Forex Trading Tutorial

24-Hour Market

The Forex market is a seamless 24-hour market. Most brokers are open from Sunday at 2PM EST until Friday at 4 PM EST with customer service available 24/7. With the ability to trade during the U.S., Asian, and European market hours, you can customize your own trading schedule.

Commission Free Trading

Most Forex brokers charge no commission or additional transactions fees to trade currencies online or over the phone. Combined with the tight, consistent, and fully transparent spread, Forex trading costs are lower than those of any other market. The brokers are compensated for theirs services through the bid/ask prices.

Instantaneous Execution of Market Orders

Your trades are instantly executed under normal market conditions. You also have price certainty on every market order under normal market conditions. What you click is the price you get. You’re able to execute directly off real-time streaming prices (Yeeeaah!). There’s no discrepancy between the displayed price shown on the platform and the execution price to enter your trade. Keep in mind that most brokers only guarantee stop, limit, and entry orders are only guaranteed under normal market conditions. Fills are instantaneous most of the time, but under extraordinarily volatile market conditions order execution may experience delays.

Short-Selling without an Uptick

Unlike the equity market, there is no restriction on short selling in the currency market. Trading opportunities exist in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. So you always have equal access to trade in a rising or falling market.

No Middlemen

Centralized exchanges provide many advantages to the trader. However, one of the problems with any centralized exchange is the involvement of middlemen. Any party located in between the trader and the buyer or seller of the security or instrument traded will cost them money. The cost can be either in time or in fees. Spot currency trading does away with the middlemen and allows clients to interact directly with the market-maker responsible for the pricing on a particular currency pair. Forex traders get quicker access and cheaper costs.

Buy/Sell programs do not control the market

How many times have you heard that “fund A” was selling “X” or buying “Z”? Rumor had it that the funds were taking profits because of the end of the financial year or because today is “triple witching day”, all as an explanation of why this stock is up or the market in general is down or positive on the session. The stock market is very susceptible to large fund buying and selling.

In spot trading, the liquidity of the Forex market makes the likelihood of any one fund or bank to control a particular currency very slim. Banks, hedge funds, governments, retail currency conversion houses and large net-worth individuals are just some of the participants in the spot currency markets where the liquidity is unprecedented.

Analysts and brokerage firms are less likely to influence the market

Have you watched TV lately? Heard about a certain Internet stock and an analyst of a prestigious brokerage firm accused of keeping its recommendations, such as “buy” when the stock was rapidly declining? It is the nature of these relationships. No matter what the government does to step in and discourage this type of activity, we have not heard the last of it.

IPO’s are big business for both the companies going public and the brokerage houses. Relationships are mutually beneficial and analysts work for the brokerage houses that need the companies as clients. That catch-22 will never disappear.

Foreign exchange, as the prime market, generates billions in revenue for the world’s banks and is a necessity of the global markets. Analysts in foreign exchange don’t drive the deal flow, they just analyze the forex market.

8,000 stocks versus 4 major currency pairs

There are approximately 4,500 stocks listed on the New York Stock exchange. Another 3,500 are listed on the NASDAQ. Which one will you trade? Got the time to stay on top of so many companies? In spot currency trading, there are dozens of currencies traded, but the majority of the market trades the 4 major pairs.  Aren’t four pairs much easier to keep an eye on than thousands of stocks?  I’d say so.

I hope you enjoy this Forex tutorial, if you are interested in more information and FREE forex trading tutorial, and FREE systems, reports that I some time give out as a gift, fill your email in the form below, and I’ll keep you updated with the FREE reports, systems when they are available.

Courtesy of Baby Pips

The term “order” refers to how you will enter or exit a trade. Here we discuss the different types of orders that can be placed into the foreign exchange market. Be sure that you know which types of orders your broker accepts. Different brokers accept different types of orders.
Order Types

• Market order
A market order is an order to buy or sell at the current market price. For example, EUR/USD is currently trading at 1.2140. If you wanted to buy at this exact price, you would click buy and your trading platform would instantly execute a buy order at that exact price. If you ever shop on Amazon.com, it’s (kinda) like using their 1-Click ordering. You like the current price, you click once and it’s yours! The only difference is you are buying or selling one currency against another currency instead of buying Britney Spears CDs.
• Limit order
A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. For example, EUR/USD is currently trading at 1.2050. You want to go long if the price reaches 1.2070. You can either sit in front of your monitor and wait for it to hit 1.2070 (at which point you would click a buy market order), or you can set a buy limit order at 1.2070 (then you could walk away from your computer to attend your ballroom dancing class). If the price goes up to 1.2070, your trading platform will automatically execute a buy order at that exact price. You specify the price at which you wish to buy/sell a certain currency pair and also specify how long you want the order to remain active (GTC or GFD).
• Stop-loss order
A stop-loss order is a limit order linked to an open trade for the purpose of preventing additional losses if price goes against you. A stop-loss order remains in effect until the position is liquidated or you cancel the stop-loss order. For example, you went long (buy) EUR/USD at 1.2230. To limit your maximum loss, you set a stop-loss order at 1.2200. This means if you were dead wrong and EUR/USD drops to 1.2200 instead of moving up, your trading platform would automatically execute a sell order at 1.2200 and close out your position for a 30 pip loss (eww!). Stop-losses are extremely useful if you don’t want to sit in front of your monitor all day worried that you will lose all your money. You can simply set a stop-loss order on any open positions so you won’t miss your basket weaving class.

