Beginners Guide to Forex Trading


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Beginners Guide to Forex Trading

  1. 1. LEARN TRADE CONNECT Beginners Guide to Forex Trading Learn. Trade. Connect.
  2. 2. Table of Contents High Risk Investment Disclaimer 3 Learn. Trade. Connect. Basics of the Exchange Market 4 Basic Terminology 5 Forex vs. Stocks 6 Parts of a Pair 8 How are Currency Pairs Measured 9 Earn from the Bulls & Bears 10 Trading Styles 11 Basic Quote Mechanics 12 Placing a Trade 13 Currency Pairs 14 Leverage Your Trading 15 Managing Risk 16 Why should you trade Forex? 17
  3. 3. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. High Risk Investment Disclaimer Learn. Trade. Connect.
  4. 4. Basics of the Exchange Market What is Forex? The foreign exchange market, commonly known as the Forex market, is the largest financial market in the world. The Forex market has a daily trading volume of $5 trillion! How do you trade a currency? How do these trades work? You as the trader can buy or sell a currency pair, gaining or losing based of the difference of the exchange rate from when you open and close the trade. Value of a currency is always relative to another currency. One pair relative to another is known as a currency pair. Once paired together the two create a value known as an exchange rate. You as a trader will trade the exchange rates as they fluctuate. Learn. Trade. Connect.
  5. 5. Basic Terminology Learn. Trade. Connect. Long Placing a buy order on a currency pair. Short Placing a sell order on a currency pair. Leverage The concept of controlling large amounts of capital with a smaller initial deposits. Spread The difference between the bid and ask prices. Margin The capital required to trade a certain currency pair. Lot Standard unit of measurement for trades. A mini lot is equivalent to 1000 units of a currency pair, while a standard lot is 100,000 units.
  6. 6. Forex vs. Stocks Learn. Trade. Connect. Forex Stocks NO commissions on trades. Brokerages charge you commission on every trade. Open an account with as little as $50 Many brokerages require at least $2,000 to open an account Trade in any direction of the market. Brokerages require high capital account to allow you to short trade Market is open 24 hours a day 5 days a week. Market is open less then 7 hours each days. No capital requirement for leveraging trades. Trader must meet strict margin requirements in order to leverage trades.
  7. 7. Forex vs. Stocks Continued… No Commissions Most Forex brokers allow you to trade without commissions and there are no additional fees. The only cost the only cost a trader pays is the difference between the bid and ask price, which is deducted in the trade. Open an Account with Minimal Capital You can open a trading account with as little as $50, although it is not highly recommended. 24-Hour Market As opposed to the stock market which is only open for 7 hours a day, the Forex market remains open 24 hours per day giving traders more opportunities to trade throughout the day Leverage You can trade Forex with leverage up to 50:1 margin and some brokers with 100:1. This allows you to trade with $1,000 position in the market by placing only $20 in the position. Can take advantage of the smallest moves in the market. High Liquidity Forex is the largest market in the world. There are always a lot of people trading which makes it easy to get into and out of a trade. Globally Connected Since Forex is the largest financial market in the world, there are always trading opportunities. Many factors affect the Forex market, from interest rate decisions to unemployment rates. This allows traders for opportunities to capitalize on these changes of price due to these factors. Learn. Trade. Connect.
  8. 8. EUR/USD = 1.3510 Base Currency Quote Currency The number 1.3510 above indicates how much is needed of the quote currency to buy one unit of the base currency. So in this case, it takes 1.3510 U.S. Dollars to buy 1 Euro. There are two parts to a currency pair: the base currency and quote currency. Learn. Trade. Connect. Parts of a Pair
  9. 9. How are Currency Pairs Measured Learn. Trade. Connect. A pip is the unit of measurement for trades in Forex. In pairs involving the Japanese Yen(JPY), a pip is 1/100th place or 0.01. In all other currency pairs, a pip is the 1/10,000 place or 0.0001. For example, if EUR/USD rises from 1.3258 to 1.3298, EUR/USD has risen 40 pips. Increase of 40 pips in one day 1.3258 1.3298 U.S. Dollar Euro EUR/USD- Euro vs. US Dollar(From Wednesday January 12, 2014-Thursday January 13, 2014) Wednesday Thursday In this 24 hour time frame the Euro appreciates in respect to the U.S. Dollar. This is always happening in Forex because exchange rates are constantly changing. This always gives traders the opportunity to make a trade, whether it be 12:00pm or 3:00am.
