The Foreign Exchange (Forex) Market is the largest financial market in the world, it does over 20 times the dollar volume than all the US equity markets combined each day.

The Forex market is an interbank or Over the Counter market. This means that all transactions take place between two parties directly through an electronic network or over the phone. There is no
standardized exchange like stocks (NYSE, NASDAQ etc.) or futures. (CME CBOT)

What Is a Pip?

Simply put, a pip is the smallest price change a currency pair can make. As an example when we see a quote of the USD/CAD at 1.0028, the minimum it could change to the upside would be .0001 making it 1.0029. The majority of currency pairs are priced with 4 decimal places (an exception is the USD/JPY pair which is quoted to 2 decimal places ie 108.84 )

Forex Quotes
Of all the Forex quotes available there are 6 that are considered the most important; (In no particular order)

USD/CAD = United States dollar/Canadian dollar
USD/JPY = United States dollar/Japanese yen
GBP/USD = Great British pound/United States dollar
AUD/USD = Australian dollar/United States dollar
EUR/USD = Euro/United States dollar
USD/CHF = United States dollar/Swiss franc

Forex quotes involve a pair of currencies. For example USD/CAD, AUD/USD, USD/JPY etc.

The currency listed first is what’s called the base currency and the second currency is called the counter. Using a buy order on the USD/CAD as an example, you have bought US
dollars and sold Canadian dollars.

Bid/Offer Spread

All quotes you will find on the Forex market are two-way, meaning there is a bid and offer. With the offer always being higher than the bid.

- The bid is the price the dealer is willing to buy the base currency. As a trader this is the price you will sell to. (We sell to the bid)
- The offer is the price the dealer is willing sell the base currency. As a trader this is the price you will buy from. (We buy the offer)
- The difference between the bid and offer is called the spread. As a trader the smaller the spread the better, so be sure shop around, as different brokers will have different spreads for different currency
pairs.

This is what a typical quote will look like.

USD/ CAD
Bid Offer
1.0022 / 1.0025
Sell / Buy

If we wanted to go long, using this quote as an example, we would click the buy button at 1.0025. And if we wanted to short or sell we would click the sell button at 1.0022.

- When buying we use the offer price.
- When selling we use the bid price.

Forex Market Hours

The Forex market is open 24 hours a day. There will always be someone anywhere in the world who is buying and selling currencies because when one market closes, another market opens.
Here are the open market times that you can use as reference:

• New York – 8am to 4pm EST
• London – 2am to 12nn EST
• Great Britain – 3am to 11am EST
• Tokyo – 8pm to 4am EST
• Australia – 7pm to 3am EST

Forex market transaction volume is always high during the whole day. However, it peaks the highest when the Asian market, the European market and the US market open at the same time. If you look at the schedule and study it, you will see that there are two instances where two of the major markets overlap on trading hours. These are between 2am and 4am EST with Asian and European markets and 8am to 12pm EST with European and North American.

These are the trading hours in the Forex market you have to trade in, in order to get the highest possible trades. These are the hours that are also the most profitable.

Lot Size and Pip Calculation

The Forex market is traded in lots, with the benchmark lot size being $100,000. There are also mini lots of $10,000.

Each currency will have a different pip value based on the standard $100,000 lot size. And as the price moves so will the pip value of the pair you are trading. Below is an example.

USD/CAD exchange rate of 1.0022
(.0001/1.0022) X $100,000 = $10.02/pip
USD/CAD exchange rate of 1.0652
(.0001/1.0652) X $100,000 = $10.65/pip

As you can see as the market fluctuates so to does the value of a pip.

How to Calculate Profit and Loss

We’ll go through a trade example using the USD/CAD to show how to calculate a profit or loss.

The quote of the USD/CAD is 1.0022/1.0025. We buy 1 lot of $100,000 at the offer price of 1.0025. Our position is now long 1.0025. 12 hours later the price goes up to 1.0085 with the new quote
showing a bid/offer of 1.0085/1.0088. For us to sell we have to sell at the bid price which is 1.0085. The difference from buy price (1.0025) and selling price (1.0085) is .0060 or 60 pips.

Using our calculation from the Pip Calculation section we can see how much profit we made;

(.0001/1.0085) X $100,000 = $9.91/pip
60 pips X $9.91/pip = $594.60

Margin

For most traders, coming up with $100,000 to trade one lot would be almost impossible. As an alternative, brokers will put up the required amount; in exchange you are required to deposit a certain amount of money as good faith. The broker holds this money in your account to cover any loss you may incur. This is what attracts most traders to the Forex market. The amount of margin will vary from broker to broker. Typically they require you deposit $1000 to trade one lot of $100,000 or 1%. Often you will notice brokers quoting margin rates at 100:1 and sometimes as high as 200:1.

While trading on margin amplifies profits, it does the same to losses as well. So one must be very careful when trading with too high a margin.

Types of Orders

There are 3 basic orders: Market, Limit and Stop loss

Market Order – This is simply an order to buy or sell at the current market price.

If we have a USD/CAD quote of 1.0030/1.0033 and we place a market order to buy, we will buy at 1.0033. If we place a market order to sell we would sell at the bid quote, in this case 1.0030.

Limit Order – This order is used when you want to enter at a certain price. Limit orders are used when a trader doesn’t want to sit and wait for the order to get filled. They can walk away from their screen knowing the limit order is in place.

Stoploss Order – This order relates to a trade that has already been taken to negate additional losses if the trade does not work in our favor. It will stay open until the order is hit or canceled. As an
example, if we were long the USD/CAD at 1.0056, we could place a stoploss order at 1.0036 to limit our loss to a max of 20 pips. With the stop loss order in place we don’t have to baby-sit the trade.

Additional orders used:

GFD (Good for day) Order – This order stays open until the end of the day, which is typically 5:00 pm EST (the close of US equities). To be sure ask your broker the details of when the cancel GFD
orders.

GTC (Good Till Canceled) – Pretty simple…this order stays open until you cancel it.

