Forex Trading

Forex Trading

Foreign currency exchange or simply buying and selling are known as Forex trading. There are various currency exchanges in Forex trading for various purposes and the daily average market volume of Forex trading is around 5 trillion dollars. There are three parties involve in Forex trading they are, corporations, individuals and institutions. In the past, Forex trading was open only for the millionaires but now anyone who is with at least 100 dollars can engage in Forex trading.
The currencies are traded in Forex trading one against another and those are called currency pairs.

Forex Market

The place where the foreign currencies are exchanged is known as Forex market, foreign exchange market or FX. This is the most liquid asset market and largest market in the world because trade, finance and commerce are operated worldwide.The currencies should be exchanged in order to perform transactions in between countries. As you know, we should have foreign currencies for imports from other countries. If someone needs to travel other countries, he should have currency relevant to the particular country.

There is a high volatility of currencies in Forex market because global influencing factors such as global economy, politics, tourism and interest rates. There is always an opportunity to earn profit because when one currency is getting weak, the other one will be strong as these act as pairs.

Why Forex Market?

The currencies act as assets in Forex Trading because the difference in interest rate between currency pairs can generate profits. Then you can invest on currencies to earn profit. The currency with higher interest rate is bought and the other one with lower interest rate will be sold.

In the past, the individual investors faced many difficulties when trading Forex, but the procedure is very easy now because of the technology development such as internet and networks. The individual Forex traders can access the Forex market at any time through internet. You can access the Forex market through banks and online Forex brokers who provide leverage for controlling a large volume with a small amount in hand.

Risk Associated with Forex

The only market operated 24 hours in weekdays and start from Australia to New York is Forex market. You need to have a good understanding of economies in various countries to get a broad picture of the Forex market. The traders with small investments are able to trade in Forex market to earn quick cash.

It is easy to earn from Forex trading but you have to be patient and do not be emotional. Because this is a currency trading therefore you need to be more careful. Forex trade can make a profit as well as loss. Therefore it is important to go through this lesson series to have a good knowledge on Forex trading.

Benefits of Forex Currency Trading

There are a lot of free resources of reference materials related to the Forex trading. Those are Yahoo finance, Bloomberg, BBC news, fundamental and technical analysis reports and CNN news.

The liquidity is high in the Forex market. The currency pairs can be easily buy and sell without a large variance. The liquidity may vary according to the currency pairs. There are no any barriers for new comers. Anyone can involve in Forex trading.

You can request your income directly to your bank account for free immediately after you earned and you will receive your money within 24-72 hours.

You can trade for 24 hours a day for weekdays without any time restrictions.

There are no commissions and manipulations in the Forex trading.

You can have training on Forex trading through a Forex demo account. When you use a demo account, your risk is very low and you can get this service for free. You can get the real experience of how the Forex trading is done through a Forex demo account. Then you can gain a pretty knowledge on Forex trading. It is necessary to use a demo account for training before you are going to invest.

You can start Forex trading with a small amount of money. But it is essential to have a proper training, good knowledge on Forex market and disciplines for you to be a successful Forex trader.

Your continuous effort, good practice and thorough knowledge are very important for Forex trading. So, study our lessons very carefully before go for Forex trading.

This is not a process of quick money earning. You have to be patient a lot to earn from  Forex trading. If you are to the right process, definitely, you will be able to earn good money.

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Basic Forex Terms

Exchange Rate

This refers to the ratio of one currency value to another currency or quantity of one currency unit which can be exchanged to another currency unit. This rate is fluctuating according to various factors. The supply and demand of currencies, geopolitical and world economy are main factors that affect exchange rate. However the government of a country can peg currency value.

Pip

It is the unit which is used to measure currency pair movements. The pip value is measured in four decimal places. This is very important to realize as this will determine your total Forex trading profit or loss.

For example, imagine the currency pair value of EUR/USD has varied from 1.2015 to 1.2017; the pip would be the difference between those two values (0.0002). Usually the one pip is equal to 10 dollars for a standard lot.

Pip is the difference between close value and open value.

Open value is the value exists when you open the account and the close value is the value exists when you close the account.

BID and ASK Price

These two terms are very important in Forex trading. The buying price of a currency is known as ASK and selling price of currency is called the BID. When you sell currencies, you will get bid price and when you want to buy currencies, you will consider ASK price.

The Spread

The difference between ask and bid price is called the spread. Usually Ask price is higher than Bid price.

Example:

 A company needs to buy 100 EURO for 10 dollars from B Company and this is called bid price. C company is willing to sell his stock of 150 EURO for 11 dollars. Then ask price is 11 dollars. So an outside investor sees that if he wants to buy a stock of 100 EURO, he has to pay 10 dollars and if he wants to sell 150 EURO, he can sell it for 11 dollars.

