Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is...

16
Forex 101 Lesson 1

Transcript of Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is...

Page 1: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Forex 101Lesson 1

Page 2: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

What is Forex

The foreign exchange market is usually referred to as the Forex or FX market. It

is the term used to denote the financial market that offers currency exchange.

There are many financial markets across the globe, the stock market, the

commodity market and debt market are some of these financial markets. Forex is

the market for currencies. Many financial markets have an exchange, such as the

London or New York Stock Exchange. The commodity market also has various

exchanges (Chicago Mercantile Exchange, London Commodity Exchange, etc.), an

exchange being a centralized location where financial products are traded.

The Forex market has no centralized exchange, for this reason there are some

great advantages to trading Forex, including round-the-clock trading, easy

access to the financial market and lower trading costs than alternative financial products such as stocks, shares and other publicly trading financial products.

Page 3: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

When is Forex Traded

Most exchanges have trading hours (a time of day

when financial products can be traded), these

trading hours are generally set according to the local time of the exchange. The Forex market has

no centralized exchange so currencies can be traded 24 hours a day.

Page 4: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

What are Forex Pairs

Currencies have no tradable value unless they are compared to another currency. For this reason currencies

are traded in pairs, which are usually referred to as

Forex pairs or currency pairs.

Here are some examples of commonly traded Forex pairs...

AUD/USD - Australian Dollar / US Dollar EUR/GBP -

Euro / British Pound GBP/USD - British Pound / US Dollar

USD/JPY - US Dollar / Japanese Yen

Page 5: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

What are Trading Sessions?Due to the 24 hour nature of the Forex markets, trading times are split into 3

manageable trading 'chunks' or trading sessions. These are generally referred to

as the Asian Session, the European Session and the US Session.

The illustration below should provide some clarification. Sometimes these

sessions are also referred to as the Sydney and Tokyo Sessions, the London

Session and the New York Session.

Page 6: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Why Trade Forex

Now that you know what the Forex market is, we can

move on to some slightly deeper topics, such as why you

should trade Forex?

Forex trading allows individuals, banks, funds and other

entities to profit from price fluctuations in currency value. You can buy a particular currency and then sell

it when the currency is stronger (worth more), the

difference in the purchase price and the sell price will either result in a profit or loss, unless you break even.

Page 7: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

What are Pips

Price movements in the Forex market are usually measured by PIP value. Pip is an acronym for Point In Percentage. It refers to a point

movement, let's look at an example...

If the GBP/USD (British Pound / US Dollar) is currently priced at

1.5810 (1 British Pound is worth 1.5810 US Dollars) and price moves up

to 1.5811, we would refer to this as an increase of 1 pip. If price then

fell to 1.5809 we would refer to this as a 2 pip decrease.

Some prices include pipettes or fractional pips, these are 1/10 of a pip. Using the GBP/USD example from above, the GBP/ USD could be priced

at 1.58105, this includes the pipette value as well as the pip value.

Page 8: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Bulls & Bears?

If a Forex pair price is increasing or has increased, this is usually referred to a bullish price behavior. If Forex pair price is decreasing or has

decreased, this is usually referred to a bearish

price behavior.

Page 9: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

How to make money trading Forex

Currencies are coupled with another currency to create a Forex pair. Forex pairs appreciate

(increase in value) or depreciate (decrease in value). Profitable Forex trading is being able to

speculate these price fluctuations correctly and to buy and sell currencies accordingly.

Below are some examples of Forex pairs, you should be able to tell which Forex pairs have

appreciated or depreciated in value by using the change column (2nd from right). The change

column refers to change in value during a single day.

Page 10: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Forex pairs consist of a base currency (the first

currency in a pair) and a secondary currency (the

second currency in a pair). The base currency is

usually set at the value of 1, the secondary

currency is the exchange value for 1 of the base currency. In the above illustration the AUD/USD is

priced at 0.71250 to buy, meaning that 1 Australian

Dollar (AUD) is worth 0.71250 US Dollars (USD). The

EUR/JPY is priced at 132.276 to buy, meaning that 1

Euro (EUR) is valued at 132.276 Japanese Yen (JPY).

