View Forex Quotes
Before you set up your first forex trading
Quotes in the foreign exchange market can be confusing because any position you create in the market is actually two different positions. For foreign exchange, the currency will be listed in a pair. Forex offers you more options than other markets. For example, you may be optimistic about the euro, so you want to buy the euro. In terms of foreign exchange, you can choose which currency to buy in the euro. You can buy the euro in US dollars, or buy it in Japanese yen. You can buy the Euro in a range of other currencies we offer. Therefore, the currency pair will be displayed in the following manner.
EUR / USD
EUR / USD
The first listed currency is called the base currency, while the second listed currency is called the relative currency or the quote currency. Therefore, in the case of EUR/USD, the euro is the base currency and the dollar is the relative currency. If the exchange rate for this currency pair is 1.4700, this quote shows how much relative currency is needed to buy a unit of base currency. Therefore, it takes $1.47 to buy one Euro.
When setting up a trade, keep in mind that when you open a position at any time, you are establishing a position in the base currency. Therefore, if you buy a currency pair, you are buying the base currency. If you sell a currency pair, you are selling the base currency. So, it’s easy for you to remember that the opposite is true for money. If you buy EUR/USD, you are buying the Euro and selling the USD. If you are still confused, simply think about it this way. If you think the exchange rate will climb, buy it; if you think the exchange rate will go downhill, sell it. It’s that simple.
You will often see quoted bids and ask prices on both sides. The bid price is the price at which you can buy the currency pair, and the selling price is the price at which you can sell the currency pair. The difference between the two prices is called the bid-ask spread. The bid-ask spread is determined by the price provider and the market liquidity at that moment. All trading instruments, stocks, bonds, futures, options, etc. have a bid-ask spread, but traders may not always be able to detect it.
In summary, I believe that you already know how the currency pair is quoted and what currency you are buying and selling when you create a trade.
What is an idea?
A point refers to a point calculated in percentage. Simply put, in the forex world, one point is to calculate the idea of profit and loss. For a standard (10k) account, each point is approximately equal to one unit of account settlement currency. For example, if your account is in US dollars, each point (depending on the currency pair) is approximately equal to $1. In the case of a micro account, the amount per point is approximately equal to one tenth of the standard account, which is approximately $0.10.
For all currency pairs involving the Japanese Yen (JPY), one point is one percent, which is the second decimal place. For all other currency pairs, one point is one in ten thousand, the fourth one after the decimal point. As for how to calculate the value of each point, the following is a simple formula.
Start with your trading unit. The micro-trade contract is 1k, so if you want to use the point value of the micro-trade contract, please use 1,000. If you want to use the standard hand point value, use 10,000. After that, you multiply the trading unit by the point of the currency pair you are buying and selling. Some people may have no idea about this, so let’s give an example. In the following example, we will calculate the point value of a 10k EUR/USD.
Since I am using a standard 10k trading unit, I will use 10,000 at the beginning. Multiply 10,000 by .0001 because the points for all currency pairs are 10,000 (except for the Japanese currency pair). The value obtained is 1. This number will be denominated in the relative currency (second currency) of the currency pair I am buying and selling. In this case, what I trade is EUR/USD, so the USD is the relative currency in the currency pair. For a single 10k EUR/USD, the value of one point is $1. If my account is in US dollars as the settlement currency, my account will generate a profit or loss of $1 whenever the EUR/USD changes by 1 pip in the market.
Leverage and margin
Leverage and margin are an important concept that you need to understand, because if used incorrectly, leverage can quickly cause you trouble. If used properly, leverage can increase the profitability of your trading strategy.
Leverage and margin refer to the same concept, but the views are slightly different. When a trader establishes a position, they need to honestly surrender a portion of the value of the position. In this case, the trader can be said to have used leverage. The amount that needs to be surrendered is called the margin requirement. Margin requirements are often referred to as credit margins, as traders can generally retrieve the amount after closing the position. I am here to say that it is because the situation will be completely different if there is a margin call. The situation will be explained later.
For the sake of clarity: margin deposits are a requirement for a transaction, not a transaction. A big benefit of the foreign exchange market is that it provides some minimum margin requirements for any tradable financial instrument. This means that your account’s purchasing power is much higher than the same size trading account or bond trading account.
Now look at an example of leverage and margin.
Suppose the trader establishes a position in the USD/JPY currency pair. Traders do not have to pay $100,000, they only need to hand over $500 or $250. (The actual amount will depend on the leverage level set by the account.) The default leverage for the demo account is 200:1, so the margin requirement for a $100,000 position is only $500 (0.5% of 100,000). If the trader establishes a two-handed $100,000 list, their total position will be $200,000, and the current margin requirement is $1,000.
It is worth noting that margin requirements are not the maximum amount of possible losses in positions. This is just the amount that the broker asks you to hand over to establish a position. You need to keep in mind the actual size of the position, because the profit and loss will be calculated based on the size of the position, not the amount of the required margin. The table below provides additional examples.
|Required margin||Position Unit – Nominal Value||Leverage||Margin %|
Traders must always keep in mind that leverage is a double-edged sword: when a position moves in a direction that is good for you, a high degree of leverage can increase profitability, and when a position moves in a direction that is not favorable to you, it will increase the loss.
For this reason, don’t put too much account value at risk and/or build too many positions relative to the size of your account, so your account is over-leveraged.
As for what is too much, it varies from individual trader. Short-term traders are generally used to using larger leverage because they know that they have not held a position for a long time. Longer-term traders use lower leverage, so a slight volatility does not cause their positions to be flattened. We recommend that you try different leverages on different trading strategies in the demo account to find the trading model that works best for you. Keep in mind that the use of a large amount of leverage does not mean that you should use high leverage from time to time.
We will discuss the overnight interest rate in this section. We will first explain the concept of overnight interest, and then look at an example of calculating overnight interest. We will show you how to use the overnight interest rate because many successful traders will regard it as an important part of the trading strategy.
Overnight interest is the interest paid or earned by holding a position overnight. The target interest rate associated with each currency (generally determined by the central bank of the currency). Please refer to the following subsections:
|New Zealand dollar||Sterling||Canadian dollar||Australian dollar||US dollar||Euro||Japanese Yen|
The above table shows only an example and does not represent real-time interest rates.
As we mentioned in the look at Forex quotes, whenever you create a foreign exchange position, you are buying a currency and selling another currency. Therefore, you will earn the interest rate of the currency you bought and the interest rate of the currency you are selling. The net difference will be credited to or deducted from your account as an overnight interest (GMT time 22:01). It is worth noting that the overnight interest only applies to the open positions held at 22:01 GMT. If you close your position before the overnight interest period, or establish a position after the overnight interest period, no interest will be paid or deducted.
In general, foreign exchange is a two-day delivery market. This means that the position will be settled two days after the establishment. On Wednesday, the position will be turned into a position on Thursday. Technically, these positions will be settled on Saturday. The bank is closed on Saturdays, so the position will be transferred to the Monday through Monday. In short, the overnight interest on Wednesday is generally equal to the interest on three days. The overnight interest does not apply to open positions held on Saturdays and Sundays. I hope that now you have a clearer idea of how to use the overnight interest.