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Foreign Exchange Rate

Foreign Exchange Rate

What is the exchange rate?

The exchange rate refers to the price expressed by one country’s currency in another country’s currency, or the price between the two countries’ currencies. In the foreign exchange market, the exchange rate is displayed in five digits, such as: Euro EUR 0.9705 JPY JPY 119.95 GBP 1.5237 CHF CHF 1.5003 The minimum change in exchange rate is a point, that is, a digit change in the last digit, such as : Euro EUR 0.0001 JPY JPY 0.01 GBP GBP 0.0001 CHF CHF 0.0001 According to international practice, three English letters are usually used to indicate the name of the currency. The English after the Chinese name is the English code of the currency.

The price of exchange rate

Direct quotation method and indirect quotation method are the two types of pricing methods for exchange rate:

(1) Direct quotation method The direct quotation method, also known as the payable quotation method, calculates how many units of national currency are payable based on the foreign currency of a certain unit (1, 100, 1000, 10000). It is equivalent to calculating how much local currency is required to purchase a certain unit of foreign currency, so it is called the price-paying method. Most countries in the world, including China, currently use the direct price method. In the international foreign exchange market, the yen, the Swiss franc, the Canadian dollar, etc. are all direct price methods, such as the yen 119.05, that is, one dollar against 119.05 yen. Under the direct price method, if the foreign currency of a certain unit is more than the previous period, it means that the foreign currency value rises or the value of the local currency declines, which means that the foreign exchange rate rises; on the contrary, if you use less local currency, you can exchange it with the same currency. The amount of foreign currency, which indicates that the value of the foreign currency is down or the value of the local currency is rising, it is called the foreign exchange rate decline, that is, the value of the foreign currency is proportional to the rise and fall of the exchange rate.

(2) Indirect quotation method,which is also known as the levy method. It is based on the national currency of a certain unit (such as 1 unit) to calculate the foreign currency receivable for several units. In the international foreign exchange market, the euro, the pound, the Australian dollar, etc. are all indirect price methods. For example, the euro 0.9705 is one euro against 0.9705 US dollars. In the indirect price method, the amount of the national currency remains unchanged, and the amount of the foreign currency changes as the value of the national currency changes. If the amount of foreign currency that can be exchanged in a certain amount of local currency is less than that in the previous period, this indicates that the value of the foreign currency has risen, and the value of the local currency has decreased, that is, the foreign exchange rate has decreased. Conversely, if the amount of foreign currency that can be exchanged for a certain amount of local currency is more than the previous period, the foreign currency has decreased. The value of the local currency has risen, that is, the foreign exchange rate has risen, that is, the value of the foreign currency is inversely proportional to the rise and fall of the exchange rate. The quotation in the foreign exchange market is generally a two-way quotation, that is, the quoting party simultaneously reports its own buying price and selling price, and the customer decides the buying and selling direction. The smaller the spread between the bid price and the ask price, the lower for the investor. The quotation spread of inter-bank transactions is normally 2-3 points. The quotation spread of banks (or dealers) to customers varies greatly depending on the situation. At present, the quotation spread of foreign margin trading is basically 3-5 points, Hong Kong is at 6- At 8 o’clock, domestic banks’ firm trading ranged from 10-40 points.

In the international market, almost all currencies have an exchange rate against the US dollar. The exchange rate between a non-US dollar currency and another non-US dollar currency often needs to be calculated through the two exchange rates against the US dollar. The calculated exchange rate is called the cross exchange rate. A notable feature of the cross exchange rate is that an exchange rate involves it between two non-US dollar currencies.

What is the “point” (basic point) in the foreign exchange rate?

According to market practice, the price of foreign exchange rates is usually composed of five significant figures, from the right to the left, the first is called “X points”, which is the smallest unit that constitutes exchange rate changes; the second is called “X” Ten points”, and so on. Such as: 1 euro = 1.1011 US dollars; 1 US dollar = 120.55 yen, the euro against the US dollar from 1.1010 to 1.1015, said the euro against the US dollar increased by 5 points against the yen from 120.50 to 120.00, said the dollar fell 50 points against the yen .