OCO (Orders Cancels Other) – This order lets the trader place a stoploss and profit limit order. Once one is triggered, the other order is then canceled.
For example, the USD/CAD quote is currently 1.0035/1.0038. We are anticipating a large move to come either to the upside or downside. So we place a buy limit above where we think the price will breakout and run up at 1.0050 and we want to place a limit short order at 1.0025 on the anticipation of a breakout to the downside. Once one of these orders is filled, the other is canceled automatically.

The first step is to find a source that will give you a basic idea of the current exchange rate between your domestic currency and the foreign currency in question. You should do this as a base listing for any currency that with which you might become involved. Of course, this will not be consistent down to the cent or fraction of a particular currency throughout an entire business day, but at least you will have your starting point from which to begin, almost like North on a compass. Such sources can be found all over the Internet, as well as through many brokers, both on line and in person.

Currency Expression

It is also good to understand the means be which the currency conversion is expressed. The comparison is usually made in a ratio known as the cross-rate. In this configuration, the two currencies are listed in an XXX/YYY ratio, with the XXX position referred to as the base currency. The base currency is usually expressed as a whole number, while the YYY position is expressed as the decimal that most closely matches the based currency rate. It is sort of like making reference to miles per gallon or rotations per minute on a car – a direct comparison of one to the other in the form of a ratio.

The smallest fraction, or decimal, in which a currency can be traded, is called a pip and this is usually the degree to which a cross-rate is expressed. For example, if the British pound sterling can be traded in thousandths, the currency will be expressed to the third decimal place. The U.S. dollar is often expressed to the hundredth of a cent (the fourth decimal place).

In one cross-rate expression example, one U.S. dollar may be equivalent to 117.456 Japanese yen. This ratio would be expressed as 1.000/117.456. The base currency is almost always expressed as a single unit (as in one dollar as opposed to ten dollars), and frequently that unit of measurement is the U.S. dollar. Since the whole number value (or big figure, as it is referred to) of the secondary currency, or the currency in the YYY position in terms of conversion changes so infrequently, often only the decimal portion of the number is mentioned in the Foreign Exchange Market.

Therefore, in the ratio above, you may hear that the yen is trading at .456, with no mention at all of the 117 whole yen that is shown in the ratio. This is because the exchange rate may vary from 117.456 to 117.423, but not to 119.024. Experiencing a change in the big figure – the whole number ahead of the decimal – unless it was only because the number was already within a few thousandths, would represent much too large a shift in value for a single trading period and would be a rare occurrence that could cause the entire market to make a drastic swing in one direction or the other.

The most common currencies found in Forex are the U.S. dollar, the British pound sterling, the Euro, the Japanese yen, and the Australian dollar. In the past, there would have been many more currencies to keep track of (such as the franc, the lira, or the Deutschmark). However, with the consolidation of most of the European market trading on Forex to the Euro, many currencies have been eliminated, making trade on Forex for other lands less complicated.

If you purchase a commodity in a particular currency, and that currency’s value falls against the U.S. dollar, you can actually make money by selling that same commodity in dollars. The same is true in reverse should the value of a foreign currency increase against a U.S. dollar. Of course, you can only take advantage of such a situation should the commodity be traded in both currencies and both markets in question. We will discuss this process, as well as other ways to take advantage of the Foreign Exchange Market (like arbitrage) in more depth in future chapters.

Once you are able to discern a base value of each particular currency and its conversion rate against others traded on Forex, you will be able to more closely monitor the change in currency conversion, including its inconsistency and volatility. Such ideas will not seem so “foreign”, and you will be caught up and knowledgeable right along with the pros. Then, you will need to learn how to read, understand, and ultimately interpret additional market trends.

Originally, trading across international lines was more difficult, with several different currencies involved across Europe. Though the major players in the European market were deeply involved in and veterans of international trade by the time other markets joined in, there were more currencies to keep track of – the franc, the pound, the lira, and many more – than was reasonable. With the birth of the European Union in 1992, the wheels were set in motion to create a single currency that would be used across most of Europe, and the Euro was finally established and put into circulation in 1999.

Forex Today

While some countries have still not accepted the currency as their own (such as Britain, who still uses the sterling pound), the process of currency conversion has been simplified without the large number of various currencies that were previously dealt with. Instead of dozens of currencies, the main countries trade in five – U.S. dollars, Australian dollars, British pounds sterling, the Euro, and the Japanese Yen.

Today, the Foreign Exchange Market is international and worldwide. The market is open 24 hours a day, 5 days a week, to accommodate all of the time zones for all of the major players. These now include most of Europe, the United States, and Asian markets, especially Japan. Even Australia has joined the international trading markets, and since such nations are halfway around the world from some of the other top players, time zones obviously must be taken into consideration.

Mini Forex Basics

Mini Forex trading is good for people who have just started in the forex market and with not enough funds to open a regular account. It requires a smaller capital compared to regular forex accounts, a minimum of $300. With mini forex trading, you can control a $10,000 currency position.

The key here is leverage. Because of leverage, a trader can trade in a commodity more than the money available in his account. Say with a $250 deposit, one could trade a maximum of 5 mini lots. This kind of leverage is greater than stocks or day trading. Of course, it is recommended to start with a manageable leverage that allows greater flexibility in transactions.

What are the perks of mini forex trading? With just a small stake involved, you get to enjoy free trading platform and benefits that regular forex traders get to enjoy. These would include state-of-the art trading software, charts and resources. With a leverage of 200:1, the trader can trade in a commodity regardless of the amount of money available to him.

Mini forex trading also allows for lesser losses as the contract size is only 1/10th the size of a standard forex account. There is also greater flexibility with regards to customizing trades and minimizing risks. Ideal for those with smaller capital, the trader has a chance of investing in more areas of the market with lesser risk as there is lesser capital to be lost. He need not be hesitant with his transactions as there is lesser capital involved.

With the same freedom enjoyed by regular forex traders, a mini forex trader can trade as many lots as he likes. Although the standard trade size is 10,000 units, you are free to trade as much as 50,000 units or more. In this way, the trader also builds up his confidence in his trading skills at the same time slowly increase his profit and trading position in the market. He gets to manage his money before going for the higher stakes in regular forex trading.