Forex Lot

This term is very important when you open Forex trading account. The term "lot" indicates by volume in metatrader4. You should have a good knowledge of lot sizes before open Forex trade otherwise you will lose by applying in various sizes of lots. The lots are the tool to separate invested amount into small amounts to ensure easy trading.

Example: Trading amount is 100 dollars but it is not traded at once. Small amount of it will be used to trade by using lot sizes.

The lot sizes indicates that the amount of currency fairs that you can buy or sell. There are 4 types of Forex lots in Forex market.

Standard Lot

This lot is limited to 100,000 units. You can invest 100,000 dollars in this lot and pip value is 10 dollars per pip. The big investors who own more than 25,000 dollars invest in this lot.

Mini Lot

This lot is limited to 10,000 dollars with 1 dollar pip value. You need to have at least 5000 dollars to trade in this lot.

Micro Lot

This is the smallest lot that anyone can invest in. The maximum investment is 1,000 dollars with pip of 10 cents.

Nano Lot

These lots are too small and it might be 10 or 100 units. The risk is very low in these lots. Forex brokers do not prefer these lots but most of  new comers and strangers like to invest in these lots.

Leverage

The ratio in between funds of Forex traders and credits of Forex brokers is known as leverage. It is kind of a burrowed capital to gain a higher return.

Market orders

If you want to enter into Forex market, you have to put a market order. When you invest you do not think much about spread and only thing is to enter Forex market.

There are four different types of market orders and those are, 

Limit order

You can place an order for a specific price and duration. You can decide what will be the price for a particular currency pair and duration of Forex trade account. When the market price is lower, you can place order which is called limit buy order and when Forex market price is higher, you can place order which is called limit sell order.

Stop Order

If you want to limit order at a certain point of bid or ask value, you have to use stop order. You can predetermine stop value when you place market order.

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Forex Broker

The most important thing in Forex trading is to choose right Forex broker. There are a lot of Forex brokers available. You have to choose the best option available in Forex market. The followings are the most important criteria when you select a Forex broker for trading.



Select Forex brokers with low fees and spreads and good leverage.

They should be well-regulated. The spread should be low to save money. Unit used to measure spread is pip which is the difference between purchase price and selling price of currency at any time.
There is no commission for Forex brokers; therefore spread is the way that they charge their cost. Then you have to find out Forex brokers with low spreads.

There should be strong regulatory bodies and institution behind Forex broker agencies

Forex brokers need these agencies and institutions because there is a large amount of money is exchanged in Forex market and considerable leverage should be provided.

There are some agencies and institutions that Forex brokers should register with and those are;

• Futures Commission Merchant (FCM)
• Commodity Futures Trading Commission (CFTC)

Refer  parent company website and Financial Industry Regulatory Authority’s website to find out these details.

Forex broker companies should provide required information needed for Forex traders. You should check with Forex broker whether they provide trading platforms with following information;

• Technical analysis tools
• Economic calendars
• Real time news, data and charts
• Details of other brokers

Forex brokers should provide trials of all these facilities before you are going to invest money.

Forex brokers should provide an affordable leverage to clients

There should be different leverage option for everyone who wants to invest. Leverage is the ratio in between  total capital and  actual capital. Leverage is the amount of money lend by Forex brokers.

For example 200: 1 leverage means that broker lend 200 dollars to each 1 dollar you invest in Forex market. The risk of margin call is lower when leverage is lower. Forex brokers with higher leverage are preferred by Forex traders with lower capital.

Risk management is easy when there are a wide variety of leverage options. When you deal with highly volatile or exotic pairs, the high leverage is preferred. Select suitable Forex broker according to your financial condition.

Two or more account types are offered by Forex brokers

The mini account with higher leverage can be opened with minimum $250. Other account is known as standard account with different types of leverages and Forex trader needs a higher amount of capital to open this account.

Be aware of some unfair actions of Forex brokers such as sniping or hunting and strict margin rules

The snipping action is the premature buying or selling regardless of preset points. You have to inquire fellow traders to realize these activities because these are not reported. Forex brokers may sell or buy currencies at their will because they lend capital to you. Some Forex brokers may liquidize by making a margin call even though you have more capital to recover Forex account. This will put you in risky situation.

Once you obtain all required details of Forex broker, register for an account. You have to agree with their agreement which mention that they burrow capital to you and they have rights to interfere Forex trading to make sure their interest is safe.

After you sign up for a Forex account you are ready to invest.

