Foreign exchange

Foreign exchange transactions are the exchange of one country’s currency with another country’s currency. Unlike other financial markets, the foreign exchange market has no specific location and no central exchange. Instead, transactions are conducted through electronic networks between banks, companies, and individuals. “Foreign exchange trading” is the simultaneous purchase of one currency in a pair of currency combinations and the sale of another currency. Foreign exchange is traded in currency pairs, such as Euro/U.S. Dollar (EUR/USD) or U.S. Dollar/Japanese Yen (USD/JPY).

means of transaction

  • Spot foreign exchange transaction: also known as spot foreign exchange transaction, is a foreign exchange transaction method in which the two parties agree to handle the delivery within two business days after the transaction.
  • Forward transaction: also known as futures exchange transaction, the foreign exchange transaction method in which the foreign exchange transaction is not delivered after the transaction is completed, and the delivery is processed according to the agreed time in the contract.
  • Arbitrage: Arbitrage refers to foreign exchange that uses different foreign exchange markets, different currency types, different delivery times, and some currency exchange rates and differences in interest rates to buy from the low-priced party and sell from the high-priced party to make a profit. means of transaction.
  • Arbitrage trading: A trading method that uses the difference in interest rates in the currency markets of the two countries to transfer funds from one market to another to make profits.
  • Swap transaction: refers to a transaction that combines two or more foreign exchange transactions with the same currency but the opposite transaction direction and different delivery dates.
  • Foreign exchange futures: The so-called foreign exchange futures refer to futures contracts based on exchange rates to avoid exchange rate risks. It is the earliest variety in financial futures.
  • Foreign exchange option transactions: Foreign exchange options are traded in foreign exchange, that is, the option buyer obtains a right after paying the corresponding option premium to the option seller. That is, the option buyer has the right to pay a certain amount of option premiums on the agreed expiry date in accordance with both parties The agreed exchange rate and amount are agreed in advance and the seller has the right to buy and sell the agreed currency, and the buyer of the right also has the right not to execute the above-mentioned sales contract.
  • In the future, there will be a foreign exchange trading platform jointly established by banks and Internet investment companies, which reduces unnecessary costs for personal investment.


Transaction classification


The foreign exchange market, also known as the “Foreign exchange” or “FX” market, is the world’s largest financial market, with an average daily turnover of more than US$1,500 billion in funds — equivalent to 30 of the sum of all securities market transactions in the United States Yu times. Foreign exchange transaction classification

From the perspective of the nature of the transaction and the type of realization, foreign exchange trading can be divided into the following two categories:

  1. Basic foreign exchange transactions to meet the real needs of customers for trade and capital transactions;
  2. On top of basic foreign exchange transactions, foreign exchange derivatives transactions conducted to avoid and prevent exchange rate risks or for foreign exchange investment and speculation needs.

The basic foreign exchange transactions belonging to the first category are mainly spot foreign exchange transactions, while foreign exchange derivative transactions include forward foreign exchange transactions, as well as foreign exchange selective transactions, swap transactions, and swap transactions.

There are two main reasons for foreign exchange transactions. About 5% of the daily turnover is due to companies and government departments buying or selling their products and services abroad, or having to convert the profits they earn abroad into the national currency. The other 95% of transactions are for profit or speculation.

For speculators, the best trading opportunity is always to trade the most commonly traded (and therefore the most liquid) currencies, called “major currencies”. Today, approximately 85% of daily transactions are in these major currencies, It includes US dollars, Japanese yen, euros, British pounds, Swiss francs, Canadian dollars and Australian dollars.

This is an instant 24-hour trading market. Forex trading starts in Sydney every day, and as the earth rotates, the business day of every financial center in the world will start in turn, first in Tokyo, then London, and New York. Unlike other financial markets, foreign exchange trading investors can react to foreign exchange fluctuations caused by economic, social and political events that occur during the day or night.

The foreign exchange market is an over-the-counter (OTC) or “internal bank” trading market, because in fact foreign exchange transactions are reached by both parties through the telephone or an electronic trading network. Foreign exchange transactions are not centralized like stock and futures trading markets. In a certain exchange.

Transaction type

Foreign exchange transactions can be divided into cash, spot foreign exchange transactions, contract spot foreign exchange transactions, foreign exchange futures transactions, foreign exchange options transactions, forward foreign exchange transactions, swap transactions, etc.

Cash transaction

Specifically, cash transactions are transactions between tourists and those who need foreign exchange cash for various other purposes, including cash, foreign exchange traveler’s checks, etc.; spot transactions are between large banks and large banks acting for large customers. After the transaction is concluded, the payment and delivery of funds shall be completed within two business days at the latest. Contract spot trading is a way for investors to sign contracts with financial companies to buy and sell foreign exchange, which is suitable for public investment; futures trading is based on The agreed time, and the transaction is carried out at the determined exchange rate. The amount of each contract is fixed; the option transaction is a transaction carried out in advance for the option of whether to buy or sell a certain currency in the future; the forward transaction is in accordance with the contract The date for delivery, the contract can be large or small, and the delivery period is more flexible.

