9 basic foreign exchange basics

The foreign exchange market is the world’s largest financial market, and the average daily capital flow far exceeds other financial markets such as stocks and bonds. However, even if it is a god-like existence, for some of us, it is also “the most familiar stranger”, only to hear its reputation, not to know its true meaning, let alone to participate. Today, Xiaobian came to the nine basic knowledge of foreign exchange under science popularization.

9 basic foreign exchange basics
Foreign exchange refers to foreign currencies held by a country and means of payment expressed in foreign currencies for international settlement.

The concept of foreign exchange is divided into static and dynamic.

1.Static concept

The static concept of foreign exchange refers to the payment means expressed in foreign currencies that can be used for international settlement. This payment method includes credit instruments and marketable securities expressed in foreign currencies, such as bank deposits, commercial money orders, bank drafts, bank checks, long-term and short-term government securities, and so on.

2.Dynamic concepts

The dynamic concept of foreign exchange refers to a specialized business activity in which the currency pair of one country is exchanged for the currency of another country in order to settle international claims and debt relationships. It is short for international exchange.

Here, it is important to point out that the currency of some countries cannot be freely exchanged on the international market, so it can only be counted as foreign currency and not foreign exchange abroad.

Exchange rate, also known as exchange rate, refers to the price expressed by the currency of one country in the currency of another country, or the exchange rate between the currencies of the two countries. It is usually expressed by the exchange rate between two currencies. For example: USD / CNY = 1 / 7.2456, that is, the exchange rate between USD and RMB is 1: 7.2456. It can also be said that 1 USD needs to be purchased with RMB 7.2456.

Three characteristics of exchange rates

  1. Display by five digits.

EUR 0.9705

Japanese yen JPY 119.95

GBP GBP 1.5237

Swiss franc CHF 1.5003

  1. The minimum change unit is one point, that is, the change unit of the last digit.

EUR 0.0001

JPY 0.01

GBP GBP 0.0001

Swiss franc CHF 0.0001

  1. Rise and fall are described by “points”

According to market practice, the price of a foreign exchange rate usually consists of five significant digits, counting from the right to the left. The first digit is called “X points”, which is the smallest unit that constitutes the exchange rate change. Ten points “, and so on.

For example: 1 Euro = 1.1011 USD; 1 USD = 120.55 JPY

Euro vs. US dollar changed from 1.1010 to 1.1015, saying euro vs. US dollar rose 5 points

The U.S. dollar against the yen changed from 120.50 to 120.00, saying that the U.S. dollar fell 50 points against the yen.

Fourth, the exchange rate pricing method

The direct quotation method is a method of expressing the exchange rate of a certain unit of foreign currency in the domestic currency. Generally, how many national currencies can be converted into 1 unit or 100 units of foreign currency. At present, most countries in the world use the direct price method, and China also uses the direct price method, such as 1: 6.4906 USD against RMB.

九大外汇基础知识 看完基本入门

The indirect pricing method is a method of expressing the exchange rate of a certain unit of the domestic currency in a foreign currency. Generally, how many foreign currencies can be converted into one unit or 100 units of domestic currency. Currently only a few countries in the world use indirect pricing methods, such as British pounds, euros, Australian dollars, New Zealand dollars, Irish pounds. For example, for the United Kingdom, the exchange rate between the British pound and the Chinese yuan is 1: 9.4471. This is the indirect price method.

What are the main products and symbols?

According to international practice, the name or code of a currency is usually represented by three English letters.


British Pound: GBP

Euro: EUR

Japanese yen: JPY

Canadian Dollar: CAD

Australian Dollar: AUD

New Zealand dollar: NZD

Who are the market participants?

Participants in the foreign exchange market mainly include central banks, commercial banks, non-bank financial institutions, brokerage companies, self-employed merchants and large multinational corporations in various countries. They trade frequently and the transaction amount is huge, and each transaction is several millions of dollars, or even more than ten million dollars. There are three general motivations for their participation:

1) Through trade and investment, international companies turn foreign profits into national currencies.

2) Hedging, corporate finance ministers and money managers will also use the foreign exchange market to reduce the risk of price fluctuations in futures trading.

3) Speculative profit.

What are the major foreign exchange markets in the world?

At present, there are more than 30 major foreign exchange markets in the world, and they are located in different countries and regions on all continents. Among them, the most important are London, Frankfurt, Zurich and Paris in Europe, New York and Los Angeles in the Americas, Sydney in Australia, Tokyo, Singapore and Hong Kong in Asia.

  1. Trading hours of major foreign exchange markets

24 hours of continuous trading in the foreign exchange market. Each foreign exchange market in the world alternates with each other in terms of business hours, forming a cyclical pattern of successive operations.

What are the ways to buy foreign exchange?

  1. Bank. At present, many banks can handle personal foreign exchange settlement and sales business, foreign exchange settlement of trading companies, personal purchases of foreign exchange for overseas travel expenses, and other non-fry foreign exchange situations.
  2. Platform traders. Individuals or institutions that speculate in foreign exchange can conduct foreign exchange trading through platform dealers. At present, China does not allow domestic enterprises to start foreign exchange margin trading business. If you want to trade foreign exchange margin, you can find a foreign dealer to open a trading account.

Leave a Reply

Your email address will not be published. Required fields are marked *