The trader likewise gets to develop a sound trading strategy without getting too emotionally involved in possible losses and profit. For practice, a newbie in forex trading can practice through paper trading. But in the real market, he can start small with mini forex trading. There is lesser capital involved and the practice builds up the trader’s trading gameplan for future explorations in regular, higher stakes forex trading.

An Example

On a regular account, a 25-pip stop loss is equal to a loss of $250. Since a mini forex account is just 1/10th of the standard forex account, this is amounting to $25 only. If you trade in units of 10,000, the trader is given more flexibility in terms of customizing his trades and lessening the risks of loss.

They say that business is for the risk-taker. But if you’re just starting out, it’s wise to be cautious and think about your moves. In the world of foreign trading, mini forex accounts provide the wisest and best option especially for a neophyte. It requires lesser capital, lesser emotional investment, and slowly builds up your skills and confidence as a trader. In a way, it’s a way to prepare the trader for the higher stakes in the more advanced world of foreign trading.

Forex trading can be the best way to earn huge amounts of money. However, those traders who seriously studied the forex market conditions can be able to achieve success. Proper education enables them to learn different market strategies. Remember, forex trading markets are the largest market in the world where instantaneous exchange happens. It is always a challenge even to knowledgeable forex traders and bankers. So, it is always a plus factor to traders if they thoroughly reviewed every angles and possibilities before performing the trade.

If you are going to read forums and reviews, you will find out that successful traders are those having proper knowledge about forex markets. They have decided to educate themselves on the detailed information vital on trading forex. Thus, every trade that they performed is considered an opportunity to learn new techniques.

Some people would think that they don’t really need education when trading forex. They believe that if they outsmarted the forex market, then they would be able to figure out its conditions to survive. This could be a great attitude however ask yourself if you could sustain it.

It would be very helpful for forex traders to undergo forex trading education from professional traders. There are several important forex trading factors that are being tackled to achieve forex trading success.

1. Forex trading system is thoroughly discussed. The traders learn the three essential elements of a forex trading system that are profitable. It includes money management, risk management, and proper execution on the entry and exit market points. If the forex trading system is well established, then it can sustain draw backs caused by market fluctuations while retaining the consistent returns of profits. This is the secret equation needs to be mastered by every forex traders. In this case, the traders will stick to the system where it is giving them greater chances of earning larger amounts of money.

Money management is considered the most essential factor in determining your success as a forex trader. If you are able to prevent financial hazards then it can increase your chance of becoming successful. The trading account should be adequately funded by the money that you can afford and restricting yourself from entering a trade that can wipe out all your assets. Always remember that it is much better to start trading on small amounts and using stop-loss orders so that your first forex trades will not be the last.

2. The levels of market are also studied. It does not necessarily mean buying currencies at lower prices enable the traders to sell it on higher prices. Discipline is being taught to traders. Price behaviors are also learned consistently since it can change suddenly. However the traders are taught how to deal with this situation.

3. They also learn how to emotionally detach themselves when trading forex. Keep in mind that emotions should never rule over your mind. So, forex trading education can guide you through the right direction. The psychology of trading are incorporated so that the traders should always act rationally so that the outcome of the trade will not be affected or altered. They can always make a good decision when entering or exiting a trade.

4. Forex trading education teaches forex trading methods to the traders. They can acquire proper mindsets on trading forex and learn how to gain positive returns on their invested capital. Some traders concentrate on how they are going to make money rather than having their returns. So, educating yourself about building your wealth via consistent returns is beneficial. It is an advantage if you are properly acquainted with the forex trading environment before plunging into forex trading business.

Make your learning a fun experience. Don’t perceive forex education as a dull or a boring activity. You should enjoy your education and think that it is your first step to discipline your trading habits, wisely manage your money, and attain forex trading success.

1. Check with the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) to see if they are members. Look for firms that have clean regulatory records and
check to see if there has been any disciplinary action against them. NFA’s website : www.nfa.futures.org

2. Bid/Offer Spread: Compare amongst several brokers to see which is offering the lowest. This shouldn’t be the only factor in choosing your broker, but needs to be considered.

3. Demo Account: 99% of all online Forex brokers offer a free demo account. Be sure to test the trading and charting platforms that each broker uses. It is important that you are comfortable using it and that it has the features you require to trade ie. Certain technical indicators on the charting platform.

4. Customer Service: Very important in choosing which broker you go with. Be sure that you can contact them by email, instant message of some kind and of course by phone. It’s best to have a couple of direct lines to people, not just a random guy who answers the phone then transfers you.

5. Trading/Charting Platform: Most brokers will offer one of two options; web based software or client-based software. Web based is hosted on the broker’s site and you won’t need to install software on your own computer. This will give you the ability to trade from any computer that has an Internet connection.With client-based software you will only be able to trade from the computer your down load the software on. This option typically runs faster. Depending on your own personal situation you will need to decide which of these two platforms is what you need.

6. Minimum Account Size: Some brokers require a min. account in order for you to trade. Depending on the capital you have to risk, you will need to know what this minimum is before choosing your broker.

7. Lot Sizes: The availability of trading different lot sizes can vary from broker to broker. Most will offer the standard 100,000 units but make sure you choose a broker that allows you to choose mini lots of 10,000 and micro lots of 1,000. This will allow you to be as flexible as possible in your trading.

8. Guaranteed Limit and Stop Loss Orders: A lot of brokers are offering theses guarantees in order to gain customers. Now of course nothing is 100% guaranteed, so you should read any fine print and ask a broker the specifics behind this. Ask them how often a limit order and or stop loss order is filled at the exact price without slippage. And ask them to be specific. If they aren’t able to give you any hard figures than this should count as a strike against the broker.

9. What You See Is What You Get (WYSIWYG): This is a make or break issue when it comes to choosing a broker. When you see a quote and click on it to buy or sell, that is the price you should be getting. Be sure your broker stands by their quotes.

Banks
They are not just for saving money and lending capital to entrepreneurs, but they are one of the major players in Forex market. Banks cater both to large quantity of speculative trading and daily commercial turnover. Well-established banks can trade billions of dollars worth of foreign currencies everyday. Some of the trades are undertaken on behalf of their clients, but most are through proprietary desks.