Strategy for Forex Trading 

There are some prior examinations and exercises that you should do before going to trade. The following analysis should be done to have a thorough knowledge on economy of the industry and market behavior. 

Fundamental Analysis 

This analysis can be done to find information of companies which affects currency values. But it may be difficult to find about all companies, therefore you should analysis whole country to get an idea. For a short term analysis, you can refer news but this analysis is usually done to find out long term trend. You can refer following indices and documents for a fundamental analysis;

• Purchasing Manager Index (PMI)
• Consumer Price Index (CPI)
• Pay rolls and Retail Sales

Not only above information, there are two important meetings which can be used by a trader to analyze Forex market trend: those are Humphrey Hawkins Hearings and Federal Open Market Committee.

This information is very useful for you to analyze Forex market trend. But you have to keep economic calendar updated and your broker will provide these details in advance.

Technical Analysis

The predictions about Forex market are made by technical analysis. Price of currency analysis is done here. There are some forms of technical analysis;

• Pivot Points
• Fibonacci Studies
• The Elliot Waves
• Parabolic SAR

You can make more precise predictions by a combine analysis of these forms

You can develop a perfect strategy by combining both fundamental and technical analysis. Once you develop your own trade strategy with the help of these analyses, start to trade.

Important Notes:
Do not open a live account first. Use a demo account and paper trading first to make sure you can earn profits from Forex trading. Do not be hurry to trade because you may lose your capital. Learning to trade properly is very important to make sure your profit.

Avoid the emotional trading. You have set stop loss points and take profit points very accurately and wisely. If you want to change those, do not let emotions to do that. Think and analyze carefully before change points.

Always follow Forex marketing trend. Do not deviate from the trend when you are trading because always Forex market is changing according to the trend. If you want to make profits, follow trends.

Conclusion
This is the largest market in the world and Forex traders are entering to Forex market daily. Therefore you have to consider several factors before you enter Forex market. Select the best Forex broker according to your trading requirements. Build up your own strategy by doing some fundamental and technical analysis. Open a demo account first to get knowledge how to do trading and practice with demo account before a real trade.

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Currency Pairs

The price quote relevant to two different currencies when currency exchange is occurred is called the currency pair.

The value of one major currency against another foreign currency in the exchange market is called the currency pair.

When we trade the Forex, the base or first noted currency will be bought and the second one or quote currency will be sold.

The most liquid or the main currency pair in the Forex market is EUR/USD and the next main currency pair in the world is USD/JPY

Currency Types 

There are two currency types: they are major and minor currencies


In addition to the above currencies, others are fall into minor currencies and the major currencies are more important in the Forex trading.

Keep remember, the major currency which is used intensively in Forex market is USD

All the currencies are denoted by the ISO currency code (three alphabetic letters)

This is called a currency pair and this means EUR is divided by USD. The value of Euro compare to the Dollar.

Example: EUR/USD = 1.241. You need 1.241 dollar to purchase one dollar.

There are some currency pairs identified in the market. We can identify three currency pairs in the exchange market. Those are,

Majors
Crosses
Exotics

 

Major Currency Pairs

The most liquid currencies can be identified as major pairs. The currency pair indicates how much of one currency can be bought by another currency. For example, EUR/USD = 1.1 is one of the major currency pairs and it would tell you that by expending one EUR, you can buy 1.1 USD. The USD represents in every major currency pairs. These pairs are accounts for a higher trading volume and turn over in the Forex market. The major pairs can be mentioned as follows;

Cross Currency Pairs

The second pair is cross currency pair in which USD is not included. The cross currency pairs are represented as follows;

Exotic Currency Pairs

The third pair the exotic pair. This currency pair is not that liquid as the other two. The information and market analysis might be not enough for this pair. These can be identified as thinly traded pairs. Therefore it is somewhat risky of trading with this pair. Some examples for exotic pair are mentioned below;

USD/ZAR
USD/MXN
USD/THB
USD/INR
USD/TRY

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Forex Sessions

Forex market is open for 24 hours, but there are some critical time periods that a trader can exchange to maximize the gains. There are some periods in which the trade volume is maximum and some in which the trade volume is minimum. Therefore, the Forex trading market has been split into three major sessions and those are;

• Asian Session (Tokyo)
• European Session (London)
• North American Session (New York)

Those major cities represent the trading centers of three sessions. Forex trading is more powerful and active when these centers are performing. 

Asian Forex Session

This session is run by the Tokyo center in Japan starting from 11 pm to 8 am GMT.

European Forex Session

After the Asian trading session is over, the European session starts. London is the major trading center and the business starts from 7 am to 4 pm GMT. 

