Forex introduction

The foreign exchange market is the world's largest financial market, with an average of more than $5 trillion in funds per day running

Foreign exchange introduction

Although the foreign exchange market is the most traded financial market in the world, foreign exchange is still a relatively new investment product for the majority of individual investors, as opposed to traditional financial products such as stocks, futures and bonds. This is because most investors lack an in-depth understanding of the foreign exchange market and an understanding of the volatility of the foreign exchange market. Unlike traditional securities and futures products traded on the New York Stock Exchange and the Chicago Mercantile Exchange, Forex is a global 24-hour trading financial product. Forex trading starts every day in New Zealand and starts trading separately in Asia, Europe and America. In the past, only banks and non-bank financial institutions conducted large transactions in the foreign exchange market in order to obtain speculative profits or to balance interest rate risks between currencies. The global foreign exchange market has grown very rapidly in the past few years. As a strong forex broker, DB PROSPECTIVUS is proud to provide a stable and reliable foreign exchange trading platform for major financial institutions such as funds, asset management, wealth management and individual investors.

What is foreign exchange trading?

For active investors and traders, foreign exchange trading is similar to other financial investment products such as stocks, commodity futures and bonds. As a result of today's economic globalization, regional economic unions, foreign exchange trading as part of your investment portfolio will help balance investment risks and increase revenue opportunities.

Just like financial products such as futures, forex trading allows investors and traders to buy long (Long) or short (short) currency combinations such as: EUR/USD, USD/JPY, GBP/USD, etc.

The price of a currency combination represents the value of one currency relative to another, which embodies the relative market value of the two currencies at the time. The political and economic factors of a currency country affect the value of that currency.

If a country's inflation rate/interest rate is at a relatively stable and relatively low level, the gross national product is strong, and positive factors such as political stability in the country will have a positive impact on the value of the currency. Based on the study of foreign exchange price volatility, fund allocation management and trading discipline, successful investors will benefit from foreign exchange transactions. (risk warning)

Liquidity of currency transactions

Just like securities and bonds, the liquidity between currencies is different. The highly liquid currency refers to the seven countries with the most stable political and economic stability, namely the United States, Japan, Britain, France, Germany, Italy, and Canada. After the European Union began issuing euros, the most liquid currencies were the US dollar, the Japanese yen, the British pound, the euro, and the Canadian dollar. The trading volume of these five foreign currencies accounts for 80% of the global foreign exchange trading volume.

Base currency and target currency

In the foreign exchange market, the exchange rates of the two currencies appear in pairs. The base currency is in the front, the target currency is in the back, and the middle is separated by "/". When calculating the price of the pair of currencies, the base currency is used as the invariant constant and the target currency is the exchange rate variable. Euro EUR is the base currency relative to all other trading currencies, such as: EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD, etc. The pound is the base currency for currencies other than EUR, such as: GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD. Only for the euro is EUR/GBP.

Currency value

For example, in EUR/USD, based on EUR, if an investor buys 100,000 EUR/USD, he buys 100,000 euros and sells dollars. Regardless of how the exchange rate changes, the value of 100,000 EUR remains the same. However, the target currency, the dollar, will change in value as the exchange rate fluctuates.

The currency exchange rate unit, the fourth smallest digit after the decimal point, is called pips. Forex uses pips to reflect price changes because usually foreign exchange transactions can provide a high leverage ratio, which leads to an increase in the amount of actual trading funds, and a small price change will result in a profit or loss.

DB PROSPECTIVUS provides a default 1:200 leverage ratio for standard accounts. If trading at this rate, a €100,000 contract would require a $500 deposit at a EUR/USD exchange rate of 1.14000. 100,000 EUR = 114,000 USD, 114,000/500 = 228, so the exact leverage provided for the EUR/USD pair is 228 times.

USD value = 1.14x base currency denomination amount = $114,000 USD
Calculate the pip value of the above transaction by the following formula:
USD value = 1.14x base currency denomination amount = $114,000 USD

Forex Trading Basics

Buying and selling of foreign exchange

In reality, you buy and sell when you are practical. For example, you submitted EUR/USD at 1.14000, which means you bought the Euro at 1.14000 and sold the USD. If the exchange rate of the euro against the dollar rises, your trade will be profitable.

If you encounter a situation that cannot be traded through the DB PROSPECTIVUS platform, please call through our company's trader to place an order, you need to provide information in the following format:
"I buy 100,000 Euros and sell the dollar at the Market" OR
"I buy 500,000 EUR/USD on a 1.15000 stop" OR
"I buy 100,000 Euros vs. the Dollar at the market"

Please note that if you place an order through a trader, please note that you must specify the value of the trade, the currency combination, the exchange rate and the buy or sell price of the market price, limit price or stop price.

Buy/Sell Price

As with other financial product transactions, foreign exchange quotes consist of buy and sell prices. The purchase price refers to the price of the trader's buying currency. The selling price is the price at which the market maker sells the currency. For traders, the opposite is true. The bid price of the market maker is the seller's selling price, and the market maker's selling price is the trader's bid price.

The difference between the bid price and the ask price is the spread. The spread is the fee charged by the market maker to provide the individual trader with the liquidity of the foreign exchange trading transaction. For example, if the bid/ask price is 1.1451/1.14506, the spread is 0.5 pips.

Traders are always willing and able to establish a market for investors. For the service, he will have a bid price when buying stocks or a selling price when selling stocks and a quote. The difference between the bid/sell price offered by the dealer will fluctuate with the general liquidity of the underlying stock.

The main currency pair trading spreads provided by DB PROSPECTIVUS are generally around 1-2 points. Currency spreads with smaller liquidity will be larger. This reflects the relative liquidity and risk of a particular currency pair in a professional market. Our quotes for trading spreads reflect the risks we bear in a trading market and the costs we bear for providing services to our customers.

Three simple steps to start trading

Starting a deal with DB PROSPECTIVUS

Experience our superior trading conditions!

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Risk Tips: Trading CFDs and other leveraged products is risky and may not be suitable for every investor. The advantages and disadvantages of high leverage trading coexist. Before deciding to trade, you should carefully consider your trading objectives, level of experience and risk tolerance. Your losses may exceed your initial investment, so it is not recommended to invest in funds that you cannot afford to lose. Before you start trading, you should understand all the risks associated with CFDs. If you have any questions, it is recommended to seek advice from your financial advisor and read the risk disclosure summary.

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We strongly recommend that you obtain the advice of your independent financial advisor before trading in any currency or metal.

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