  10. 10. Earn from the Bulls & Bears Learn. Trade. Connect. The Forex market gives you the opportunity to “go long” or “go short”. If you think you a currency pair will appreciate you can buy it or “go long,” earning from a bull market. If you think a currency pair will depreciate then you can sell it or “go short,” earning from a bear market.
  11. 11. Trading Styles Learn. Trade. Connect. Day trading is a trading style in which positions are typically opened and closed during the same day. Day traders analyze the markets at the beginning of the day and monitor it throughout the day. Day traders intend to profit from the short-term fluctuations of the market and never leave a position open overnight. Swing trading is a trading style in which positions are typically held for several days at a time. Swing traders intend to profit from short term swings and trends in price. In addition look to predict price range peaks and troughs for buying and selling points. Swing traders intend to profit from intermediate trends in the market. Position trading is a trading style in which a trader holds a position for the long term(from weeks to years). Position traders intend to profit from the long-term trends in the market. Analysis may be directed more towards long term price trends in sync with fundamental economic changes. Day Trading Swing Trading Position Trading
  12. 12. Basic Quote Mechanics Learn. Trade. Connect. BID ASK Spread A Bid price is the price at which the market is prepared to buy a specific currency pair. This is the price that the trader sells at. An Ask price is the price at which the market is ready to sell a specific currency pair. This is the price that the trader buys at. The difference between the Bid and Ask is known as the Spread.
  13. 13. Placing a Trade Dec 2013 Feb 2014 GBP/USD If a trader went “long” or bought this currency pair in December and closed the order in February then he or she would have made a profit! Learn. Trade. Connect. In this example the capital risked is the whole $1000. Now imagine actually trading in the forex market with leverage. You would have made a $228 profit with only risking around $20 of your own money. Placing a trade in forex can be seen as the same as traveling internationally. Lets say you traveled on December 2012 to Great Britain. If you were to exchange $1000 US Dollars (USD) you would have received £763 British Pounds (GBP) in December. After two months you go to the USA and exchange your £763 pounds for US Dollars at an exchange rate of 1.6100. You would receive $1228 US Dollars. You would receive $228 more US Dollars then you had before just because the value of the pound appreciated in relation to the U.S. Dollar overtime. =1.6100 =1.3100GBP/USD GBP/USD
  14. 14. Currency Pairs In Forex, traders look at trading the most liquid pairs. These are currencies which are paired with the US Dollar, known as the “Majors”: Currency Pair (paired with USD) Nickname USD Euro GBP British Pound AUD Australian Dollar or “Aussie” NZD New Zealand Dollar or “Kiwi” CHF Swiss Franc JPY Japanese Yen CAD Canadian Dollar “Major” Currency Pairs Major pairs have a high traded volume and liquidity. Also, the “spread” or commission the trader has to pay is usually less than exotic pairs. Learn. Trade. Connect.
  15. 15. The chart gives can give you an idea for how much capital is needed to manage different position sizes. Currency Pair Unit Size Deposit EUR/USD 1k $30 EUR/USD 10k $300 EUR/USD 50k $1,500 EUR/USD 100k $3,000 …Think again Leverage Your Trading Think you need a lot of money to open a position?... Learn. Trade. Connect.
  16. 16. Managing Risk Learn. Trade. Connect. Risk management is crucial to becoming a winning trader. Those traders who lose there accounts are those who over look risk management. Proper risk management is the key to success in Forex. Basic concepts you to help you manage the risk in your position are as follows: Limit Stop Loss Choosing your correct position size A limit order allows you to place a price limit in the direction of your trade at a specific price which permits your trade to close once the limit is hit, taking profit. . A stop loss allows you to place a price limit in the opposite direction of your trade at a specific price which permits your trade to close at that price limit in case the trade goes the opposite direction of what you predicted. This is based on the risk-reward ratio. The risk-reward ratio is the amount you are willing to lose and the amount you reasonably expect to make. A common ratio is 1:2 or 1:3. This means your are risking 2x or 3x less than what you expect as your reward.
  17. 17. Take Advantage of FXC’s Learning Tools Online Classroom Critiqued Trades Tuition Rebates Coaching Social Feeds Why should you trade Forex? Learn. Trade. Connect. 24 – hour Market Go Long or Go Short Instant Order Execution Low Capital Requirement-open an account with as little as $50 High Liquidity Leverage -Leverage trades up to 50:1 so you can capture the small moves in the market
  18. 18. Click to edit Master title style Click to edit Master subtitle style We offer a vast array of products and Forex services designed to enhance your trading experience: One-on-one Coaching Group Coaching Online Classroom Environment Social Trading Feed Social Trading Profiles Stay Connected with us at: Learn. Trade. Connect.