Problem description:
1. How is the foreign exchange market structured? Who are the main participants in the foreign exchange market?
2. Try to compare forward foreign exchange transactions with forex futures trading.
Analysis:
Foreign exchange market: The world foreign exchange market is a huge system, which is composed of the foreign exchange markets of international financial centers. At present, there are more than 30 foreign exchange markets in the world, the most important of which are London, new york, Paris, Tokyo, Switzerland, Singapore, Hong Kong, Sydney, Wellington and Australia. These foreign exchange markets are located in different world time zones, and they are mutually continuous in time, forming a 24-hour uninterrupted global foreign exchange market. For example, the foreign exchange markets in western Europe such as London began to connect with the markets in the Far East such as Hong Kong and Singapore, and their opening prices were based on the foreign exchange markets in Hong Kong and Singapore. A few hours later, the new york market opened. The time when the London market and the new york market are open at the same time is the peak of foreign exchange trading in a day. The Tokyo market opened one hour before the closing of the San Francisco market, the last foreign exchange market in the United States.
Foreign exchange market participants: the foreign exchange market of international financial centers! There are three types of foreign exchange brokers in this market: local brokers whose business is limited to Hong Kong; International brokers refer to brokers who have expanded their business to other foreign exchange markets in Hong Kong since 1970s. International brokers who grew up in Hong Kong, that is, Hong Kong brokers whose business expanded to other foreign exchange markets. Before the 1970s, the foreign exchange market in Hong Kong was mainly the exchange of Hong Kong dollars and British pounds. After 1970s, with the internationalization of the market, the Hong Kong dollar was decoupled from the British pound and linked to the US dollar, which became the main foreign currency traded in the market. Transactions in Hong Kong's foreign exchange market can be divided into two categories: one is the exchange between Hong Kong dollars and foreign currencies, mainly US dollars. The other is to exchange dollars for other foreign currencies.
The profitability of foreign exchange investment depends on the difference of currency exchange rate between different countries in order to obtain the difference.
Forward foreign exchange trading: the forward foreign exchange investment has high returns, but the risks brought by international exchange rate fluctuations have also become greater. There is also a short-term foreign exchange transaction, also called spot foreign exchange transaction, which is relatively less risky, but its relative income has also decreased.
Spot foreign exchange transaction refers to the transaction that the buyer and the seller deliver on the second working day after the transaction is completed. Forward foreign exchange trading, also known as forward foreign exchange trading, is a business in which buyers and sellers make an appointment to buy and sell foreign exchange through commercial banks and investment banks. Compared with spot foreign exchange transactions, forward foreign exchange transactions have the advantages of maintaining value, avoiding exchange rate risks, flexible capital planning and turnover.
Forex futures trading: Both forex futures trading and forward foreign exchange transactions stipulate that a certain standard amount of foreign currency should be paid and delivered at a predetermined price on a specific date in the future. However, forex futures trading is different from forward foreign exchange transactions in the following aspects:
(1) Different traders. In forex futures trading, as long as the deposit is paid in accordance with the regulations, investors can engage in transactions through foreign exchange commission merchants, and the restrictions on customers are not as good as forward foreign exchange transactions, because most participants in forward foreign exchange transactions are professional securities firms or large manufacturers with good business relations with banks, and it is extremely difficult for individual investors and small and medium-sized enterprises that have not obtained credit lines from banks to participate in forward foreign exchange transactions.
(2) Trading margin. Both parties in forex futures trading must pay the deposit, conduct daily liquidation through the futures exchange, calculate the profit and loss on a daily basis, and make up or return the excess deposit. Whether to pay margin for forward foreign exchange transactions depends on the relationship between banks and customers. Usually, it is not necessary to pay margin, and the profit and loss of forward foreign exchange transactions will not be settled until the expiration date of the contract.
(3) Different trading methods. Forex futures trading conducts the futures exchange in the form of open bidding. The two parties to the transaction are not in contact with each other, but each uses the clearing house to settle the middleman and bear the credit risk. Futures contracts have restrictions on the variety of trading currencies, delivery dates, trading units and price changes. Currency is limited to several major currencies. Forward foreign exchange transactions are over-the-counter transactions. Transactions are conducted by the buyers and sellers as rivals by telephone or fax, and there are no monetary restrictions. The transaction amount and maturity date are determined by the buyer and the seller. When the economy is depressed, the risk of the other party's default increases, and there are no special restrictions on trading time, place, price and market disclosure.
(4) overall transaction. In forex futures trading, flies usually buy and sell foreign exchange at the expense of their own currency. For example, in the American market, they only quote in dollars. Therefore, for hedging between currencies other than the US dollar such as mark and Japanese yen, Japanese yen or mark can only be bought and sold in US dollars, thus forming a two-way transaction. In forward foreign exchange transactions, different currencies can be traded directly.
(5) Spot settlement and balance settlement. Because the clearing house is the transaction intermediary, the amount and time limit are stipulated, so spot delivery is not implemented. For the unsettled amount, it shall be calculated on a daily basis and settled through the increase or decrease of the deposit. Although the delivery date is indicated in the futures contract, it can be transferred before this delivery date, and hedging can be carried out to reduce and spread the exchange rate risk. Of course, the actual difference should be cash delivery, which accounts for a small proportion. In forward foreign exchange transactions, settlement or performance should be made on the delivery date.
The forex futures trading business stipulated by China Shanghai Foreign Exchange Adjustment Center is familiar with the trading behavior between listed foreign exchange and RMB. The types of foreign exchange that can be traded are limited to the current price of US dollars (the amount of US dollars is compared with the spot exchange rate of US dollars), British pounds, German marks, Japanese yen and Hong Kong dollars. The standard contract amount of USD, GBP, DM and HKD is 6.5438+0 million units, and the standard contract amount of Japanese yen is 6.5438+0 million yen.