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Basic Knowledge

Understand foreign exchange quotation.It is easy to read a foreign exchange quote if you keep the following two points in mind.


The former is the base money

The value of base money is always in units of one of the base currency is the dollar's main currency pair as the protagonist of the foreign exchange market, the US dollar is often used as the base currency in foreign exchange quotations. When the dollar is the base currency, you can think of the foreign exchange quote as how much the dollar is worth in another currency. When the dollar is the base currency, if the exchange rate rises, it means the dollar appreciates and depreciates against another currency. The rise in prices means that the dollar is now more convertible into another currency than before.The base currency is not the dollar's main currency pair.In addition to the US dollar, the base currency could be the British Pound (GBP), the Australian Dollar (AUD), or the Euro (EUR). When the dollar is not the base currency, a rise in prices indicates a decline in the value of the dollar, which can now buy less of another currency than it used to. In other words, a rise in a currency quote indicates appreciation of the base currency, while a fall in a currency quote indicates depreciation of the base currency.

Cross Currency Pair
A currency pair is a cross currency pair if the dollar is not included in the pair.The selling price, the buying price, and the spread as in other markets, foreign exchange quotations are composed of a bid and a ask. The difference between the buying price and the selling price is the spread, by which a trader makes a profit.Bid is the price at which you sell the base currency.Ask is the price at which you buy the base currency.Spread is the difference between the asking price or the buying price and is charged as an expense at the time of the transaction. In the Forex market, spreads are relatively low compared with other markets, making it more cost-effective to trade for less volatile prices.What is a dot?Foreign exchange quotations fluctuate frequently and use "points" as a unit of account. A dot is the fourth decimal point, or 1% of 1/100.The last amount of the exchange rate price, called a point, such as 0.01 in 109.11 in USD/JPY and 0.0001 in 1.2801 in EUR/USD, are both referred to as a point, which is the minimum basic unit of exchange rate change. The exception among all major currencies is the yen, for which the dot represents the second decimal point.
Profit and Loss Calculation
Although AM Markets' online Forex trading platform is capable of automatically calculating profits and losses for investors, we recommend that you understand the rationale behind the calculation of gains and losses in Forex trading.The following examples will show you how to calculate the profit and loss:Assume that the current quotation for EUR/USD is 1.2801/03, meaning that you can buy 1 Euro with $1.2803 or sell 1 euro with $1.2801.Suppose you expect the Euro to appreciate against the DOLLAR, so you are willing to buy EUR (and sell USD) and wait for the exchange rate to rise. So you buy 100,000 Euros (100,000 x 1.2803) for $128,030. Using a 100:1 margin leverage ratio, you need to have a margin account of $1,280. When the market is as you expect, EUR/USD rises to 1.2807/09. To make a profit, you sell 100,000 euros at 1.2807 and get 128,070 dollars.You bought 100,000 Euros for $128,030 and now sell 100,000 Euros for $128,070. The difference between these is four points, or $40 ($128,070 -- $128,0300 = $40).Total profit: $40 in the same example, assume that you are still quoting EUR/USD for 100,000 Euros at 1.2801/03 for $128,030. However, this time the EUR/USD drops to 1.2795/97. To reduce your loss, you choose to exit at this price, i.e. sell 100,000 euros and get back $127,950.You bought 100,000 euros for $128,030 and now sell 100,000 euros for $127,950. The difference is eight points, or $80 ($128,030 -- $127,950 = $80).Total loss: $80. Several factors influence the price of gold.The dollar first, we see that most gold prices are denominated in dollars, which is partly due to the strength of the dollar and partly due to the supply and demand of gold as a commodity itself.
Political Unrest
Political events can also have a big impact on gold prices. A conflict in the Middle East, for example, could raise concerns about the safety of a country's bonds or currency, and investors could withdraw money to buy gold as a hedge against risk. The price of oil and other commodities could also be affected, with knock-on effects for commodities that could ripple through the gold market, pushing up or pulling down gold prices in line with oil.
World Financial Crisis
When the financial system of the United States and other big Western countries is unstable, the world's money will go to gold, gold demand increases, the price of gold will rise. Gold at this time to play the role of a haven of funds. Only when the financial system is stable can investors lose confidence in gold and sell it, causing prices to fall.
Gold Supply and Demand
Gold prices are based on supply and demand. If production rises sharply, the price of gold could be affected and fall back. But if production stops rising for reasons such as a long strike by miners, gold prices usually rise when demand is too high.