You go to the counter and see different foreign currency exchange rates on the screen. You will find that 1 dollar is more valuable than 100 yen, and you will think, "Wow! I have ten dollars and I will be a rich man! " This exciting moment will soon disappear, because when you buy a can of soda in the airport store, you have already spent half of your money. )
When you switch to another currency, you have basically participated in the foreign exchange market! For example, if you are an American traveling in Japan, you have already participated in foreign exchange transactions when you sell dollars for Japanese yen.
Before you are ready to go home, when you stop at the currency exchange booth and want to exchange the unused yen back (it is expensive to spend in Tokyo, and it is incredible if there is any money left), you will find that the exchange rate has changed. Exchange rate changes are some changes that can make you make money in foreign exchange market transactions.
The foreign exchange market, usually referred to as "foreign exchange market" for short, is the largest financial trading market in the world. Compared with the new york stock market with a daily turnover of only $74 billion, the foreign exchange market has an absolute advantage with a daily turnover of $5 trillion. The foreign exchange market is very strong!
Let's compare the monster in the picture below to the new york Stock Exchange.
When this "monster" meets the foreign exchange market, you will see the following. ...
Wow, compared with the size of the foreign exchange market, the new york Stock Exchange is a drop in the bucket.
The chart below shows the daily average trading volume of new york Stock Exchange, Tokyo Stock Exchange, London Stock Exchange and foreign exchange market:
(Note: According to the triennial report published by the Bank for International Settlements in 20 13, the daily trading volume of the foreign exchange market is US$ 5.3 trillion. )
The size of the money market is 53 times higher, which is really quite large! But don't worry, there is one thing to pay attention to.
The scale of $5 trillion belongs to the whole global foreign exchange market, but the transaction scale of retail investors (namely foreign exchange retail investors) in the spot foreign exchange market is about $65,438 +0.49 trillion. So, you see, the foreign exchange market is really huge, but it is not as big as the media expected you to imagine.
Market size and liquidity
Unlike financial markets such as new york Stock Exchange, spot foreign exchange market has neither trading place nor trading center.
The foreign exchange market is considered as an over-the-counter transaction or an "international bank". Because the electronic operation of the whole market in the banking network requires the market to work continuously for more than 24 hours.
This means that the spot foreign exchange market is all over the world and there is no specific central market. They can appear on any occasion, even on the top of Mount Fuji.
OTC foreign exchange market is by far the largest and most popular financial market in the world, which is composed of many people and organizations.
In the over-the-counter market, market participants decide who they want to trade with according to trading conditions, attractive prices and the reputation of their counterparties.
The chart below shows the ten most active trading currencies.
The dollar is the most traded currency, accounting for 84.9% of all transactions. The share of euro is 39. 1%, ranking second, and the share of yen is 19.0%. As you can see, the most important currency occupies a favorable position in the list!
Because each transaction involves two currencies, the transaction amount of each transaction is 200% of the total amount of a single currency, not 100%.
The above chart shows the frequency of dollar trading in the foreign exchange market. Among all known transactions, the US dollar accounts for 84.9% of all transactions.
The dollar is the overlord.
If every major currency pair includes USD, and the trading volume of these currency pairs accounts for 75% of all transactions, then it is necessary for us to pay close attention to USD. The dollar is the overlord in the foreign exchange market.
In fact, according to the data provided by the International Monetary Fund (IMF), the US dollar accounts for almost 62% of the global official foreign exchange reserves! Because almost every investor, enterprise and central bank owns the US dollar, they attach great importance to it.
There are other reasons why the dollar plays a central role in the foreign exchange market:
★ The United States is the largest economy in the world;
★ The US dollar is the global reserve currency;
★ The United States has the largest and most liquid financial market in the world;
★ The United States has an ultra-stable political system;
★ The United States is the only super military power in the world;
★ USD is the main monetary medium for international cross-border transactions. For example, oil is priced in dollars. So if Mexico wants to buy oil from Saudi Arabia, it can only buy it in dollars. If Mexico doesn't have dollars, it must sell pesos before buying dollars.
Speculation in the foreign exchange market
It is worth noting that commercial and financial foreign exchange transactions are part of the total trading volume of the foreign exchange market, and most foreign exchange transactions are based on speculation.
In other words, most foreign exchange traders buy or sell foreign exchange according to intraday price changes.
It is estimated that the foreign exchange trading volume of foreign exchange speculators is as high as over 90% in the foreign exchange market.
The size of the foreign exchange market means liquidity ... the turnover at any time is quite high!
This makes it easy for anyone to buy and sell money.
From the perspective of investors, liquidity is very important, because it determines that prices can easily change in a given time. Without the influence of price or price movement, it is difficult for a liquid foreign exchange market to have huge trading volume.
Although the foreign exchange market is liquid, it will depend on the currency pair and time.
In the lesson "foreign exchange trading hours", we found out how liquidity and money market interest rate changed by paying attention to the change of its currency pair in one day.
Different foreign exchange trading methods
Because foreign exchange is so fascinating, traders have come up with different ways to invest or speculate in currencies. Among them, the most popular are spot, futures, options and exchange traded funds (ETF).
Cash market
Spot market In this market, spot transactions are conducted in an instant or "spot" way using current market prices.
In the spot market, currency transactions are all real-time transactions according to the current market price. The charm of the spot market lies in its simplicity, liquidity, low price difference and all-weather uninterrupted trading. Since the minimum amount of opening an account in the spot market is only $25, it is very easy to engage in spot market transactions. But this is not the reason why we suggest that you enter the market with a principal of $25. You will learn the specific reasons in our capital settlement related courses. In addition, most brokers usually provide graphics, news and research reports for free.
future
Futures is a contract to buy or sell an asset at a certain price at a certain time, which is why we call it futures. Foreign exchange futures are initiated by the Chicago Mercantile Exchange. Because futures contracts are standardized and conducted in a centralized way, the futures market is very transparent and subject to strict supervision. This means that price and transaction information can be easily obtained.
election
Option is also a financial instrument, which gives the buyer the right to buy or sell assets at a specific price on the expiration date of option, but not the obligation. If a trader sells options, he or she must buy or sell assets on the expiration date of the options.
Like futures, options are traded on the floor, such as Chicago Board Options Exchange, International Stock Exchange or Philadelphia Stock Exchange. However, the disadvantage of foreign exchange options trading is that for some options, the market trading time is limited and the liquidity is not as good as that of futures or spot markets.
Exchange traded fund
Exchange-traded funds (ETFs) are the youngest members in the foreign exchange market.
ETF may contain a series of securities and some currencies, which is beneficial for traders to diversify their assets. ETF is set up by financial institutions and can be traded freely like securities. Like foreign exchange options, the limitation of ETF trading is that it cannot be bought and sold 24 hours a day. At the same time, because ETF contains securities, ETF transactions also include transaction fees such as trading commissions.