Fixed exchange rate and floating exchange rate

A fixed exchange rate is an exchange rate in which the exchange rate between one country’s currency and another’s currency is basically fixed. The fixed exchange rate system was implemented in the gold standard system from the early 19th century to the 1930s and the US dollar-centered international monetary system after the Second World War to the early 1970s. The fixed exchange rate is not completely fixed, but rather fluctuates around the upper and lower limits of a relatively fixed parity. For example, after the Second World War, the fixed exchange rate system centered on the US dollar, the official parity of the currencies of the member countries of the International Monetary Fund is parity. The currency exchange rate of each member country can only fluctuate by 1% above the parity, and the central bank intervenes.

The floating exchange rate refers to the fluctuation ratio of the exchange rate between a country’s currency and another country’s currency, and is determined by the supply and demand relationship in the foreign exchange market. On August 15, 1971, the United States implemented a new economic policy, allowing the US dollar exchange rate to float freely. By 1973, countries generally implemented a floating exchange rate system. It was also from that time that the foreign exchange market continued to develop with the constant fluctuation of various exchange rates. The floating exchange rate is divided into two types: “free floating exchange rate” and “management floating exchange rate” according to whether the government intervenes. In real life, the government does not take any interventions on the exchange rate of its own currency, and there are few countries that adopt a free floating exchange rate. Since the exchange rate has a major impact on the country’s balance of payments and economic balance, most governments control the exchange rate by adjusting interest rates, buying and selling foreign exchange in the foreign exchange market, and controlling capital movement.

Characteristics of the foreign exchange market

Characteristics of the foreign exchange market

In recent years, foreign exchange market are more and more popular.It has become the new lovers for international investors, which is closely related to the characteristics of the foreign exchange market. The main features of the foreign exchange market are:

  • No Market

The financial industry in the western industrial countries basically has two systems, namely, the central operation of centralized trading and the business network without unified fixed places. Stock trading is bought and sold through exchanges. Like the New York Stock Exchange, the London Stock Exchange, and the Tokyo Stock Exchange, which are the main trading places of stocks in the United States, the United Kingdom, and Japan, the financial products that are bought and sold collectively have uniform provisions for quotation, trading time, and settlement procedures. A trade association was established and a code of practice was established. Investors buy and sell the goods they need through a brokerage firm. This is “there is a market.” Foreign exchange trading is conducted through a network of merchants that do not have a unified operating market. It is not like a centralized location of stock trading. However, the network of foreign exchange transactions is global and forms an organization without organization. The market is connected with advanced information systems by means of mutual recognition. Traders do not have membership in any organization, but must obtain the same Industry trust and recognition. This kind of foreign exchange market without a unified venue is called “there is no market.” The global foreign exchange market trades an average of $1 trillion a day. Such huge amounts of money are in the absence of centralized facilities and without the control of a central clearing system, and the completion of liquidation and transfer without the supervision of the government.

  • Recycling operations

Due to the geographical location of various financial centers around the world, the Asian market, the European market, and the American market have become a global foreign exchange market that operates continuously 24 hours a day due to the time difference. 8:30 am (New York time) New York market opened, 9:30 Chicago market opened, 10:30 San Francisco opened, 18:30 Sydney opened, 19:30 Tokyo opened, 20:30 Hong Kong, The market opened in Singapore, opened at 2:30 in the morning, and opened at 3:30 in London. With such 24 hours of uninterrupted operation, the foreign exchange market has become a market that stays up all night, and the foreign exchange market will only be closed on Saturdays, Sundays and major festivals in various countries. This continuous operation provides investors with an ideal investment location without time and space barriers, and investors can find the best time to trade. For example, if investors buy yen in the New York market in the morning, the yen rises after the market opens in the evening, investors can sell in the Hong Kong market, regardless of where the investor is, he can participate in any market, any time. Buying and selling. Therefore, the foreign exchange market can be said to be a market without time and space barriers.