Page 11: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Make money in either direction

One of the great advantages to trading Forex is that you can make profit from a Forex pair increasing in price as well as decreasing in price. If you

believe the EUR/USD is going to rise in value, you would buy the EUR/USD. This

is called going long and involves buying Euros and selling US Dollars, as you

believe the Euro is going to strengthen against the US Dollar.

On the other hand, if you believe that the EUR/USD is going to fall in value, you would sell the EUR/USD. This is called going short and involves selling

Euros and buying US Dollars, as you believe the Euro is going to weaken

against the US Dollar. If your prediction is correct, you could make a profit.

You can gain access to the Forex market by using a Forex broker. A Forex

broker offers Forex pairs to buy and sell and also offers other trading features and tools that can help you make better trading decisions.

Page 12: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

When to buy When to sell

Being able to speculate future Forex price is one of the keys to being able to trade Forex profitably. It is not as daunting as it may seem at first, there are a number of trading tools and

aids that help traders with their Forex price predictions...

Technical Analysis - is one of the most common ways that Forex traders analyze and predict the

Forex market. It is widely used amongst Forex traders, as well as stock and commodity traders. Technical analysis involves studying historical price data, which is usually displayed on a price

chart. Traders that use technical analysis as part of their Forex trading usually combine price

charts with price action analysis and/or technical indicators.

Price action is studying price charts and looking for specific price patterns, levels of price

reversal and other price behavior. Technical indicators are aids displayed on price charts that

can show a trader where future price may be. This site is dedicated to Technical Analysis and

covers both Price Action Trading and Indicator Trading.

Fundamental Analysis - involves studying and predicting reports, events and news that heavily

influence the value of a currency.

Page 13: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

How do Forex Brokers make money

Forex brokers make money through some or all of the following; Charging a commission for each trade entered, charging financing and interest costs for any positions held overnight, charging for price charting packages, setting a

spread on offered Forex pairs.

Spread is the difference between the actual price of a Forex pair and the price the broker is willing to buy or sell the Forex pair for (on your behalf). This spread price

difference is used as a main source of revenue for some Forex brokers.

Page 14: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Types of Brokers

Spread Betting Brokers - If you are based in the UK, spread betting brokers

are one of several broker options available to you. Spread betting is one of

the most popular ways to trade forex in the UK. It is cheap and there are

several advantages, such as guaranteed stop losses and tax free profits. Most spread betting forex brokers offer a free demo or practice account, we

suggest you open an account with Core Spreads

CFD Forex Brokers - If you are based outside the US, CFD brokers are a simple

way to trade forex. CFD brokers also offer free demo and practice accounts.

True/ECN Brokers - True brokers are those that deal directly with the Forex

Market. If you are wanting the 'real' trading experience or are based in the

US, we suggest trading with an ECN broker

Page 15: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Forex Orders

There are several ways you can initiate going long or short a Forex pair. Opening a trade at the

current price is generally referred to as a market order. Requesting your Forex broker to open a trade

at a specific price in the future is generally referred to as a limit order. Each trade (or position) can also have a set take profit and stop loss, meaning that your broker will close the trade automatically at a specified profit or loss.

Page 16: Forex 101 L1 - fxntrading.com U s/Forex 101 L1.pdf · What is Forex The foreign exchange market is usually referred to as the Forex or FX market. It is the term used to denote the

Leverage

Leverage enables traders to hold large positions at a minimal cost. Most Forex brokers will offer

at least 1:10 leverage, meaning that for every 1

unit of currency you fund for a position the broker will fund 9 times that amount. Leverage allows

you to make big gains trading Forex but it can also lead to big losses