Investment Academy
We offer a wide range of educational training and trading resources to provide you with high-level analysis and in-depth market insights.
For new investors, we have prepared a comprehensive beginner's guide that introduces forex terminology, answers common questions, and most importantly, explains concepts in an easy-to-understand way.
What is Forex Trading?
Forex trading generally refers to the conversion of one country's currency into another. With the normalization of international exchanges in recent years, forex trading has become increasingly closely linked to our daily lives. Whether it is import and export trade, sending children to study abroad, or traveling, it may involve converting one currency into another.
How Exchange Rates Are Formed
Exchange rate is also known as "foreign exchange quotation or rate". It is the ratio at which one country's currency is exchanged for another, representing the price of one currency in terms of another. Since currencies around the world have different names and values, each country must set an exchange rate for its currency against others.
The Seven Major Currencies in the Global Forex Market
There are approximately 200 currencies worldwide, but only about a dozen have wide liquidity, among which the currencies of seven economically developed countries (or regions) have the highest circulation value. Therefore, these currencies are the most frequently traded in the forex market, including the US Dollar (USD), Japanese Yen (JPY), British Pound (GBP), Euro (EUR), Swiss Franc (CHF), Canadian Dollar (CAD), and Australian Dollar (AUD).
Since currency trading necessarily involves the simultaneous buying and selling of two different currencies—i.e., trading one currency in exchange for another—when a trader buys one currency, they must also sell another. Thus, currency trading operates on the concept of "currency pairs". The trading of these seven major currencies forms the six major currency pairs commonly referred to in the forex market, including EUR/USD (Euro/US Dollar), USD/JPY (US Dollar/Japanese Yen), GBP/USD (British Pound/US Dollar), USD/CHF (US Dollar/Swiss Franc), USD/CAD (US Dollar/Canadian Dollar), and AUD/USD (Australian Dollar/US Dollar). Trading of these major currency pairs accounts for the majority of the global forex market volume.
Forex Quotation Methods
Direct quotation, also known as "payable quotation", uses a fixed unit of foreign currency to calculate the amount of domestic currency required. It is equivalent to determining how much domestic currency is needed to purchase a fixed unit of foreign currency, hence the name "payable quotation". Most countries in the world, including China, currently use direct quotation. In the international forex market, currencies such as the Japanese Yen, Swiss Franc, and Canadian Dollar are quoted directly.
For example: If the exchange rate of USD/CHF (US Dollar/Swiss Franc) is 0.8844, it means 0.8844 Swiss Francs are needed to exchange for 1 US Dollar.
Characteristics of Each Currency Pair
EUR / USD (Euro/US Dollar) — Stable
The Euro is the second most traded currency globally after the US Dollar, with relatively stable monetary policy, leading to steady price movements.
GBP / USD (British Pound/US Dollar) — Fast
The British Pound has a high value and was once a global reserve currency. It has a long history of speculation with diverse trading strategies, and its short-term price movements are decisive and straightforward, making it a favorite among short-term traders.
USD / CHF (US Dollar/Swiss Franc) — Follows
Switzerland is a small country with limited market-moving factors. As it is located in Europe, the Swiss Franc mainly follows the Euro's trends. It behaves steadily most of the time, with occasional unique movements.
AUD / USD (Australian Dollar/US Dollar) — Commodity-Linked
A typical commodity currency, the Australian Dollar rises significantly when commodity markets perform well and falls sharply when commodity markets are weak.
USD / JPY (US Dollar/Japanese Yen) — Intervention-Prone
Among major currencies, the Japanese Yen's movements are most frequently influenced by interventions from the Bank of Japan. This is primarily due to Japan's heavy reliance on export-driven economic growth.
Characteristics of the Forex Market
Two-Way Trading Opportunities in Forex
Forex trading supports two-way trading, allowing both long (buy) and short (sell) positions.
Leveraged Forex Trading
Leveraged trading is the mainstream method in the international forex market today. It amplifies the actual trading amount through leverage, featuring the characteristic of "controlling large positions with small capital" (Note: Risks will also increase accordingly). With leverage, investors only need to pay a certain margin to conduct trades with full position value, enabling investors with small capital to participate in forex trading in the financial market.
Forex Trading Terminology
Spread — The difference between the bid (buy) price and ask (sell) price
Order — An instruction to execute a trade at a specific price
Position — The volume of a specific financial instrument held
Leverage — The multiple by which the total trading amount exceeds the actual capital, expressed as a percentage or ratio
Rollover — The actual exchange of currencies by both parties in a forex trade according to the contract
Equity — Equity = Balance + Total P&L of Open Positions
Currency Pair — Two currencies that make up a forex exchange rate
Exchange Rate — The price of one currency expressed in terms of another, typically used for trading purposes
What Are Precious Metals?
Precious metals mainly include gold, silver, palladium, etc. In most cases, people generally refer to gold when mentioning precious metals. However, due to limited capital, ordinary investors cannot directly purchase physical gold in bulk. Therefore, the gold investment we refer to is international spot gold, which uses capital leverage for gold contract trading. Since this trading method originated in London, UK, it is also known as "London Gold".
