Currency pairs, every trader who deals in foreign exchange, the first thing to know when trading in foreign exchange is the currency pair, then what are the codes in the currency pair, what else do we need to pay attention to? A currency pair is represented by two ISO codes plus a separator, such as GBP/USD, where the first code represents the base currency pair and the other is the secondary currency pair.
Currency exchange
The most commonly traded currency in the market is known as the main currency pair. Most of the currencies are traded against the USD, which is also the most frequently traded currency, while the other seven most frequently traded currencies are the EUR, the JPY, the GBP, the CHF, the AU, the CAD and the NZD. These eight major currencies account for 90% of the global foreign exchange trading market.
Currency of the safe haven: US Dollar, Japanese Yen, Swiss Franc
Currencies for commodities: Australian, Canadian and New Zealand dollars
Currencies at risk: Euro, Pound
High interest rate currency: Australian dollar, New dollar
Currency exchange rate fluctuations
Commodity currencies are the currencies that depend on the resources and the commodity resources produced by their countries, Australia, Canada, New Zealand, which produce a lot of coal, iron ore, oil, so you will find that when mineral prices and oil prices are strong, they also make the currency stronger. Commodity currencies are usually the first to strengthen when the economy recovers, because the economic recovery means an increase in the demand for commodities, which leads to the economy of the exporter of commodities, often the commodity currency is the first to raise interest rates, such as this time, the Australian dollar, the Canadian dollar.
The currency of the refuge
A safe haven currency, also known as a reserve currency, refers to a currency that is not easily affected by political, war, or market volatility, and avoids the risks mentioned above as much as possible. A currency that is relatively stable and not easily devalued. A safe haven currency that avoids the risk of devaluation as much as possible does not mean that it will not be devalued at all.
The recognised traditional safe haven currency is the Swiss franc. Other currencies, such as the US dollar and the yen, are sometimes used as safe havens.
The yen can act as a safe haven currency mainly because the yen is a low-interest currency, and if the economy does not work, it will have to reduce interest rates to stimulate the economy, when the interest rate is lowered, it is relatively unprofitable to hold the currency, and it is expected to reduce interest rates, the high interest rate currency exchange rate is suppressed, the low interest rate currency has a safe haven effect, Japan lowers interest rates in the long term, it is impossible to reduce.
The rise in interest rates
The interest rate of money is a country used to control the supply of money, and thus to balance the demand for money. The current world first-line currency is the US dollar, the euro and the yen, because the demand for first-line money is high, the country does not use high interest rates and there is already a lot of money flowing in, first-line money is mainly a large country where investors have confidence in these currencies.
The risk of currency collapse
Currencies that are generally volatile, such as the US dollar or other major currencies, can be considered high-risk currencies. The most common high-risk currencies are often emerging-market currencies, as they can suddenly depreciate significantly in certain circumstances. In certain special circumstances, such as the recent eurozone debt crisis and the recent Brexit, the euro and the pound are now considered high-risk currencies.
Most traders in the market, especially newcomers, only pay attention to the 7 major currency pairs: EUR/USD, GBP/USD, USD/JPY, USD/CAD, USD/CHF, AUD/USD and NZD/USD, which are the most obvious and easy to analyze.
The easiest way is to study the strength and weakness of the dollar, and there are different indicators on the market that can be used to determine the direction of the trade based on the economic situation and monetary policy of individual countries.
Currency of the United States
The dollar, symbolized as USD, is the most special of all currencies, and the vast majority of transactions in the foreign exchange market involve the dollar, which is the global reserve currency. After World War II, an international monetary system centered on the dollar was established, the Bretton Woods system.
If a country needs to buy oil or other agricultural products, it first needs to exchange its currency into dollars before buying the relevant products. This is also why the vast majority of countries use dollars as their foreign exchange reserves. It is easier for them to buy other goods abroad as long as they have dollars in their pockets.
So the currency pair is divided into a straight and a crossed pair, depending on whether the dollar is involved in the market or not.
Right side up.
Due to the specificity of the dollar, the trading of various currencies against the dollar is called a straight diskette, which accounts for the vast majority of the trading volume in the global foreign exchange trading market.
The cross-plate
The most active cross currency pairs are derived from three non-US dollar currencies: the euro, the yen, and the pound sterling.
The cross-disc is a currency pair that does not involve the US dollar and is a more progressive currency pair option. However, the importance of the US dollar cannot be ignored in the analysis.
Take the example of the two Australian crosses AUD/JPY and AUD/NZD, the former is a typical coupon trade, in addition to studying the interest rate differential and trade relations between the two countries, it is necessary to study the trend of AUD/USD and USD/JPY, the AUD/JPY is large and obvious.
As for the AUD/NZD, as Australia and New Zealand are sister countries, the geographical and economic nature of the two countries is similar, which makes it difficult to record sharp differences in the two economies.
You can't go wrong with a currency pair.
The choice of currency pair should generally depend on the traders' trading habits and type of trading, such as newbie or veteran, radical or conservative, long or ultra-short.
If you compare the traders in the foreign exchange market to a tree, the bank is the trunk, the other traders and investors are the branches.
