  1. Aim for income gain

Receive swap rates by buying high interest rate currencies. However, if you sell it, you will have to pay.

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