Before the 2008 financial crisis, gold profits grew slowly. By the end of 2011, the price of gold rose rapidly to a historical high, exceeding $1,900 per ounce.
Factors Affecting Gold Prices
Gold is one of the most difficult financial assets to value. It is similar to currencies like the US Dollar or Euro because it is durable, portable, uniform in form, and widely recognized worldwide. However, unlike these more frequently traded currencies, gold is not supported by underlying economic factors such as labor, companies, or infrastructure.
In other aspects, gold is more similar to commodities like oil or corn, as it is mined from the ground and has standardized physical properties. However, unlike other commodities, fluctuations in gold prices are usually less related to industry supply and demand.
In fact, only about 10% of global gold is used in industry, mainly in the electronics industry, due to its electrical conductivity and corrosion resistance. The remaining 90% of gold is made into jewelry or used for investment purposes.
There are many factors that directly and significantly affect the price of spot gold, such as sudden crisis events, important economic data from major countries, and statements from key figures. For example, when the global COVID-19 pandemic broke out in 2020, panic increased, and gold, as a safe-haven asset, soared to a historical high. Another example is the US nonfarm payroll data released at the beginning of each month, which directly affects gold prices. Former US President Trump once caused gold to rise by more than ten US dollars with a single tweet.
Advantages of Precious Metals Trading
Gold and silver (collectively referred to as "precious metals") have always been indispensable investment options in the market. Their intrinsic value, risk-hedging properties, and role as a short-term investment tool make them suitable for inclusion in every investor's portfolio.
Characteristics
1. Global Market with High Liquidity - Massive trading volume, hard to manipulate
2. Low Trading Costs - Reduces the chance of losses
3. 24-Hour Trading - Choose a trading time that suits you
4. Two-Way Trading - Can go long (buy) or short (sell)
5. Up to 100x Leverage - Makes your capital utilization more flexible
From extraction to consumption, as a raw material for numerous everyday products, oil provides traders with a wealth of speculative opportunities centered around this commodity and related enterprises. Oil (CL), priced per barrel, has a wide range of uses. It can be used as energy for home heating, as gasoline to meet transportation needs, and even as a basic raw material for ubiquitous plastics. As the world becomes increasingly dependent on this commodity, traders are paying more and more attention to the short-term and long-term trading value brought by this "liquid gold".
Key Factors Affecting Crude Oil Prices
Factors affecting oil prices can sometimes cause extreme volatility. For example, oil prices hit a high of $145 per barrel in 2008, but plummeted to a historical low in 2020, witnessing the first "negative oil price" in history.
1. Supply and Demand
Unlike gold (XAU) or other precious metals, oil is a consumable. This means that once it is consumed, more oil must be used to replace it. Oil is used in a wide range of applications, from plastics for films to military-grade components, and as fuel for transportation tools such as trains, cars, buses, and airplanes.
Its extensive use in modern society has created huge global demand for this limited resource.
Energy companies compete to meet people's demand for this "liquid gold". In 2019, the global daily oil extraction volume reached 95.2 million barrels, including crude oil, shale oil, oil sands, and natural gas liquids. Since the widespread use of fracking technology in 2006, the US energy production capacity has increased significantly, with a daily oil output of 12.2 million barrels in 2019.
Although the development trend over the past few decades shows that oil consumption is still rising, a series of factors may suppress demand and have a significant impact on traders, such as the 9/11 terrorist attacks in 2001 and the COVID-19 pandemic in 2020. These major events led to a significant reduction in flights, airline groundings, and unused residual fuel. A considerable amount of oversupply will add uncertainty to the oil market.
2. Geopolitical Events
Although the cost of oil production and transportation remains relatively stable, geopolitical events may cause turbulence in the oil market. As producers and traders rush to lock in profits, oil prices may fluctuate, rise, or fall in response to global events.
For example, military conflicts in the Middle East—the world's major oil-producing region—or changes in political alliances that threaten the flow of this important commodity.
3. OPEC
The Organization of the Petroleum Exporting Countries (OPEC for short) consists of Algeria, Angola, the Republic of the Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela. Founded in 1960, OPEC is responsible for reporting the oil production of each member country and coordinating oil production management to ensure that oil supply does not exceed demand.
Over the past few decades, Russia and the United States have become major energy producers, competing with OPEC for market share.
4. Trading Sentiment
The Organization of the Petroleum Exporting Countries (OPEC for short) consists of Algeria, Angola, the Republic of the Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela. Founded in 1960, OPEC is responsible for reporting the oil production of each member country and coordinating oil production management to ensure that oil supply does not exceed demand.
Over the past few decades, Russia and the United States have become major energy producers, competing with OPEC for market share.
Oil as a Highly Volatile Commodity
As mentioned above, oil is susceptible to market volatility and trader sentiment. This volatility has always made it favored by traders, but it also comes with inherent risks.
Military conflicts, new OPEC production guidelines, or various other global events may cause oil prices to soar or plummet unexpectedly. While this continuous volatility brings profit opportunities, it also carries significant risks. Therefore, traders should always remain alert to market trends when trading this commodity.
