Several key knowledge points in the introduction to foreign exchange knowledge

point

A point is the smallest currency unit of any currency pair. Almost all currency pairs contain 5 significant digits, and after the first digit, there are digits after the decimal point, for example, EUR / USD quotes 1.2538. In this case, 1 point is the fourth decimal place, which is 0.0001. Therefore, if any currency pair uses the US dollar as the quote currency, 1 point is equal to 1/100 of 1 cent.

The only exception is the yen currency pair, in which case 1 point is equal to 0.01.

0.1 point

One tenth of one point is 0.1 point. Some brokers provide 0.1 currency pair quotes. For example, if the EUR / USD fluctuates from 1.32156 to 1.32158, then its fluctuation is 0.2 points.

buying price

The bid price is the price at which the market intends to purchase a certain currency. At this price level, traders can sell the base currency. It is displayed on the left of the currency pair quote.

Taking GBP / USD as an example, if the GBP / USD quote is 1.8812 / 15, then the purchase price is 1.8812. This means that the price you sell for 1 pound is 1.8812 dollars.

Selling price

The selling price is the price at which the market intends to sell a specific currency pair. At this price, you can buy the base currency. It is displayed to the right of the currency pair quote. For example, the quote price of EUR / USD is 1.2812 / 15, and the selling price is 1.2815, which means that you need to pay 1.2815 USD for 1 euro.

Buy / sell spreads
Several key knowledge in the introduction of foreign exchange-Yuhui International

The spread is the spread between the purchase price and the selling price. In dealer quotes, the number before the decimal point is usually omitted. For example, the USD / JPY exchange rate may be 118.30 / 118.34, but the oral quote may omit the first three digits and say “30/34”. In this example, the USD / JPY spread is 4 points.

Quotation equation

Use format of foreign exchange market exchange rate: base currency / quotation currency = buying price / selling price

transaction cost

The distinguishing feature of the bid / ask spread is that it is also the transaction cost required for a complete transaction process. Complete trading means that when a currency pair is bought (or sold), the same currency pair of the same size is sold (or bought) by hedging. This complete trading process is called complete trading. For example, if the euro / dollar exchange rate is 1.2812 / 15, then the transaction cost is 3 points, and these 3 points are the investor’s transaction cost.

The formula for calculating transaction cost is: transaction cost (spread) = selling price-buying price

Cross currency pair

Cross currency pairs refer to currency pairs that do not include US dollars. Investors conducting a cross currency pair transaction is actually equivalent to conducting two dollar-related transactions. For example, initially buying EUR / GBP is equivalent to buying EUR / USD and selling GBP / USD. Cross currency pair transactions usually cost more, that is, spreads are higher.

Margin

When you open an account with a foreign exchange broker, you must deposit the minimum funds required by the broker. The minimum funds are only for different traders, the minimum is 100 US dollars, the highest can reach 100,000 US dollars.

Each time you make a new transaction, a portion of the funds in your margin account will be used as the initial margin for your transaction. The size of the initial margin depends on the currency pair you are trading, the current exchange rate and the number of transactions. The size of the trading lot always refers to the size of the base currency trading lot.

For example, if you open a mini account with 200 times leverage, or the margin requirement for this account is 0.5%. The mini account trades mini hands. 1 mini lot equals 10,000 USD. If you plan to trade 1 mini lot, you do not need to provide the full amount of 10,000 US dollars, you only need 50 US dollars (10,000 US dollars * 0.5% = 50 US dollars).