• GTC (Good ‘til canceled)
A GTC order remains active in the market until you decide to cancel it. Your broker will not cancel the order at any time. Therefore it’s your responsibility to remember that you have the order scheduled.
• GFD (Good for the day)
A GFD order remains active in the market until the end of the trading day. Because foreign exchange is a 24-hour market, this usually means 5pm EST since that that’s U.S. markets close, but I’d recommend you double check with your broker.
• OCO (Order cancels other)
An OCO order is a mixture of two limit and/or stop-loss orders. Two orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is canceled. Example: The price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985. The understanding is that if 1.2095 is reached, you will buy order will be triggered and the 1.1985 sell order will be automatically canceled.

Always check with your broker for specific order information and to see if any rollover fees will be applied if a position is held longer than one day. Keeping your ordering rules simple is the best strategy.

I hope you enjoy this Forex tutorial, if you are interested in more information and FREE forex trading tutorial, and FREE systems, reports that I some time give out as a gift, fill your email in the form below, and I’ll keep you updated with the FREE reports, systems when they are available.

Courtesy of Baby Pips

In the previous post, we have been going through some basics about Forex Trading. In this post, I’ll introduce a few important terminology in Forex Trading, which includes currency pairs, bid/ask prices, spread, pip, and margin trading.

Currency Pairs

In forex, you are always trading currency pairs, by using one to buy/sell the other. Take it this way, every pair of currency traded in the forex market is considered as an individual product market where you can buy/sell that particular product.

A currency pair always has the form of XXX/YYY, where XXX and YYY both refer to the ISO 4217 international three-letter code of international currencies. Here are a few examples of currency pairs:

For Euro-Dollar pair, it would be EUR/USD
For Pound Sterling-Dollar pair, it would be GBP/USD
For US Dollar-Canadian Dollar, it would be USD/CAD
For Australian dollar-US dollar, it would be AUD/USD

For Dollar-Swiss Franc pair it would be USD/CHF and so on for other currency pairs according to their three-letter currency codes. 80% of all trades in the Forex market originate from these currency pairs.

The currency on the left (XXX) is called the base currency. The currency on the right (YYY) is called the quote currency. The base currency always has a value of 1 in exchange rate.

“Bid” and “Ask” prices

All currency pair are quoted in two prices: bid and ask price. The bid price is always lower than the ask price. Simply put, you can understand the bid price as the “selling” price, which is the price in quote currency that you can sell 1 unit of the base currency. On the other hand, the ask price is the “buying” price, which indicates how much quote currency you need to buy 1 unit of the base currency.

For example the currency quote for EUR/USD would appear as EUR/USD 1.4888/1.4890. Which means that you can sell 1 EUR at the bid price for 1.4888 USD, and need 1.4890 to buy a EURO.

Spread

As we have seen from example cited above, every currency pair has a “bid” and “ask” price, and further the “bid” price is always lower than the “ask” price. The difference between the “bid” and “ask” price is called the “spread”.

In the currency example EURUSD 1.4888/1.4890 you will notice that there is a difference between the “bid” and the “ask” price. This difference is called as the spread. In other words, the “spread” is the difference between the highest price the buyer is willing to buy the currency and the lowest price the seller is willing to set it. For instance if you assume the “bid” price is $1 and the “ask” price is $1.3 then the spread would be $0.3.

Lots

Lot is the unit of currency traded, which can be put as the minimum amount of currency in a transaction. When you go to the grocery store and want to buy eggs, nobody sells you 1 egg, but they come in a pack, or “lots” of 10 or 12. Similarly,  nobody is going to buy or sell 1 or 2 Euros, so they usually come in “lots”. There are 3 different lot sizes of 1,000 (Micro) 10,000 (Mini) or 100,000 (Standard) depending on the type of account you have.

Margin Trading

Note that, not too many traders have enough capital to trade the large volume of currency in lots. But don’t worry, Forex has been made possible for normal guys like us by margin trading,  which means you only need to deposit a small portion of the amount you need to transact in the market.

For example, if the margin requirement is 1%, you will only need to deposit 1,000 to transact the currency volume worth $100,000.

What is a pip?

Pip, is an abbreviation of Price Interest Point, and represents the smallest digit in the price of a currency. Pip is also the method by which profit is calculated in a currency deal, and its value depends on the base currency of the pair. Consider this example. A move in the EUR/USD from 1.4877 to 1.4897 equals 20 pips. And a move in the USD/JPY from 89.70 to 89.90 equals 20 pips.

When your trading account is in US Dollars and the U.S. dollar is the base currency, then one pip equals one dollar in a mini account or ten dollars in a standard account. So if you place a trade with one of these currencies and earn 20 pips it would translate to a profit of $20 in a mini account or $200 in a standard one.

If the base currency is not the U.S. dollar, then the value of one pip is equal to one unit of the base currency. For example in the GBP/USD, the pound sterling is the base currency, so one pip is equal to one pound; So if you make 20 pip profits in GBP/USD it would mean a profit of 20 pounds Sterling in a mini account. When you make profits in these currencies, you’re making them in the base currency, which then may be exchanged into the U.S. dollar at the current exchange rate, since your trading account may not be denominated in the base currency.

I hope you enjoy this Forex tutorial, if you are interested in more information and FREE forex trading tutorial, and FREE systems, reports that I some time give out as a gift, fill your email in the form below, and I’ll keep you updated with the FREE reports, systems when they are available.