  • Zero-sum game

In the stock market, if a certain stock or the whole stock market rises or falls, then the value of a stock or the stock value of the entire stock market will rise or fall, for example, the price of Japan’s Nippon Steel’s stock will 800 yen fell to 400 yen, so the value of all Nippon Steel’s stocks has also been reduced by half. However, in the foreign exchange market, the change in the amount of value represented by the fluctuation of the exchange rate is completely different from the change in the value of the stock. This is because the exchange rate refers to the exchange ratio of the two currencies, and the change in the exchange rate is also a decrease in the value of the currency. Another increase in the value of money. For example, 22 years ago, 1 US dollar was exchanged for 360 yen. At present, 1 dollar is exchanged for 120 temporary yuan. This shows that the value of the Japanese yen has risen, and the value of the US dollar has declined. From the total value, it will change and will not increase the value. And will not reduce the value. Therefore, some people describe that foreign exchange trading is a “zero-sum game”, or more precisely a transfer of wealth. In recent years, more and more funds have been invested in the foreign exchange market, and the volatility of the exchange rate has been expanding. The scale of wealth transfer has become larger and larger, and the speed has become faster and faster. It is calculated based on the daily transaction volume of 1.5 trillion US dollars of global foreign exchange. A rise or fall of 1% means that 150 billion yuan of funds will be exchanged for new owners. Although the foreign exchange rate varies greatly, no currency will become waste paper. Even if a certain currency keeps falling, it will always represent a certain value unless it is declared abolished.

How do forex brokers conduct business?

Forex brokers earn money by helping clients to make foreign exchange investments. The broker’s main income is based on the percentage of the commission paid by each customer after each transaction is successfully paid, So the client’s money is the lifeline of the broker. Only when the continuous flow of client funds comes, the broker can get rich rewards. It is unrealistic and dangerous to imagine that it is only of a customer in long-term period.

The work of forex brokers generally is divided into two categories: One is to find new customers and recommend foreign exchange investments to suitable investors through visits; Another type of work is to analyze the market, predict trends, and help clients develop a reasonable trading strategy. These two tasks are interdependent and indivisible, Because forex brokers’ perfect forecast level can’t be reflected in the market without the right customers. There are also suitable customers without good analysis and forecasting levels. The customer’s funds cannot be added or even lost. Customers will lose soon. Although the two jobs are separate in some companies agents , the majority of brokers are one. So the job of the broker is meticulous and trivial.

Forex broker sales process and steps

  1. Understanding of the order of foreign exchange sales activities

For the broker, it is clear that each step in the sales process is the most solid basic skill for success. Sales are not very mysterious, it has its own process, Organize every step of the work and understand that the rational sequence of each step of the work can make the work more efficient.

All the steps in the sales process are combined in sequential order, The agent must grasp his or her position during the explanation process, so that interference from the target customer can also be controlled during the conversation. Even if the customer does not accept it, the broker can self-examine afterwards for the next change.

  1. Structure of the sales process in Sales process

It contains a series of steps that include from no interest in the purchase of the buyer to satisfaction with the purchased item. Its main structure has the following processes:

  • Make customers dissatisfied with the status quo. Satisfying the status quo is not a prerequisite for sales. The basic function of sales is to quickly and accurately mine each others’ needs.
  • There are three main reasons for dissatisfaction, or feelings, or fear, or self-esteem and desire. Dissatisfaction and lack of awareness will not directly promote an important purchase.Therefore, it must be strengthened into an emotional demand.
  • Emotional demand is a kind of motivation. It is not from the outside, but mainly from the inside.So you need to make customers interested in what they buy.
  • After the interest is caused, the wish will not be automatically generated.The only way to generate aspiration is to make the customer’s heart cause fluctuations by strengthening the feelings, this will make customer feel like it is lacking.
  • The emergence of emotional needs often causes customers to stop suddenly,because being controlled by emotions will regret your later actions.At this time, the outside world needs his self-verification to prove that his choice is correct and sensible.