Commercial Companies
These commercial companies trade small quantities of foreign currencies compared to larger banks and their trades produce small and short-term impact on the market rates. However, the trade flows from transactions made by commercial companies are essential factors with regards to the long-term direction of the exchange rate of a certain currency.

Central Banks
Central banks play an important function in the Forex market. They have the control over the supply of different currency, inflation, and interest rate. In addition, they have also official target rates for the currencies that they are handling. They are responsible for stabilizing the Forex market through the use of foreign exchange reserves. Their intervention in the market is enough to stabilize a certain currency.

Investment Management Firms
These firms commonly manage huge accounts on behalf of their clients such as endowments and pension funds. They are using the Forex market to facilitate transactions, specifically in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.

Retail Forex Brokers
They handle a fraction of the total volume of Forex market. A single retail Forex broker estimates retail volume of between 25 to 50 billion dollars each day, which is estimated to be at 2% of the total market volume.

Speculators
These are high net-worth individuals who purchase and sell foreign currencies and profit through fluctuations on its price as opposed to popular methods such as interest and dividends. They perform the important role of transferring the risk to individuals who do not wish to bear it.

Wagering huge volumes of money in a market as susceptible to change is liable to cause a whole range of opposing emotions; fear, excitement and anxiety just to name a few. Battling against your emotions in order to complete a successful deal is one of the major hurdles, which must be overcome if you are to become a trader able to close huge deals and earn vast sums of money. If you can overcome or even use these emotions to make trades on the Forex then a successful career may be beckoning, but failure to do so will almost certainly cost you a substantial amount of money and end any lingering desires to progress in the busy world of exchange rate trading.

Initiating and closing a trade at the right times are the backbone of becoming a successful Forex trader. If a person cannot execute these deals at the right times, the psychological and financial damage can be crippling. Missing a huge trend or sitting too long on a good price, can be a demoralising experience, but one that many will encounter during a career in Forex trading.

Entering at the right time is just one thing that must be done correctly, but if you are unable to leave at the right time or hold your nerve during the course of the trade, the implications are potentially severe. For example accepting a small loss just before the market rises can lead to a horrendous huge profit/loss ratio margin. Similarly sitting on a currency price that is plummeting for too long could be financially crippling. Understanding the Forex market and having faith in your ability to judge a trend will pay dividends if you hold your nerve, backing out at the wrong time can prove to be a catastrophic misnomer.

The fear generated by investing your own personal money is the main thing that must be overcome. It is the culprit in so many failure stories, people who just couldn’t overcome their anxiety investing unwisely, pulling out at the wrong time, missing a rise completely, all result in failure and are caused by fear. Accepting this fear, and using it to your potential will make you a stronger trader, able to trade freely and enjoy the thrill of the exchange. Fighting it will get you nowhere, understanding and overcoming it are the best remedies to this baseless emotion.

Trading strategies will help you ride out the rough times and capitalize on the good ones. Sometimes just taking a step back and accepting a few losses will give you the energy and the knowledge to attack the Forex with renewed vigour, and make some serious profits. Accepting that sometimes you will lose out, you need to be able to take the hits and roll with a punch, there are no guarantees in the trading market, so being able to move on and start again is a skill that is paramount to generating success.

Analysis and charts can only get you so far. You must first master these things, and be able to correctly interpret the figures that are represented in order to spot the trends and make your move. But this all means nothing if you don’t have the courage of your convictions. If you are too afraid to buy and not sure when to sell then a glittering career in market trading is likely to elude you. ‘The trend is your friend’ but it means nothing if you firstly can’t spot it and secondly don’t have the courage to back it. Knowledge, strategies and overcoming fear may well be the 3 best ways to become to unlock the door to becoming a successful trader. Without all 3 you will more often than not become unstuck, so prepare, practice and evaluate everything before taking the plunge in the complicated world of Forex trading.

The 15 important currency pairs are

EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
AUD/USD
EUR/JPY
EUR/GBP
EUR/CHF
GBP/JPY
AUD/JPY
CHF/JPY
EUR/AUD
GBP/CHF
NZD/USD

Foreign exchange quotes are a relation between currencies. For example, quote USD/JPY 108,91 would mean that 1 U.S. Dollar costs 108,91 Japanese Yens. The forex market is considered the largest and most liquid market in the world, trading around $2 trillion on an average every day. It is larger than all equity markets combined.

The forex market does not have a single centralized location as the exchange market operates through the electronic network. The prime location where forex is handled includes U.S., U.K., Australia, Japan and Germany. Exchange markets work all the time as their twenty-four-hour operation period is started in the Far East, in New Zealand (Wellington), passing the time zones in Sydney, Tokyo, Hong Kong, Singapore, Moscow, Frankfurt-on-Main, London, then finishing the day in New York and Los Angeles. As a result, the forex markets operate 24 hours a day, 5.5 days a week. Trading sessions imply the period of trading activity from the time the market opens until it closes. In London, the standard trading session is from 7am to 6pm. In New York the session extends from 9.30am to 4 pm. ( EUR (Euro), USD (American Dollar), JPY (Japanese Yen), GBP (Great Britain Pound), CHF (Swiss Francs), CAD (Canadian Dollar), AUD (Australian Dollar), NZD (New Zealand Dollar) )

The sheer number of currencies traded brings an extreme level of volatility on a day-to-day basis. Exchange rates fluctuate rapidly, offering opportunities for profit risk to astute traders. Yet, like the equity markets, forex offers plenty of instruments to mitigate risk allowing the individual to make profit in both rising and falling markets. Forex also allows highly leveraged trading with low margin requirements in comparison to its equity counterparts.

Leverage – An Important Concept

To trade on the forex market one can open either a standard or a mini account. It is possible to deposit small margin money with the concerned bank and then borrow up to 100 times that sum in standard accounts and 200 times the sum on mini accounts, to trade in foreign currencies. When the amount of initial margin deposited is small relative to the value of the contract, the transaction is known to be ‘leveraged’ or ‘geared’. This may work against the investor or in favour of him. If the unrealized gain/loss of the net total open position falls below the margin balance, the account would be under margined and all open positions could have to be liquidated. To avoid liquidation of positions, it is best not to use the entire account balance as margin for open positions. Instead, it is better to leave enough funds in the account to withstand a market movement against the open positions. Stop loss orders should be used to limit downside risk.

