Learning Forex Trading – the Essentials of Foreign Exchange Trading
For investors, learning Forex trading presents an alternative investment choice to traditional stock market investing. While there are thousands of stocks to select from, there are only a few major currencies to trade (the Dollar, Yen, British Pound, Swiss Franc, and the Euro are the most popular).
Forex trading also delivers a lot more leverage than stock trading, and the minimum investment is a lot lower. Add to that the ability to pick flexible trading hours. Forex trading goes on 24 hours a day, and you have the reason why so many stock traders have flocked to Forex trading.
You should never get into Forex trading without a good Forex trading education, as there is a potential for loss if you don’t know what you’re doing. With the proper trading education, you can be on your way to making a tidy profit.
The first part of learning Forex trading is understanding the market background. The foreign exchange market is always changing. With a proper forex trading teaching, you will learn how to monitor these changes and find beneficial situations.
The next part of your Forex training is to learn about risk control and risk management. You first must learn self control, so as not to invest more than you are willing to lose. You will also learn how to exit losing trades before your losses exceed your limits. This is actually a part of your Forex training and is absolutely crucial to helping you learn the valuable and basic lessons of Forex trading.
Another important part of learning Forex trading is to learn how to open and manage your Forex account. In fact, your Forex schooling might first begin after you’ve opened and started to practice on a demo account. This way you learn the ropes by practicing Forex trades with purely “play money.” There is no risk involved, but it is just as realistic as actual trading. This lesson should give you an end point to let you know when you are ready for trading real money.
There are numerous ways to get a Forex trading education. The best place to get this trading education is online. Some websites will allow you open free demo accounts to practice your Forex trading. One of the best things to do is to get some advice from someone who is a current Forex trader. They can give you some down to earth insight on the subject of learning Forex trading.
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About Author
Jason Hamilton -
About the Author:
Jason Hamilton has been successfully trading the Forex market since 2002. He recently reviewed the popular Forex trading system Fap Turbo – The Forex Trading Robot.
Tags: about forex, currency, FAP Turbo, forex, fx, investing, learning Forex Trading, make money from home
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June 3rd, 2010 at 11:10 pm
I don't know about buying a forex training course when theres so many resources on forex online. Here are some of the sites that i use to teach me more about forex/sharetrading. The websites below have very helpful resources regarding currency trading & theyre all free! I've personally found them very useful in learning about forex trading and its sharetrading counterpart.
June 3rd, 2010 at 11:30 pm
Forex trading is not easy, only less than 10% of forex traders are able to make money from forex trading.
If you are interested to trade forex, I suggest you to sign up for a demo account. Trade until you able to consistently making profit before trading with your hard earned money.
Besides that, I suggest you go through these articles for Forex newbie.
http://www.forex2u.com/guide/category/forex-newbie/
Good luck.
June 4th, 2010 at 4:57 am
The word FOREX is derived from Foreign Exchange and is the largest financial market in the world. Unlike many markets the FX market is open 24 hours per day and has an estimated $1.2 Trillion in turnover every day. This tremendous turnover is more than the combined turnover of all the wordls' stock markets on any given day. This tends to lead to a very liquid market and thus a desirable market to trade.
Unlike many other securities (any financial instrument that can be traded) the FX market does not have a fixed exchange. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals. Trades are executed through phone and increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large amounts of deposits required precluded the smaller investors. With the advent of the Internet and growing competition it is now easily in the reach of most investors.
You will often hear the term INTERBANK discussed in FX terminology. This originally, as the name implies was simply banks and large institutions exchanging information about the current rate at which their clients or themselves were prepared to buy or sell a currency. INTER meaning between and Bank meaning deposit taking institutions normally made up of banks, large institution, brokers or even the government. The market has moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a currency. It could be two individuals or your local travel agent offering to exchange Euros for US Dollars. You will however find that most of the brokers and banks use centralized feeds to insure reliability of quote. The quotes for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 or so large institutions. This insures that if they place an order on your behalf that the institutions they have placed the order with is capable of fulfilling the order.
Now although we have spoken about orders being fulfilled, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words the person or institution that bought or sold the currency has no intention of actually taking delivery of the currency. Instead they were solely speculating on the movement of that particular currency.
Source: Bank For International Settlements http://www.bis.org Extract From The Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity
Currency19891992199519982001
US Dollar9082.083.387.390.4
Euro….37.6
Japanese Yen2723.424.120.222.7
Pound Sterling1513.69.411.013.2
Swiss Franc108.47.37.16.1
As you can see from the above table over 90% of all currencies are traded against the US Dollar. The four next most traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc(CHF). As currencies are traded in pairs and exchanged one for the other when traded, the rate at which they are exchanged is called the exchange rate. These four currencies traded against the US Dollar make up the majority of the market and are called major currencies or the majors.