The above five sales processes are the sales process of general merchandise. There are also these five processes in the process of developing foreign exchange customers, but the focus of some links will change. In the invisible sales process of foreign exchange, customers will make many rejection opinions, these opinions need to be more carefully identified, and some opinions are only made by customers to cover up their ignorance. Moreover, the greater the prospective customer opinion, the more he is interested in foreign exchange investment, because there are doubts when thinking.

  1. Sales introduction skills
  • the power of listening

In the process of communicating with customers, it is not said that the broker must continually publish a macro theory, but should grasp the timing of his own speech. When you take the topic away, you should prompt the client to say more, keep the habit of listening, and let the customer think about expressing their opinions. The client will reveal his true thoughts when he speaks, which will make the interview more effective. And the psychology of the average person is like to be self-centered. The agent’s expression of listening carefully is also easier to get the other person’s goodwill, and is more able to communicate in the emotional.

  • Seize the signing opportunity

The purpose of the interview is to sign the contract. Unless the broker succeeds in facilitating the signing, any results during the meeting are void. So the broker is ready to make a deal anytime and anywhere in the conversation. From the beginning to the end of the meeting, the broker must seize the opportunity and pay attention to any signs that may lead to the signing. For example, the customer suddenly interjected such questions, “How much do I need to invest?” What procedures do I have to do?” These are good opportunities to sign up, At this time, it is necessary to take out the company’s professional contract and try to sign the contract. If it is not successful, you can continue to explain other content. Constantly trying to urge customers to sign up, no matter how many times he says “no”, the broker only needs to get a “yes”.

 

Approaching the forex broker

With the rapid spread of the domestic foreign exchange market and the chaotic market environment in the previous period, many investors have been gone,but they have not returned. At present, the foreign exchange market is still in a hot period. This statement is nothing wrong, because the domestic foreign exchange market has just opened. There is still huge potential for development, but it has slowly entered the stage of strength competition.

Professional matters still need professional people.

How to make a stable profit in foreign exchange investment? It doesn’t depend on the luck, it involves all aspects, including technology, strategy, risk control, and mentality. However, most investors are up for a while, and their investment is accidental. At last, there is a huge loss and there is no return. Instead of concentrating on spending money on the trading market to buy lessons and knowledge, it is better to rely on solid funds to manage the funds, then you will have a stable income and cleanliness. Therefore, professional matters still need to be handed by professional people, such as professional investment institutions or companies, asset management companies, private equity funds, etc. Although domestic institutions or companies are still relatively poor, with the development of foreign exchange investment Demand, similar investment model will be one of the important directions for the development of the follow-up market, let us wait and see!

The broker (IB) can be known as a twist belt and bridge in the foreign exchange market. He is a twist band and bridge between the platform and the customer. If there is no the broker (IB) in the platform, there will be no direct Contact and relationship between the customers and the platform. The current status of brokers (IB) and how to be a good broker (IB) is really important. With the development of the market and investors’ perception of the foreign exchange market, the requirements for brokers (IB) are getting higher and higher, what needs to be done becomes more and more, attracting customers in a single way can no longer meet market requirements.

Whatever the broker (IB) is, the following core competencies  need to be done.

  1. Expertise: He can transfer professional knowledge to investors and let them learn continuously so that they can get more profits in the market.
  2. Service: As long as the service is done well, the investors can get more information from it, there will be more customers.
  3. Profit: Investors invest in profit-oriented. If investors can get more income with the help of Forex Broker (IB), this is the most attractive place for customers.
  4. Other added value, etc.: Only utilizing these aspects comprehensively, the broker (IB) can obtain high salary in the foreign exchange market.

Job Responsibility

  1. Let customers know about financial products through the form of network, and provide investment and financial consulting for customers.
  2. Develop new markets, develop new customers, and increase customer understanding of financial products
  3. Responsible for providing customers reasonable financial advice, and formulating corresponding investment strategies.
  4. Maintain customer relationships, communicate with customers, and conduct financial services to customers.
  5. Complete the tasks and goals set by the company and the team according to the marketing plan

CCTV Securities Information Channel on IB Mode of Foreign Exchange Market

IB refer to the broker model: IB can be understood as a bond and bridge in the foreign exchange market. He is the link and bridge between the platform vendor and the customer. Without the IB, the platform vendor and the customer will lack in direct contact and relationship.