Margin Trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it, it is necessary to have only a small part of the sum. In marginal trading, each transaction has two obligatory stages; buying (selling) of currency at one price, and then selling (buying) it at another, or same price. The first transaction is called opening the position, the second one, closing the position. When you open a position, you can choose the number of lots you want from 1 to 10. The deposit sum for one lot will vary from $500 to $2000, depending on the credit leverage you choose. Leverage is a financial mechanism that allows crediting speculative transactions with a small deposit. A trader wanting to trade in 4 lots of USD/JPY would require a margin of $4,000. The total transaction value of $400,000 divided by a leverage of 1:100, calculates the margin requirement.

Let us now consider another example in more details. For a trader anticipating an upward movement in the rate of Euro vis-à-vis the U.S. Dollar, a good deal would be to buy the Euro cheap for dollars and later sell it back at a higher price. The margin required for this deal would be $1,000 (the account being a standard account operating at a leverage of 1:100). This deal would fetch the trader 104591.56 euros ($100,000/$0.9561). If the Euro does move up as anticipated by the trader, he can sell the euro at the higher price and make a profit. If he manages to sell the euro say at a price of $0.9661, he stands to make a profit of $1,045.91 ($101,045.91-$100,000).

Players in the Forex market

Until recently, only banks, hedge funds, and occasional high net worth individuals were able to participate in the forex trading market since one had to invest in a large minimum transaction size and meet stringent financial requirements. However, forex currency trading has now become one of the most lucrative businesses in the world with retail traders also playing an important part as indirect players, operating through banks or brokers. Traders can place trades for foreign exchanges online, with the most popular sources including Interbank FX, Gain Capital Group, Forex Capital Market in the U.S. and Saxo Bank in Denmark. According to the report published in 2004 by the Wall Street Journal, Europe, 73% of the entire forex trading volume depends on large international banks. These are Barclays Bank, Citibank, Chase Manhatten Bank, Deutsche Bank, Swiss Bank Corporation, Union Bank of Switzerland, etc.

Conclusion

For people trading in the forex market it is important that they verify the authenticity and efficiency of the services offered. They should ensure that trading facilities in all major currencies are available, besides availability of updated market news and supporting tools like charts and software. The extreme liquidity of the currency market, and the multitude of opportunities for large profits, makes it hard to resist for the advanced trader. With such potential, however, comes significant risk, and traders should get familiar with methods of risk management.

Forex trading platforms comes in two basic flavors – desktop trading platforms, and web based platforms. Which one you choose to work with depends on your preference and other more technical factors. Obviously, the Forex market is very dynamic and you need to have the most reliable up to date connection to the data as possible. Your internet connection speed is a factor here, and if you can afford it, you really should be connecting via broadband.

Your internet connection speed is just one of the factors you should consider when selecting a Forex trading platform. The biggest consideration should be one of security.

Generally speaking, a web based platform is more secure than a desktop based trading platforms package. Why is that? Well, with a desktop platform, your information and data is stored on your hard drive thus making it vulnerable to numerous security issues. If your computer became infected by a virus, your personal data and the integrity of your trading system can become compromised. Likewise, in the event of hard drive failure, your important data can be lost. Then there is the threat of prying eyes accessing your trading systems.

Luckily, if you choose to go with a desktop based platform for your Forex trading, you can do some things to limit the risks. For starters, a dedicated computer just for trading would be a wise investment. Due to the popularity of trading, there are computers made specifically with Forex traders needs in mind. Even if you can’t afford a dedicated machine, you should still apply the following tips to your trading computer:

* Password protect your trading platforms and personal data

* Make regular backups of your trading data

* Use an antivirus program and keep it up to date

* Update your trading platforms regularly

If you choose to go with a web based Forex platform, a lot of the security and maintenance issues are handled by the provider. Web based Forex systems are hosted on secure servers, the same type of servers credit card processing is handled on. This gives you a great deal of protection, as your data is encrypted. Also, backups and mirrors of your account data are made by your trading platforms provider to protect you from data loss.

Aside from the security considerations, you may find that a web based trading platform is simply more convenient. There is no program to download as the trading platform runs in your regular web browser. This means that you always will have access to the latest versions and features. Also, if you travel you will certainly appreciate the ability to log in and trade from any computer with an internet connection.

As you can see, there are many options for trading platforms. Ultimately you should choose to work with the trading platforms that you personally find easiest and most intuitive to use.

This is because once you have this vital skill under your belt, it will be a lot easier and quicker when the time comes for you to learn and practice an actual forex trading system.

By the time you finish this article, you’ll learn how to read forex charts, as well as know the pitfalls that can occur when reading them, especially if you haven’t traded forex before.

Firstly, let’s revise the basics of a forex trading as this relates directly to how to reade charts.

Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency, not the other way round with the USD first. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.

And your trade size (face value) is the amount of base currency that you’re trading. In this example, if you want to buy 100 000 EURUSD, you’re buying 100 000 EUROs.

Now let’s have a look at the 5 important steps on how to read a forex chart:

1. If you buy the currency pair, that is, you’re long the position, realise that you’re looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency.

On the other hand if you sell the currency pair to short the position, then you’re looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.

Pretty simple so far.

2. Always check the time frame displayed. Many trading systems will use multiple time frames to determine the entry of a trade. For example, a system may use a 4 hour and a 30 minute chart to determine the overall trend of the currency pair by using indicators such as MACD, momentum, or support and resistance lines, and then a 5 minute chart to look for a rise from a temporary dip to determine the actual entry.

So ensure that the chart you’re looking at has the correct time frame for your analysis. The best way to do this is to set up your charts with the correct time frames and indicators on them for the system you’re trading, and to save and reuse this layout.

3. On most forex charts, it is the BID price rather than the ask price that’s displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.

If you use the chart price to determine an entry or exit, realise that when you place an order to sell when the chart price is say 1.330, then this is the price that you’ll sell at assuming no slippage.