North American Forex Session

After several hours from the Asian session, this session starts and New York is the trading city. Session starts from 12 pm to 8 pm GMT. 

Best Time to Trade

Now you know there are three sessions and time slots to make a trade. We have to select the best time slots which are more volatile and active in order to obtain an output. If you want to trade during the daytime, the London session is the best.

During the time slot in which London and New York overlaps is the best for trading because the volatility is very high during the overlapping period from 8 am to noon. The other overlap London/Tokyo from 3 am to 4 am is also a volatile period but not as London/New York overlap period.
So it is better to trade from 8 am to noon. But most importantly, you have to check your local time and the overlapping period to make sure the correct time period.

The best days for days for Forex trading are Tuesday, Wednesday and Thursday

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Forex Demo Account

How to Open Forex Demo and Live Accounts

 

When you open a Forex account, you should provide all your real data because you will trade in international market and do not open any duplicate accounts.

Create a brand new email address for Forex trading and do not use your common e mail. Keeps your new e mail only for Forex trading.

 Keep the information related to the account safe such as account number, password, pin code etc.

Now we will see how to open a demo account first

1. Refer this web site https://www.icmarkets.com/sc/en/

And you will see a website as below, and click “Try a Free Demo”



2. Now you will receive an application for your account as follows,


3. Next, you have to enter your correct details to create a legal account. Once you enter the details and click next, you will get this.

4. Click proceed and you get below.



5. Now you have created a demo account successfully and you will receive the account details to your email.

6. Then you have to download the MT4 software for trading. Click “trading tool”



7. You will open a page like below



8. Click on green button and download the MT4 software and install it in your device (laptop, android or apple) as normal software.

9. First you should practice with your demo account and then you can go for a live account.

10. Open MT4 software and enter login through file by giving your login details.

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Earn by Forex

How to Make a Profit When the Value of a Currency Pair increases

 

This situation is called a bullish trend which is created by strong EUR or weak USD

1. First you have open a buy order (we will discuss this later) to buy EUR/USD currency pair

2. Let’s think now the value of the currency pair is 1.2536

3. Imagine now the Forex market value is getting increased. You must place a buy order only when the value is going up

4. When the market value reaches 1.2574, you should close the order

Your Open Price = 1.2536

Your Close Price = 1.2574

Profit = Close price – Open Price = 0.0038 = 38 pips

1 pip = 0.1 dollar

Profit = 38*0.1 = 3.8 dollars

How to Make a Profit When the Value of a Currency Pair Decreases 

This situation is called a Bearish Trend which is created by a strong USD

1. The Forex market has gone down in this situation due to some reasons

2. First you have to realize that the market value is going down. You have refer the information sources for that.

3. You should place a sell order in this situation to make a profit.

4. Now you will place a sell order at the value of 1.1625

EUR/USD = 1.1625 means you need 1.1625 USD to purchase one EURO

5. Imagine the value has reached to 1.1538 and now,

EUR/USD = 1.1538

Earlier you needed 1.1625 USD to purchase one Euro but now you need only 1.1538 USD to purchase one Euro. It means that the dollar has been strong.

6. The USD value has gone up from 1.1625 to 1.1538, and then you can earn a profit of 0.0087

We call this sell order because first currency is Euro in the currency pair when placing both the buy and sell orders

So when you are placing the sell order you will buy USD and when you are placing the buy order you will buy EUR

Calculation of Gain/Loss 

For example let’s say that you are going to invest on a currency pair which is having 5 pips. Then you will have a profit but this depends on the lot size you are investing. Imagine you invest in a standard lot which is having 10 dollar pip value (GBP/USD). Then you will have a profit of 50 dollars (5*10). But if you select 10,000 dollar lot, the pip value will be 1 dollar. then your profit will be low.

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Forex Chart

How to Use a Forex Chart

The Forex chart is important to evaluate the stock market and do the predictions on currency exchanges. The chart can be analyzed before the trade is done. The stock market trades the currencies in pairs. You have to choose your currency pair first. Then check the strength of the the selected pair and you can check some other currency pairs to check compare the currency pairs and have an idea. For example, take the major pair of EUR/USD and check its behavior from the Forex chart. And again you can take a minor pair of AUD/USD to compare the strength of the selected pair.

The chart shows data hourly and if you refer 24 hour chart, then there are 24 values. There are open value and the close value in the chart. The values will go up and down within the 24 hour time period. At a particular hour, the chart shows the exact value of the exchange rate of the currency pair. The Y axis of the chart represent the time period and the X axis show the exchange rate.