From the perspective of the number of foreign exchange transactions, the proportion of foreign exchange transactions arising from international trade in the total foreign exchange transactions is constantly decreasing. According to statistics, this proportion is only about 1%. Then, it can be said that the mainstream of foreign exchange transactions is investment, which aims to make a profit in the fluctuation of foreign exchange prices. Therefore, spot, contract spot and futures trading account for a larger proportion of foreign exchange transactions.

Spot foreign exchange

Spot foreign exchange transactions are transactions between large banks and large banks acting on behalf of large customers. After the transaction is agreed upon, the payment and delivery of funds shall be completed within two business days at the latest.

The following mainly introduces personal foreign exchange transactions launched by domestic banks for individuals and suitable for public investors.
Personal foreign exchange transactions, also known as foreign exchange treasures, refer to transactions in which individuals entrust a bank to purchase and sell one foreign currency into another foreign currency with reference to the real-time exchange rate of the international foreign exchange market. Since investors must hold a sufficient amount of foreign currency to sell before they can trade, compared with the internationally popular foreign exchange margin trading, they lack the short selling mechanism and financing leverage mechanism of margin trading, so it is also called real trading.

Since the Shanghai Industrial and Commercial Bank of my country began its personal foreign exchange trading business in December 1993, with the substantial growth of Chinese residents’ personal foreign exchange deposits, the introduction of new trading methods and changes in the investment environment, the rapid development of personal foreign exchange trading business has become a country’s ex-stock The largest investment market outside.

The six banks of Industry, Agriculture, China, China Construction, Communications, and China Merchants have all launched personal foreign exchange trading business. China Everbright Bank and Shanghai Pudong Development Bank are also actively preparing. It is expected that the competition among banks for personal foreign exchange trading business will be more intense, the services will be more complete, and foreign exchange investors will enjoy better services.

Domestic investors, with the foreign exchange in their hands, go to any of the above-mentioned banks to open an account, deposit funds, and then conduct foreign exchange transactions through the Internet, telephone or counter. For more detailed information, please refer to the real trading section of this website.

Contract spot

Contract spot foreign exchange trading, also known as foreign exchange margin trading, deposit trading, virtual trading, refers to investors and financial companies (banks, dealers or brokers) that specialize in foreign exchange trading, signing contracts for entrusted trading of foreign exchange, and paying A certain ratio (generally no more than 10%) of trading margin can be used to buy and sell foreign exchange of 100,000, hundreds of thousands or even millions of dollars at a certain financing multiple. Therefore, this type of contract trading is just a written or verbal commitment to a certain price of a certain foreign exchange, and then wait for the price to rise or fall, and then settle the transaction, obtain profit from the changed spread, and of course also bear it. The risk of loss. Because this kind of investment requires more or less capital, it has attracted the participation of many investors.

Foreign exchange investment appears in the form of contracts, and the main advantage is to save the investment amount. When buying and selling foreign exchange in the form of a contract, the investment amount is generally not higher than 5% of the contract amount, and the profit or loss paid is calculated based on the entire contract amount. The amount of foreign exchange contracts is determined according to the type of foreign currency. Specifically, the amount of each contract is 12,500,000 yen, 62,500 pounds, 125,000 euros, and 125,000 Swiss francs, and the value of each contract is approximately US$100,000. The amount of each contract in each currency cannot be changed according to the requirements of investors. Investors can buy and sell several or dozens of contracts according to their deposit or margin. Under normal circumstances, investors can buy and sell a contract with a margin of USD 1,000. When the foreign currency rises or falls, the investor’s profit and loss are calculated based on the contract amount, which is USD 100,000.

Futures trading

Foreign exchange futures trading refers to buying and selling a certain amount of another currency in US dollars on an agreed date at a determined exchange rate. Foreign exchange futures trading and contract spot trading have similarities and differences. Contract spot foreign exchange transactions are carried out through banks or foreign exchange trading companies, while foreign exchange futures transactions are carried out in specialized futures markets. The world’s futures markets mainly include: Chicago Board of Trade, New York Mercantile Exchange, Sydney Futures Exchange, Singapore Futures Exchange and London Futures Exchange. The futures market must include at least two parts: one is the trading market, and the other is the clearing center. After the buyer or seller of the futures trades on the exchange, the clearing center becomes its counterparty until the actual delivery of the futures contract. Futures foreign exchange and contract foreign exchange transactions have certain connections and differences. From the perspective of comparing the two, the following describes the specific operation of futures foreign exchange.

The number of foreign exchange futures transactions is exactly the same as the contract spot foreign exchange transactions. Foreign exchange futures trading is at least one contract. The amount of each contract is different for different currencies. For example, a pound contract is 62,500 pounds, Japanese yen is 12,500,00 yen, and euros are 125,000 euros.