If on the other hand, you place an order to buy when the chart price is the same price, then you’ll actually buy at 1.3333. A forex system will often determine whether your orders will be placed simply according to the chart price or whether you need to add a buffer when buying or selling.

Also note that on many platforms, when you’re placing stop orders (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either “stop if bid” or “stop if offered”.

4. Realise that the times shown on the bottom of forex charts are set to the particular time zone that the forex provider’s charts are set to, be it GMT, New York time, or other time zones.

It’s handy to have a world clock available on your computer desktop in order to convert the different time zones. This is important when you’re trading major economic announcements.

You’ll need to convert the time of an announcement to your local time, and the chart time, so you’ll know when the announcement is going to happen, and therefore when you need to trade.

5. Finally, check whether the times on your forex charts corresponds to when the candle opens or when the candle closes. Your charting software may be different to someone else’s in this way.

The reason I mention this, is that if you need to trade major economic announcements, either by entering a trade based on the movements that happen after the announcement, or to exit a trade before the announcement in avoid getting stopped out during it, then you need to be precise (to the minute!) as these trades are performed according to what happens at the 1 minute immediately after the announcement, not the candle afterwards!

So there you have it.

You now have the 5 essential keys to how to properly read forex charts, which will help you to avoid the common mistakes which many forex beginners make when looking at charts, and which will speed up your progress when you’re looking at charting packages, and forex trading systems that you want to trade!

Now that you know this, practice looking at forex charts with each of these 5 points in mind.

There are several schools of thought on how a new trader should progress from learning to actual live trading. In this article we will discuss the best ways for a new trader to learn how to trade the forex and make their first live trades.

To start out, I can not stress enough the need for hands on trading. This is why you will often hear it recommended that new traders start trading with a demo account. What is a demo account? Many online forex brokers offer something known as a “demo account” which is a fake account that you can trade until you feel comfortable trading your own funds. Demo accounts behave just like real accounts, the only difference is that the money you are trading is not real and no actual trades are ever executed.

The purpose of using a demo account if you are new to Forex trading is to get you comfortable making trades and to help you become familiar with the brokers trading platform. You can cut your proverbial teeth so to speak without risking any of your own funds. This makes demo accounts good for a brand new trader who just wants to see how trading works. There are some drawbacks however to using demo accounts to learn Forex trading.

The biggest downside to using a demo account is that you will likely only be able to trade standard size accounts with a demo account. If you intend to trade mini accounts, as many beginning forex traders do, a standard size demo account is going to behave differently than a mini account. Your margins are very different for a standard account versus a mini account. If you become accustomed to trading a standard size account, your trading methodologies will show it. This is because the larger margins offered on standard size accounts allow you to take greater profits from smaller movements in currency prices.

The other major downside to trading with a demo account for learning forex is that as a trader, you need to carefully manage the emotional aspects of trading real money. Since a demo account is fake money, detachment is easy to come by. Once you start trading your actual funds, you might just find that your tolerance for risk is much more conservative. Ideally, as you are learning to trade you are also learning how to manage your risks most effectively.

So what is a beginning trader to do? What is the best way to learn to trade the Forex, hands on?

Once you have read, studied, and completed any courses on Forex trading that you may be taking, you are ready for probationary live trading. The single best way to trade the Forex is to just Do it. Now, this does not mean to jump in and trade a full size account with real money, this would be an enormous risk for a new trader and not a very smart move indeed. What you can do is to find a broker that offers mini accounts. Mini accounts typically start at $200 and typically give you 100:1 leverage.

For less than you paid for any of your books, courses or training materials, you can actually try live trading. You will be amazed at how after just a few trades, the stubborn concepts seem to start making sense and you begin to understand Forex trading.

Now, if you do decide to begin your trading with one of these tiny mini accounts, you should start by making several very small trades. You should also be trading with the same system or methodology that you are trying to perfect. Your profits will likely only be a few dollars since you are trading on a small margin. This is good, however because the reverse is true as well, you are only ever risking a few real dollars. If you happen to have a series of loosing trades and wipe out the funds in your demo account, you can consider it the least expensive education you could possibly get in actual forex trading. Much better than loosing large sums of funds, and more realistic than trading a demo account. Just learn from the experience, and consider it a good deal on a valuable lesson.

Once you are comfortable trading your mini account, you can always have it converted to a regular account (with an additional deposit) if you choose. Overall, it cant be stressed enough, the best way to learn the Forex is to have experience with live hands on trading.

• Morning Doji Star
• Evening Doji Star
• Hammer
• Inverted Hammer
• Hanging Man
• Morning Star
• Evening Star
• Bullish Engulfing
• Bearish Engulfing

But before we go into looking at these candlestick patterns, there are some terms you must familiarize yourself with if you have not already.

Reversal Pattern

A reversal pattern is a candlestick pattern that is formed which indicates the possibility of a reversal in trend direction. A bottom reversal pattern is a pattern which indicates the possibility of a change in direction after a downtrend and a top reversal pattern is a pattern which indicates the possibility of a change in direction after an uptrend.

Doji

A Doji is a candlestick where the opening and the closing prices are the same or just 1-4 pips’ difference. A Doji indicates indecision in the trading direction and neither the buyers nor the sellers could move the price to their advantage. There are many different types of Doji, but what you have to know for now is that the qualifying point for a Doji to be a Doji is that the opening and closing prices are the same or very close.

Candlestick analysis is used by many traders today to improve the success probability of their trades. Highly reliable and accurate, learning how to read candlestick signals efficiently is definitely a skill you should pick up.

Candlestick charting displays similar price information as the bar chart, such as the open, high, low, and close. However, the graphical way in which this similar information is displayed differs. If the closing price is higher than the opening price, then the color of the candle will be light. If the closing price is lower than the opening price, then the color of the candle will be dark.

Candlesticks are formed using the open, high, low and close.

• If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn. This basically means that the price during the duration of this candlestick has risen.
• If the close is below the open, then a filled candlestick (usually displayed as black) is drawn. This basically means that the price during the duration of this candlestick has fallen.
• The hollow or filled section of the candlestick is called the “real body” or body.
• The thin lines poking above and below the body display the high/low range and are called shadows.
• The top of the upper shadow is the “high”.
• The bottom of the lower shadow is the “low”.
• The distance between the top of the candle and the bottom of the candle indicates the range within which the price has fluctuated during the duration of this candlestick.
• It is possible to read the market sentiments by reading a single candlestick or a sequence of candlestick and anticipate how the market is going to move next.