█ Banking quotes
A bank's quotes are determined by the risk control criteria of its own foreign exchange liabilities (i.e. everyone's deposits) and foreign exchange assets. To prevent squeezing or other risks, a bank's foreign exchange reserves must be diversified, which brings great market risks to the bank's operations, so the general bank will have a risk control limit for each foreign currency it holds, such as $100 million (€100 million (€100 million) risk control limit ± 10%), €80 million (€80 million (€80 million) risk control limit ± 5%), 100 million Swiss francs (€100 million) risk control limit ± 15%); when a currency is held in a high volume or too small a controllable range of risk, the bank must report it to the foreign exchange market, so that the currency's holdings are within the limits of the risk control protocol, at which time the bank will take into account the market price of the client as well as the market price of the currency that the client wants, and the bank will report the price of the foreign currency in accordance with the market price of the bank itself, and the bank will also be able to see if this amount is too
Foreign exchange transactions are inquiry transactions, also known as protocol transactions, banks' external offers are also independent, banks' offers for each client are also independent, and the offers we see are mostly concentrated in the offers of multiple banks, for the independent individual of the transaction, the bank can offer individually to this individual, of course the bank can also offer for a specific group.
If you use the Reuters quote terminal, you can see that behind each quote there is a bank abbreviation, which means that the bank has reported to the market at the last moment a quote for this price of the currency, and if someone responds, this person will contact the bank directly instead of contacting Reuters. Sometimes, after a transaction with the bank, within a short time, you can see that the bank you are dealing with reports at the Reuters terminal a price that is the same as your transaction price (or 1 point or 2 points), which indicates that the bank may have made a transaction with you, due to the foreign exchange, and of course it may also be that some other bank to the bank when the exchange is not big enough, the bank needs another one to make a trade at the same price as you just made a transaction, or a different size.
Since the delivery period for bulk transactions is usually 48 hours, there are many times when we can also see inquiry information between banks and banks in the communication system of the Reuters terminal, sometimes their inquiry is funny, they will say, "Can this price help me stay for a day ((or a few hours, for a while)?"
On the other hand, even though the entire forex market is trading over $2 trillion a day, the vast majority of traders or bidders have a limit on the amount of trading authorization when they trade.
█ Currently quoted
Inquiry: A request for a price that is sent to a specific target (other bank, broker, client) and is displayed on the terminal of Reuters or Bloomberg, as well as on their communication system. This price is a one-way price that is often quoted when the dealer does not have a specific authorization or some form of monetary risk control.
Quote: quoting your current bid and ask price, waiting for the response of others, in general, we see on some securities trading platforms, bank websites, because the bidder does not know whether you are buying or selling, this type of quote will not change until the dealer who quoted the price is full or the currency reaches a certain level of risk.
Take-out price: Generally, in a broker's outward bidding, the broker puts two bids with the closest price (but different) at the closest time (possibly at the same time) together and then takes outward bids, waiting for the response of the parties to the transaction. Since there is a question of quantity here, in general, the broker will ask for the quantity he wants, and if the broker really wants to facilitate the transaction between the parties, he will replace the difference in the quantity with his own funds, which will also be reflected on the terminal of Reuters or Bloomberg.
█ Foreign exchange quotes in China
In China, the foreign exchange market price refers to the foreign exchange exchange market price listed by the foreign exchange designated bank, which is the buying and selling price between various foreign currencies and the yuan (which is the same for all branches, branches and branches); this price does not change on the same day, but may change on different dates.
The forex market, as it is known to investors, is the exchange rate between a foreign currency and the U.S. dollar as shown by a foreign exchange bank, and the cross exchange rate between two foreign currencies other than the U.S. dollar. This price is constantly changing, similar to the constant updating of the stock market, so this price has a maximum and minimum price in a day. The forex market is actually an international foreign exchange market in a domestic region, an extension of the branch of a foreign exchange bank, which can act as a volatile market for instant transactions.
It should be noted that the quotes of the exchange rate are reported by market makers such as banks based on real-time information on the foreign exchange trading market, similar to the Forex trading terminal platforms such as Reuters, which are also only taken by market makers and market makers. The price and quantity of foreign exchange reported by market makers and market makers, ordinary institutions and individuals due to the difficulty of meeting the conditions on the number of transactions, therefore do not enter these terminal platforms at all, much less can directly transact, can only accept the quotes of brokers or banks, in order to conclude transactions with brokers or banks.
█ Terms and their meanings in foreign exchange quotes
The Big Figure: The basic part of the exchange rate, usually not reported by traders, is only reported when it is necessary to confirm the transaction or in a highly volatile market. For example, if GBP/USD = 1.6500, 5 is a big number.
The Small Figure: The last two digits of the exchange rate, such as in GBP/USD=1.6500, 00 is a small number.
Pips or Points: The smallest part of the change in exchange rate, usually also called a point. In the above five-digit effective digit, the first one is called the pixel X pixel, the second one is called the pixel X+ pixel, the third one is called the pixel X hundred pixel, and so on.
The Spread: The difference between the buy and sell price.
Bid: A bid that a market maker is prepared to buy the underlying currency. For the bidder, it is the highest price at which the bidding bank or foreign exchange broker is willing to buy the quoted currency at the time of the bid. For the inquirer, the bid price reported by the bank represents the highest price at which the inquirer can sell the quoted currency. For the inquirer, the inquirer of course wants to sell the higher the better, but from the bidder's point of view, the inquirer wants to buy the lower the better.
Offer price: The price at which a market maker is willing to sell the underlying currency. From the bidder's point of view, it is the lowest price at which the bidder or economist is willing to sell the quoted currency at the time of the bid. From the bidder's point of view, the sell price is the lowest price at which the bidder can buy the quoted currency.
Translated from Digital Exchange Finance