Market Mechanics
So now we know that the FX market is the largest in the world and that your broker or institution that you are trading with is collecting quotes from a centralized feed or individual quotes comprising of interbank rates. So how are these quotes made up. Well, as we previously mentioned currencies are traded in pairs and are each assigned a symbol. For the Japanese Yen it is JPY, for the Pounds Sterling it is GBP, for Euro it is EUR and for the Swiss Frank it is CHF. So, EUR/USD would be Euro-Dollar pair. GBP/USD would be pounds Sterling-Dollar pair and USD/CHF would be Dollar-Swiss Franc pair and so on. You will always see the USD quoted first with few exceptions such as Pounds Sterling, EuroDollar, Australia Dollar and New Zealand Dollar. The first currency quoted is called the base currency. Have a look below for some example.
Currency Symbol Currency Pair
EUR/USDEuro / US Dollar
GBP/USDPounds Sterling/ US Dollar
USD/JPYUS Dollar / Japanese Yen
USD/CHFUS Dollar / Swiss Franc
USD/CADUS Dollar / Canadian Dollar
AUD/USDAustralian Dollar / US Dollar
NZD/USDNew Zealand Dollar / US Dollar
When you see FX quotes you will actually see two numbers. The first number is called the bid and the second number is called the offer (sometimes called the ASK). If we use the EUR/USD as an example you might see 0.9950/0.9955 the first number 0.9950 is the bid price and is the price traders are prepared to buy Euros against the USD Dollar. The second number 0.9955 is the offer price and is the price traders are prepared to sell the Euro against the US Dollar. These quotes are sometimes abbreviated to the last two digits of the currency such as 50/55. Each broker has its own convention and some will quote the full number and others will show only the last two. You will also notice that there is a difference between the bid and the offer price and that is called the spread. For the four major currencies the spread is normally 5 give or take a pip (will explain pips later)
To carry on from the symbol conventions and using our previous EUR quote of 0.9950 bid, that means that 1 Euro = 0.9950 US Dollars. In another example if we used the USD/CAD 1.4500 that would mean that 1 US Dollar = 1.4500 Canadian Dollars.
The most common increment of currencies is the PIP. If the EUR/USD moves from 0.9550 to 0.9551 that is one Pip. A pip is the last decimal place of a quotation. The Pip or POINT as it is sometimes referred to depending on context is how we will measure our profit or loss.
As each currency has its own value it is necessary to calculate the value of a pip for that particular currency. We also want a constant so we will assume that we want to convert everything to US Dollars. In currencies where the US Dollar is quoted first the calculation would be as follows.
Example JPY rate of 116.73 (notice the JPY only goes to two decimal places, most of the other currencies have four decimal places)
In the case of the JPY 1 pip would be .01 therefore
USD/JPY: (.01 divided by exchange rate = pip value) so .01/116.73=0.0000856 it looks like a big number but later we will discuss lot (contract) size.
USD/CHF: (.0001 divided by exchange rate = pip value) so .0001/1.4840 = 0.0000673
USD/CAD: (.0001 divided by exchange rate = pip value) so .0001/1.5223 = 0.0001522
In the case where the US Dollar is not quoted first and we want to get to the US Dollar value we have to add one more step.
EUR/USD: (0.0001 divided by exchange rate = pip value) so .0001/0.9887 = EUR 0.0001011 but we want to get back to US Dollars so we add another little calculation which is EUR X Exchange rate so 0.0001011 X 0.9887 = 0.0000999 when rounded up it would be 0.0001.
GBP/USD: (0.0001 divided by exchange rate = pip value) so 0.0001/1.5506 = GBP 0.0000644 but we want to get back to US Dollars so we add another little calculation which is GBP X Exchange rate so 0.0000644 X 1.5506 = 0.0000998 when rounded up it would be 0.0001.
By this time you might be rolling your eyes back and thinking do I really need to work all this out and the answer is no. Nearly all the brokers you will deal with will work all this out for you. They may have slightly different conventions but it is all done automatically. It is good however for you to know how they work it out. In the next section we will be discussing how these seemingly insignificant amounts can add up.
More On Market Mechanics
Spot Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is $100,000. In the last few years a mini lot size has been introduced of $10,000 and this again may change in the years to come. As we mentioned on the previous page currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments it is desirable to trade large amounts of a particular currency in order to see any significant profit or loss. We shall cover leverage later but for the time being let's assume we will be using $100,000 lot size. We will now recalculate some examples to see how it effects the pip value.