Here is a link to an article which details several candlestick patterns commonly used to read trend reversals.

If you are keen to find out more about using Candlestick to increase the success probability of your trades, I highly recommend Forex Candlesticks Made Easy! by Chris Lee. Written straight to the point in an easy-to-understand style, this is a good guide to learning about Candlestick analysis.

That – in my opinion – is pure suicide. They are better off donating the money to charity. Trading is not gambling. In order to become a profitable Forex trader, it is necessary to follow a plan. I have detailed 8 steps I religiously followed when I first embarked on the Forex path, all of which had served me well. I am sharing them with you now and hope you will find them useful.

Step 1 – Forex 101

Before you begin doing anything, make sure you learn all that you can about the basics of Forex. Understand what Forex is, how it works, how to calculate profit and loss in Forex, what the most popular currency pairs are, etc. There’s a lot of such information here on www.ForexInMotion.com, so do make sure you devour what you can here before diving into the deep blue seas.

Step 2 – Trading 101

If you are totally new to trading anything, arm yourself with at least some basic knowledge on trading. Understand as much as possible about terms such as chart reading, price actions, market trends, breakouts, technical indicators, candlesticks, etc.

Now, it is important to highlight that right after this, many new traders feel adequate to take on the market already. What happens next is an ugly sight as they become hundreds or even thousands of dollars poorer in a week’s time and walk away from the Forex market forever disappointed and disillusioned. However dandy you may feel after picking up some ‘ground-breaking surefire money making Forex trading strategies’, resist the temptation to start trading right away.

Instead, continue with Step 3 below.

Step 3 – Research for a Good Broker

Getting a credible broker is essential to trading Forex because you need their services to place your trades with the market.

However, there are many fly-by-night operations masquerading as legitimate Forex brokers just waiting to gobble your hard earned money. So before you sign up eagerly for an account and transfer any cash, be sure to conduct ample research on the broker.

Google the name of the broker with the word ‘scam’ behind and see if anything negative turns up. You will be shocked to hear of horror stories where seemingly well-presented online brokerage sites perform exceedingly well at convincing people to deposit funds with them, but make tons of excuses when it’s time to disburse the funds. Plenty of people get cheated by such operations every year, so be sure to sign up only with the most credible brokers.

And while you are at it, look for a broker that allows you to sign up for a mock trading account. You will find out why in Step 4.

By the way, here is a list of credible brokers who are known for their reliability.

Step 4 – Set Up a Mock Account

As discussed in Step 3, you should look for brokers who allow you to set up a mock trading account. This essentially allows you to trade with virtual money, so that you can decide if you like their trading platforms without actually trading with real cash.

Another obvious advantage of the mock account is that you can start honing your trading skills without consequence. Most such mock accounts give you a sum of virtual money for you to begin mock trading and put what you have learnt to practice.

Step 5 – Begin Mock Trading

Now, you can start trading with virtual money while you learn the nitty gritties of Forex trading! Now I would recommend that you trade on a demo account for at least 3 to 6 months before you start using real money. Jumping ahead doesn’t do you any good except wipe out your account.

I must remind you to treat your mock account with respect and trade it like you would trade a real account with real money. Only if you harbor a sincere attitude towards mock trading would this do you any good when you start trading with real money.

While you mock trade, this is the time to learn all you can about Forex trading strategies and train your eye.

Look at Step 6.

Step 6 – Learn, Learn and Learn

It is highly recommended that you pick up some books or e-courses on Forex trading instead of trying to figure everything out yourself. Learning from a good mentor and applying the techniques you are learning to practice is the only way to become a successful Forex trader.

In my opinion Hector Deville is one such good mentor. He’s got a terrific online training course called Learn Forex Live which covers Forex trading thoroughly and teaches several powerful trading strategies. I’ve bought 2 of his courses so far and he has never disappointed me.

Now, if you are a complete newbie to Forex such that you don’t even understand the concepts of Forex, how it works, where to sign up for a broker, etc, this course will not cover these basic theories. You should first go through www.ForexInMotion.com thoroughly to get a firm grasp on Forex basics. And after you’ve followed my advice from Steps 1 to 5, that’s the time to consider Hector Deville’s course.

Besides Hector Deville’s course, I have a few other books that have served me well in my Forex journey to recommend.

Martin Pring’s Introduction to Technical Analysis – Technical analysis is the art of identifying market turning points at a relatively early stage and is often used to recognize trends and movements in the Forex market. This is an easy-to-read guide written by one of the world’s foremost technical analysts.

Forex Candlesticks Made Easy! by Chris Lee – Candlestick analysis is used by many traders today to improve the success probability of their trades. Highly reliable and accurate, learning how to read candlestick signals efficiently is definitely a skill you should pick up.

Step 7 – Plan Your Finances Wisely

Surprisingly, many traders tend to skip this step altogether. Remember, trading is not gambling. You need to plan your finances wisely and determine how much you can risk on each trade. Every individual has a different risk tolerance level depending on his financial status and personality. But as a thumb of rule, I would not recommend risking more than 2-5% of your total trading account per trade. This means to say that if you have $10,000 trading capital, you should not risk more than $200 to $500 per trade.

Step 8 – Begin Live Trading

After you have learnt what you can from the books and courses and mock traded for 3 to 6 months – and if and only if you have been making more winning trades than losing ones – you can begin live trading.

You have come a long way and should be feeling confident about your trading skills. However, you might find that you are not as confident as when you are mock trading. You might be losing more than you did previously. This is normal, because you are now trading with a real account and the fear of losing and greed for winning is stronger than before. If you can overcome these psychological barriers you will soon regain confidence in your trading.

Also, do not get into the habit of trading just because you feel the urge to trade. The market will always be there for you to trade, but you might not always be in the right frame of mind to trade. If you are in a bad mood, don’t trade. If you can’t think properly, don’t trade. If you are tired, don’t trade. If there is no signal for trading, don’t trade. The bottom line is, don’t trade for the sake of trading.
This is a pretty long article and I hope it has been helpful. I wish you success in your Forex trading.

