What do you need to know about foreign exchange?

Exchange rate

Exchange rate refers to the exchange price between two different currencies. If foreign exchange is also regarded as a commodity, then the exchange rate is the price at which one currency is used to purchase another currency in the foreign exchange market. For example, l U.S. dollar = 110 yen, which means that 1 U.S. dollar can be exchanged for 110 yen. The exchange rate expression methods include direct pricing method and indirect pricing method.

Direct pricing method and indirect pricing method

The direct pricing method refers to a pricing method that uses a certain unit of foreign currency as the basis and converts it into a certain amount of domestic currency. Currently, most Most countries adopt this pricing method; among the trading currencies launched by China Merchants Bank, the Japanese yen, Swiss franc, Canadian dollar, Hong Kong dollar, and Singapore dollar all use the direct pricing method, such as 1 US dollar = 115.25 Japanese yen; 1 US dollar = 1.47 Canadian dollars. Yuan et al.

The indirect pricing method refers to a pricing method that uses a certain unit of domestic currency as the basis and converts it into a certain amount of foreign currency. Euros, pounds, and Australian dollars use the indirect pricing method, such as 1 pound = 1.6025 US dollars; 1 euro = 1.5680 Canadian dollars; 1 euro = 1.0562 US dollars; 1 Australian dollar = 0.5922 US dollars, etc.

Basic exchange rate and cross exchange rate

Basic exchange rate (also called direct or basic exchange rate): generally refers to the ratio of a country's currency to the US dollar.

Cross exchange rate (also called cross exchange rate): refers to the price comparison between two non-USD currencies. The cross exchange rate can be calculated from the basic exchange rate.

Buying price and selling price

The buying price (Bid rate) is the foreign exchange that banks buy from customers (the currency listed to the left of "/" in the price, that is, the base currency ).

Offer rate refers to the exchange rate used by banks when selling foreign exchange (the currency listed to the left of "/" in the price, that is, the base currency).

The central parity rate is the average of the buying and selling rates.

For example:

For example, if the exchange rate of USD/JPY is 115.25/115.35, it means that the exchange rate when the customer sells USD to the bank and buys JPY (the bank buys USD) is 115.25 , and the exchange rate for customers to sell Japanese yen to the bank and buy US dollars is 115.35.

Therefore, if you want to convert 100 U.S. dollars into Japanese yen, then you will get 11525 (i.e., 100*115.25) Japanese yen at the exchange rate of 115.25; if you want to convert 10,000 Japanese yen into U.S. dollars, then you will get 86.69 U.S. dollars (i.e., 10000/115.35) at the exchange rate of 115.35.

The Australian dollar/US dollar exchange rate is 0.5830/0.5840, which means that the exchange rate for customers to sell Australian dollars and buy US dollars is 0.5830, and the exchange rate for selling US dollars and buying Australian dollars is 0.5840.

You may find that after you determine the exchange rate, you also need to decide whether to use multiplication or division when calculating the amount of currency you will receive. The relevant calculation method can be summarized in two sentences: "(currency) from left to right, multiply by the left (exchange rate); (currency) from right to left, divide by the right (exchange rate)."

Therefore, according to the above quotation, when you want to convert 100 Australian dollars into US dollars, you will get 100*0.5830 US dollars; when you want to convert 100 US dollars into Australian dollars, you will get 100/0.5840 Australian dollars.

Foreign exchange market

In a broad sense, the foreign exchange market generally refers to places where foreign exchange transactions are conducted, and even includes personal foreign exchange trading venues, foreign currency futures exchanges, etc.; in a narrow sense, the foreign exchange market refers to foreign exchange professionals. Banks, foreign exchange brokers, central banks, etc. are the main trading entities and are an invisible trading market that realizes transactions through modern communication means such as telephone, telex, and trading machines.

