Earnest money trade rudimentary knowledge of the foreign currency

Earnest money trade rudimentary knowledge of the foreign currency
The earnest money trade of the foreign currency is elementary
The spot market accounts for nearly 1/3 of the trading volume of the global foreign currency, can be divided into two aspects generally:

?  Market under bank, currency buy and sell within two days paying and closing in here, the bank has made "  Whole seller "  Or " become a city trader "  Role.

?  The retail market composed of private dealers, dealers pass the intermediary (the broker) Conclude the business on the telephone or Internet.

There is no centralized trade place on the foreign exchange market, all trade is the over-the-counter trading, and settle account by the personal dealer's agreement by oneself. The foreign exchange market is a real global market, from Monday to Friday, operate in one day and 24 hours. The daily trade begins from Wellington of New Zealand, as the sun moves to Sydney sequentially, Tokyo, Hong Kong, Singapore, Bahrain, Frankfort, Geneva, Zurich, Paris, London, New York, Chicago, Los Angeles, then the heavy head begins again.
Each kind of foreign exchange transaction is in the transaction between a pair of currency. ISO(International Standards Organization) (ISO) made up in one and 3 only letters of each kind of currency Code sign, for example GBP represents pound sterling, USD represents U.S. dollar. To add, separate, agree with, show by two ISO code such as GBP/USD, among them the first " basic currency ", representative of code, currency ,Another one is "  Second currency "  .

The exchange rate is made a bid at another kind of currency for with a kind of currency in brief. Such as GBP/USD =1.5545 pound sterling (basic currency) which express a unit Can exchange 1.5545 dollars (second currency) . What dealers bought and sold is basic currency, the beginner will often make and mix this basic conception.

The exchange rate usually shows, only Japanese yen expresses with two decimals with four decimals. The top two in four decimals is "  Great number " ,And the third and the fourth call jointly "  Click " . For example in GBP/USD =In 1.5545, great number is 1.55 but the third and the fourth's decimal 45 represent and click.

Price differential
Like other financial goods, there is buying price (seller costs) in the foreign exchange transaction With the selling price '  Buyer's bid)  . The difference between buying price and selling price is called it "  The price differential " .

It is expressed that there are particular forms in the price differential, such as GBP/USD =1.5545/50 of the bid of buyer meaning 1GBP is 1.5545 USD, it is 1.5550 USD and the seller costs. The price differential in the middle is 5 points.

The principal currency is right
All currency exchanged with dollar is symmetrical "  The principal currency is right "  . Four kinds of principal currencies are right:

EUR/USD is European dollar / U.S. dollar
GBP/USD i.e. pound sterling / U.S. dollar (are usually call " cable " )
USD/JPY is U.S. dollar / Japanese yen
USD/CHF is U.S. dollar / Swiss Franc

Cross rate
Not the currency of U.S. dollar is right to be called "  One alternately "  . We can since principal currencies described above to in obtain by pound sterling, European dollar, Japanese yen and cross rates of Swiss Franc. It must be in concert and harmony that the exchange rate among all currency is changed, may present " the round trade " otherwise Make a profit with free from risking.
Buy in that ising to sell

It means selling second currency accordingly to buy in the basic currency each time. Likewise, it means buying in second currency at the same time to sell the basic currency.  For example, as dealers sell 1 GBP, he buys in 1.5545 USD at the same time. Likewise, as dealers buy in 1 GBP, he sold 1.5550 USD at the same time.

Should explain such equivalent relation, we can pass and transform GBP/USD exchange rate, and change buyer's bid and seller to ask to obtain USD/GBP exchange rate accordingly.

USD/GBP =(1/1.5550) Buyer's bid; (1/1.5545) The seller costs  =0.6431/33

This means bid of buyer of 1USD is 0.6431 GBP (or 64.31 o'clock) And it is 0.6433 GBP (or 64.33 o'clock) that the seller of 1USD costs . Please notice U.S. dollar has been turned into the basic currency at this moment, the price differential is 2 o'clock.


Buy and sell it basically

Trade unit - lots
Such as the foregoing, each foreign exchange transaction is with another kind of currency of a kind of currency conversion. The basic trade unit of the earnest money investors of the foreign currency is called " lot " ,Made up of 100,000 unit basic currency (but some brokers can arrange to do business on mini lot, regard 10,000 yuan as the base unit of the trade) .

GBP/USD which is bought one lot buys 100,000 pounds at prices which exchange 1 pound of 1.5852 dollars promptly, count 158,520 dollars.

Similarly, GBP/USD which is sold one lot sells 100,000 pounds at the price exchanged 1.5847 dollars at 1 pound promptly, count 158,470 dollars.

Earnest money

Buy in a unit (lot) Investor of GBP/USD need all value such as last example 158,520 USD mentioned to take out trade. The buyer only offers one "  The earnest money "  The account can be in order to reach the trade scale.

Because it means buying in another kind of currency at the same time to sell a kind of currency, the dealers who sell a form GBP/USD buy in a certain amount of U.S. dollar in fact, so must take out and trade the value (158,470 USD) correspondingly Earnest money.

Usually the earnest money requires 1%-5% of the potential value of the trade. The monetary currency depends on investors' trade broker. If you are through a American broker's trade, then you must offer the earnest money account of U.S. dollar, even if you are a British resident.

Suppose your earnest money account is 5000 dollars, and the earnest money requires 2.5%, you can set up the position valued at 200,000 dollars. Your position value will be assessed constantly, if the money on the earnest money account is lower than supporting the minimum value that your open position needs, perhaps you will be demanded to add the money to the account. This is as it always goes, "  The earnest money notice "  .

If the currency of your trade is not a currency that a broker accepts, you must transform your profit and loss into an acceptable currency. For example that supposed your trade is USD/JPY, your profit and loss will be with the sign of Japanese yen. If your broker's home currency is U.S. dollar, then your profit and loss will be turned into U.S. dollars according to relevant USD/JPY exchange rate.

It is empty and doing it more to do

When you buy in a kind of currency, you " do this currency more " . Many storehouses are asked and set up with the seller. So if you buy in a form GBP/USD while offering for 1.5847/52, then you will exchange 1.5852 dollars and buy in 100,000 pounds with 1 pound.

When you sell a kind of currency, you " do this currency emptily " . The empty storehouse is established of buyer's bid, is 1 pound in our example to exchange 1.5847 dollars.

Because monetary symmetry of trade, you one currency make, make to another kind of currency empty promptly many a while correctly. For example you change U.S. dollar with 100,000, you pound sterling make empty to do more to U.S. dollar correctly.

Settlement
The open position means this position is effective and going on. So long as the position is open, its value will exchange rate fluctuate with the market, all profit and loss will be reflected on your earnest money account. Close the location of storehouse, mean carrying on the reciprocal trade in the same currency is right. For example if you cost, make one form GBP/USD more with seller already, want, close storehouse person make empty one form GBP/USD with buyer bid.

Must go on by same intermediary when you begin and finish the trade, can't set up one GBP/USD storehouse location in, broker of A, and close the location of storehouse by B broker.