First you should set a larger time period to have a good understanding about the exchange rate of a particular pair. There are three types of charts and those are line charts, bar charts and candle stick charts. I would recommend you to follow the candlestick charts because it is user friendly and you can get an idea about the overall strength of the selected currency pair.

Metatrader 4 is the best Forex chart for beginners and professional traders. The special feature is that you can trade through the chart. This chart shows the data directly coming from the global market. You should know that the currency values are shown in four decimal places except for the Japan Yen which is shown in two decimal places.

Meta Trader 4 

Login to your account and you can see a interface with 4 chart windows as below,



Select your chart window and maximize it



You can change the window as bar chart, candlestick or line chart.

Right click on the chart and change the time frame as you wish. The range is from 5 minutes to monthly. Each candlestick shows the time frame of the market price.

Example: If you select the H1 time frame, the candlestick shows the open and close of the market price within one hour.


Right click on the chart and use zoom in and out to make the chart more visible. Right click and go to properties to change the color scheme as you wish.

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How to use the Account

How to Place Buy/Sell Orders through MT4 

Open your MT4 software and click on new order.



Take a close look at the order from



You should select your desired currency fair in the symbol field

The minimum volume in this demo account is 0.01, but it will be 0.01 in a real account.

Remember, you should have a proper trading plan and a risk management plan when you are trading.

You have to select the correct lot size according to your capacity.

Example: If your account balance is lesser than 1000 dollars, you must not go beyond 0.02 lot size.

If you wish to place a pending order, select the pending order type or otherwise you should select instant execution.

If you want to open a buy order, click on blue buy button or if you want to open sell order, you should click on red sell button.

Now you can log into your demo account and place an order. Once you place the order, there will be a profit which is fluctuating without a + sign. Once the + sign appear, close your trade. You can close the trade by clicking on the yellow button. By doing so several times, you will be able to gain some practice. You can apply these into a real account later.

There are some other brokers other than IC Markets. You can search and select the perfect Forex broker according to your requirements.

Stop Loss, Take Profits and Pending Orders

Stop Loss

The stop loss is a very important option when you are trading. If you are trading according to a plan you should use the stop loss option. You can set the correct stop loss value to reduce the amount you lose when there is a loss. The stop loss should not be changed and you have to keep it constant. When you see if the market value is increasing, you might change the stop loss value to close the account as a profit. But if the market value is reducing, the stop loss value should not be changed.

Example: You set a buy order at 1.2500 for EUR/USD and you set the stop loss value to 1.2300 (200 pip). The market is going down up to 1.2350 and it is so close to stop loss. But you might think to drag the stop loss value down further up to 1.2250. Then your trade will stop at 1.2250 (250 pip). You might have save another 50 pip if you kept the stop loss value constant.

How to change stop loss value to make a profit
Now we will see how to adjust the stop loss value

Example: imagine you have set a by order at 1.2900 and the market value is increasing and the current value is 1.3000. Right click on the trade and select modify or delete order. Now you can change the stop loss value. You have set the stop loss value at 1.2800. Now the profit is 100 pips. But if the market drops suddenly you will lose that profit. Therefore, you can change the stop loss value at 1.2950. Now you are safe because there are no any losses. Even if the market drops, you will still have a 50 pip profit or more than that if the market value is going up.

Take Profit

When you set up your trade, take profit value can be given. Usually, take profit should be double the stop loss value.

Pending Order

If you want to place an order regarding the future scenarios, the pending order option is used.

Suppose, you cannot wait and see for the order, then you can select the pending order option. Buy limit is one of the options in pending orders.

Buy Limit

When the market value is increasing, you can use the buy limit.

For example the current market value is 1.2500 and you think this will go down to 1.2400 and you believe the value will increase drastically from 1.2400. Then you can set the buy limit at 1.2400 and when the market reaches this value it set the buy order exactly at 1.2400. Again you can set stop loss value as I mentioned above in order to gain a profit.

Buy Stop

You believe that the market value increases more than the expected value. Then you can use the buy stop to place a buy order.

For example, you believe the market value increases up to 1.2550 and this will increase further. You can put a buy stop to place a buy order at 1.2550 to buy more. Again you can set stop loss and take profit thereafter to make a profit.

Sell Limit

You believe at some point, the increasing market value stops and then you can use the sell limit option to place the sell orders.

Example: The current market value is 1.2500 and you expect a value drop after 1.3000. Then you can put a sell limit at 1.3000 to place a sell order automatically.

Sell Stop

When market value is expected to drop further you can use sell stop option.

Example: When the market value drops from 1.3000 to 1.2500 and there is a possibility to drop further, then you place the sell order at 1.3000 to sell your stock automatically.

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