Mainstream business model of foreign IB market

In China, the IB market business model is mainly divided into three modes, including service agents, analysts agents and trade agents. The above three are also covered in foreign countries. In addition, foreign countries also have different business models.

First of all, taking analysts agents as an example, it has been developed to send signals with APP on abroad. Operating in one mode of APP does not require customer service to attract customers. Everyone can automatically search for APP and then get the trading signals to make a trade.

Secondly, it is also possible to find a better trade agent in foreign countries, because the trade records of foreign traders usually look for accountants to verify some transaction records in the past. Some domestic transactions may be fake.

Lastly, there is the big difference between the mainstream business models in the IB market at home and abroad. One model that is better in foreign countries is what we call a system. These agents are actually not in contact with customers. However, many agents in foreign countries may be at the knowledge level, then doing a relatively deep establishment and forming a customer base, forming a flow, guiding these traffic to the platform, charging a proxy fee, this way is not linked to the transaction .

According to this model, there are very few in China. The main domestic service agents are three types of agent models, analysts agents and trade-off agents. The possibility of guiding traffic is more in some media, it is rarely said to introduce traffic in a proxy mode, then let customers automatically convert on the platform. One-time account opening fee, which is relatively small.

Learn business model or thinking

The development of the domestic foreign exchange market is slightly behind for a few years compared to foreign countries, but the domestic foreign exchange market has developed rapidly. Perhaps the most important thing to learn from the foreign IB market is the risk control. At this stage, the domestic agent is too fancy for immediate benefits, such as how much commission the customer can give to the transaction. In foreign countries, it may be more focused on education, it is not linked to customer transactions, so there will be no conflict of interest. The volume of transactions is greater than before ,the greater the profit point of the customer agent. But the transaction process is very painful and very difficult.

In summary, it may be difficult in the short term. However, we must develop in this direction, and the foreign exchange market will be healthier.

What should be paid attention to by the forex broker during the transaction?

  • Private transactions without the authorization of the customer.

Brokers are on the front line of trading and often find some better trading opportunities. Some brokers worried missing opportunities to place orders without asking for customers. Although their subjective wishes are good and they want to make money for customers, this is not unwise and illegal. First of all, the broker must clarify that the funds are customers, and that they have no right to control. Even if the relationship between the two is close, they have no right to arrange the role of investors.

  • Misleading customers, frequent market entry

The main income of the broker is derived from the commission paid by the customer after entering the market. The transaction is more active, the commission is higher, so the broker’s nature is to encourage customers to trade as much as possible. But frequent transactions can easily damage the interests of customers. Because every time you enter and leave the market, customers need to pay a handling fee. Even if there is no loss, the handling fee will use the customer’s funds. And the frequent entry into the market actually means that the broker does not have a clear market view.

  •  Fear of risk, market analysis is ambiguous

The job of the broker is to analyze and forecast market trend for the client. The client decides the investment direction based on these suggestions, so the broker’s forecast largely determines the profit and loss of the client’s investment. Some brokers are afraid to take risks and not dare to make clear decisions when predicting the market. He simply list the market’s news, fundamentals and technical aspects, and the reasons for bullish bearishness , which caused confusion for customers and could not enter the market.

  • Unstable emotions affect customer mentality

In the investment, “to win without pride lose with grace” is the principle that every trader and broker must follow. Controlling emotions is really important for the broker and it will directly affect the customer’s mentality. Some brokers have increased their self-confidence after helping their clients to make profits. They are arrogant, they are not able to listen to customers’ opinions, and even obstruct customer decisions. When they lose money, they are afraid of placing orders and missed opportunities. In fact, there is no long-term victory in the transaction. As long as you are in foreign exchange, you should not think that you must be a winner. Most of the losses often occur on those who think they are successful traders and brokers.