1. 24 hrs a day – The Forex market is open 24 hours a day. Due to this, there is always a suitable time for anyone around the world to trade. Unlike the stock market which operates only during working hours, Forex allows office workers the opportunity to trade after returning home from work.

2. No commission – Forex brokers do not take a commission when you buy or sell a currency. Instead they take a standard fee known as the “spread”. This is the difference between the Bid and Ask price. This will fluctuate depending on the currency pair you are trading and broker you are trading with.

3. High liquidity – The daily volume of the Forex market exceed a trillion dollars. That is more than the volume of the NYSE, NASDAQ and the London equity market combined! You will never have to worry about liquidity and finding a buyer or seller.

4. Healthy daily range – The daily range of the major currency pairs are usually close to or exceed 100 pips. This means that as a trader you have plenty of opportunities to take trades and profit from the Forex market.

5. No fixed trade sizes – It is possible to trade large volumes in the Forex market as well as tiny amounts. There’s very little restriction. This gives you flexibility as a trader in deciding how much you want to put into each trade.

6. No restriction on short selling – For some countries, short selling in their stock markets is prohibited. However, in the Forex market, there is no restriction on short selling as long as your margin is able to support it.

7. Not necessary for fundamental analysis – There is not really a need to go into fundamental analysis for the Forex market, unlike for the stock market, where it is important to learn as much about a company as possible before you buy its stocks. It is possible to concentrate on purely being a technical trader if you want to.

8. Trade from anywhere – Most Forex brokers offer an online trading platform which provide charting and news reporting features. A computer with internet connection plus an active Forex account are all you need to start trading. As a Forex trader, you can be anywhere around the world and still trade with instantaneous execution.

9. No manipulation – Unlike the stock market where shady operations and adverse news can cripple a company overnight, no one single entity can control the direction of the Forex market. Also, there is no such thing as insider trading in Forex trading.

10. Low margin / High leverage – When you trade Forex, small capital with great leverage is provided. Most Forex brokers need you to put up only a 2% margin deposit, meaning you get 50 times leverage. Many brokers will even provide up to 100 times leverage. This means that you can control larger sums of money with very little actual cash outlay.

I’ve read from many sources that over 90 percent of Forex traders lose money in the Forex market, and the rest are profiting off these losing traders. I suspect this to be very close to the truth.

The good news is – it is definitely possible to be on the winning team. The bad news is – it will take a lot of learning and discipline not to be on the losing team.

Now, it is certainly not by luck or sheer coincidence that profitable traders consistently bring home money day after day, week after week, month after month. You can win once or twice by luck, but to consistently make money at Forex you have got to make more winning trades than losing ones.

That requires a solid foundation of Forex trading experience and a well-tuned psychology. Without either I can assure you that you are better off donating your money to charity. At least you are doing some good that way.

Prices can leap just as suddenly as they can plunge in the Forex market. Or they can prance around without much action for hours on end. Many times when you hit ‘buy’, expecting the price to rise, it plummets. Then just right after you panic and sell to cut your losses, the price begins to rise. It is almost as if the Forex market is out to get you!

Well, the fact is, only a solid foundation of Forex trading experience can help you anticipate market moves accurately and a well-tuned psychology can help you quell the butterflies in your stomach when the market moves against your direction. Coupled with tried and tested trading strategies, you can make more winning trades than losing ones and be on the winning team.

Because there are so many currency pairs and all of them offer opportunities to trade daily, it is very possible to make hundreds of dollars through the Forex market every day. There are in fact veteran traders who make much more than that.

So yes, it is possible and easy to make money in Forex, provided you take the time to study reliable trading strategies, garner valuable trading experience and tune your psychology not to be emotional when you take trades.



It involves the simultaneous purchasing of one currency while selling another as currencies are always traded in pairs. For example, you can trade the Euros against the USD, the Great British Pounds against the USD, the USD against the Japanese Yen and so on. When one currency goes up in price, the other currency declines.

At some point or another, we are all involved in helping to move the Forex market even though we are not actively trading as a Forex trader. How so? When we visit the money changers or go to the banks to purchase a currency from another country! For example, if we are visiting Japan, we would be buying the Japanese Yen using the USD or some other currency. This helps to strengthen the Japanese Yen against the currency we used to purchase the Yen. Obviously the impact – if any – is microscopically small unless we are exchanging astronomical sums of money.

The Forex market is evidently much more than this. It is enormous and involves tens of thousands of traders around the world actively trading 7 days per week looking to profit from the rise and fall of the currencies.

Below are snippets of information which will give you a quick overview of Forex.

-          The Forex market is a huge market place where foreign currencies are bought and sold.

-          Trillions of dollars are traded and exchanged in the Forex market every single trading day.

-          Currencies are always traded in pairs.

-          Forex allows the trading of many currencies, with the most popular ones being the USD, Euros, Great British Pounds, Japanese Yen, Australian Dollar, Canadian Dollar and the Swiss Franc. These currencies are the most liquid due to their popularity.

-          Forex is traded most aggressively by banks, hedge funds and investment companies.

-          Forex can be traded by retail investors like you and me through the comfort of our homes.

-          Forex trading can be conducted by anyone around the world through the help of brokers, many of which have online trading platforms to let you place trades.

-          Forex can be traded through studying price action on the charts (technical analysis) or through studying upcoming news and economic events (fundamental analysis).

-          Forex trading is not a path to quick and easy money. It is highly risky and involves a great level of dedication in acquiring and applying solid trading knowledge before you can profit consistently from the market.

-          There are many ‘get easy money through Forex’ products out there in the market that were created by folks who have never even traded one day of Forex in their lives! It’s one thing to get conned of the money you spend purchasing their products, but it’s another to trade on bad information and lose all your trading money. So be very discerning when you are shopping for such products. The best advice I can give you is to type in the following in the search engines to get a better idea of what you are buying into – ‘product name’ scam. If the search returns with lots of negative feedback, you would do well to steer clear. You will be surprised at what you will find!