USD/JPY at an exchange rate of 116.73
(.01/116.73) X $100,000 = $8.56 per pip
USD/CHF at an exchange rate of 1.4840
(0.0001/1.4840) X $100,000 = $6.73 per pip
In cases where the US Dollar is not quoted first the formula is slightly different.
EUR/USD at an exchange rate of 0.9887
(0.0001/ 0.9887) X EUR 100,000 = EUR 10.11 to get back to US Dollars we add a further step
EUR 10.11 X Exchange rate which looks like EUR 10.11 X 0.9887 = $9.9957 rounded up will be $10 per pip.
GBP/USD at an exchange rate of 1.5506
(0.0001/1.5506) X GBP 100,000 = GBP 6.44 to get back to US Dollars we add a further step
GBP 6.44 X Exchange rate which looks like GBP 6.44 X 1.5506 = $9.9858864 rounded up will be $10 per pip.
As we said earlier your broker may have a different convention for calculating pip value relative to lot size but however they do it they will be able to tell you what the pip value for the currency you are trading is at that particular time. Remember that as the market moves so will the pip value depending on what currency you trade.
So now we know how to calculate pip value lets have a look at how you work out your profit or loss. Let's assume you want to buy US Dollars and Sell Japanese Yen. The rate you are quoted is 116.70/116.75 because you are buying the US you will be working on the 116.75, the rate at which traders are prepared to sell. So you buy 1 lot of $100,000 at 116.75. A few hours later the price moves to 116.95 and you decide to close your trade. You ask for a new quote and are quoted 116.95/117.00 as you are now closing your trade and you initially bought to enter the trade you now sell
June 3rd, 2010 at 11:52 pm
Everyone can learn forex without having to spent hundreds maybe thousand of dollars.. here you can find many stuff:
free-forex-stuff.blogspot.com_
mycheapstuff.blogspot.com_
June 4th, 2010 at 12:18 am
Great video, thanks!
June 4th, 2010 at 5:39 am
I have found many systems that work better than this. I’m not at all impressed.
June 5th, 2010 at 2:38 am
You may be interested in http://www.fxpmclub.com
It's a forex course and mentoring at the same time, so it's got the basic course materials that you can learn in your own time, just like most other courses out there, but you can also get training and help and advice from the trader who runs the site.
The course is all video based which is accessed from a members area, and the videos teach you everything from the basics all the way up to actual trading methods on live charts. I've been trading for about 2 years on and off, so I am by no means an expert or anything like that, but this has been the most useful site I have personally come across. The best part for me is the contact with James, who is the trader who runs the site. I've been able to talk with him directly on the phone whilst he walks me through real charts on my computer and answers my questions. So far I've had 3 phone calls with him. The course and videos on their own are far better than most things I've seen, but the personal tuition you get with this, makes this the best course I've ever taken in forex. I always learn better when I've got a teacher. I'm not sure if that's what you're after, but I'm sure you'll find the video course on it's own very useful if you're starting out.
The course itself is teaching how to trade by reading price action without the use of lagging indicators, so it's quite discretionary and can't really be used as a mechanical system. James likes to teach how to adapt to and read the market instead of relying on buy and sell signals generated by indicators. He uses candlesticks and not bar charts.
There is a free option to try the course before you decide to join, so it's definitely worth a look. You can access all the materials and contact James for help without making any payment, and if you don't like it, you don't have to worry about trying to get a refund. If you're a sensible person and have realistic expectations about forex, I think this course could suit you very well.
Hope that helps.
June 5th, 2010 at 10:22 am
June 5th, 2010 at 12:55 pm
Hello,
I understand a newbie always try to seek some easy simple language concepts in forex. I am posting here some links which were very helpful to me and to my friends. These are FREE and very simple.
i hope you will like them.
Trading Concepts: http://www.finexo.com/content/6778
Forex Concepts: http://www.finexo.com/infoCenter/5553
June 5th, 2010 at 6:44 pm
It is both. I would still saying the same things about robot, NO robot can consistently beat the market in the long run. Learn forex trading the hard way and you will gain from it.
June 6th, 2010 at 2:36 am
Some articles written in simple english that might be helpful for newbie:
http://www.forex2u.com/forex-articles.html
http://www.forex.labuan.net/
http://www.118forex.com/
June 5th, 2010 at 11:44 pm
this guy is the real deal, I’ve looked at a lot of forex training and worked in the industry for years, a great site, Chris Brock
June 7th, 2010 at 4:02 am
Well, I didn't know too much a couple of months ago when i started in forex, i used a software that actually do the trades for me, maybe you cannot find it in some torrent because it's a personal password, you have to download it directly from the site http://www.robot4trade.com you can do an effort and buy it, it worth the price, it cost me $99.00 dlls when it was in back-testing, i heard the price is going up because of the excellent results, i fully recommend it to you and anyone
have a good day!