At present, the world's major foreign exchange markets include London, Frankfurt, Paris, and Zurich foreign exchange markets in Europe, New York in North America, Tokyo, Hong Kong, and Singapore foreign exchange markets in Asia, and Sydney and Wellington markets in Australia. These market hours The above continuation of each other constitutes the global uninterrupted foreign exchange market. Among them, the London foreign exchange market has the largest trading volume. Therefore, the European market is also a market with strong liquidity, while the New York foreign exchange market often fluctuates greatly. Mainly due to the operation of many investment funds in the United States and the frequent occurrence of events in the New York market that have a greater impact on foreign exchange, such as the Federal Reserve's interest rate decision and the release of important U.S. economic data. Understanding the characteristics of each market is helpful for understanding the authenticity of exchange rates and making exchange rate predictions. Usually what we call the closing of the day refers to the closing in New York. Participants in the foreign exchange market mainly include foreign exchange banks, central banks, foreign exchange speculators, foreign exchange brokerage companies, large investment funds, actual foreign exchange supply and demanders, etc.

Understanding the capital movements of foreign exchange market participants is also very helpful in predicting trends. For example, the repatriation of funds from Japan in the fiscal year will cause appreciation pressure on the yen, and large-scale acquisitions of German companies by British companies will form a Euro/GBP cross. The Bank of Japan's intervention in the foreign exchange market by selling the yen will cause the yen to depreciate, and Japanese investors' issuance of Australian dollar-denominated bonds in Australia will cause the Australian dollar/yen cross to rise, etc. As long as you are good at analyzing the trends and characteristics of trading entities, you will seek the direction of the exchange rate from some clues.

Characteristics of the foreign exchange market

If we look at the regional scope and surrounding speed of foreign exchange transactions, the foreign exchange market has two basic characteristics: spatial unity and time continuity.

The so-called spatial unity means that because the foreign exchange markets of various countries use modern communication technology (telephone, telegraph, telex, etc.) to conduct foreign exchange transactions, the connections between them are very close, and the entire world is becoming more and more Vietnam is linked together to form a unified world foreign exchange market.

The so-called time continuity means that various foreign exchange markets in the world alternate with each other in business hours, forming a continuous cyclic operation pattern.

The main differences between the foreign exchange market and the stock market

Many friends are familiar with the stock market and enjoy talking about it. The foreign exchange market is still a new field for most people. If some habitual understandings in the stock market are copied to the foreign exchange market, it will cause some unnecessary trouble and confusion.

1. Different spaces

It can be seen from the characteristics of the foreign exchange market that the foreign exchange market is a global market, while the stock market is a regional market; the foreign exchange market is invisible Yes, the stock market is tangible.

Some friends often ask: Which market price is this quote? This is affected by the stock market. Since the foreign exchange market is a global open market, there is no question of which market the quotation is. The price we see is the latest quotation in this market. Although the Tokyo market may be more active during this period, there may also be New York , London, Hong Kong and other regions are trading, so it is difficult to determine which market the quotation comes from, and there is no need to know.

2. Different standards

In the stock market, different regional markets will have different market rules and their own characteristics, but in the same market, everyone follows unified standards.

In the foreign exchange market, due to its global characteristics, the market is very tolerant and free. Everyone trades together and follows the principles of fairness, voluntariness, and integrity. There is nothing special about it. requirements and rules.

3. Different transaction methods

The standardized stock market uses collective bidding and centralized matching to complete transactions, which reflects absolute fairness. Therefore, at the same time, It is impossible for the same stock to have different transaction prices.

The foreign exchange market is more like a farmer's market. All buyers and sellers are completely open, reflecting absolute freedom. Buyers can freely inquire and sellers can freely quote. Both parties are completely free. When trading is voluntary, the transaction price is "one is willing to fight and the other is willing to endure" for both parties. This is completely different from the stock market. The foreign exchange market does not have the rules of collective bidding and computer centralized matching.

Knowing this difference between the stock market and the foreign exchange market, investors will not be surprised by the differences in quotations between banks. This is entirely market behavior.

Forex market trading hours

Region

City

Opening time

Closing time

Oceania

Sydney

7:00

15:00

Asia

Tokyo

8:00