For Ex From Scratch

T r a i n e e T r a d e r .
c o m
FOREX
From Scratch
A Basic Introduction to the FOREX
Market
© TraineeTrader.com 2010 All Rights Reserved

About Me and the book
I am the editor of TraineeTrader.com. I have
had a passion and interest in financial
markets for the past 12 years. I completed a
Bachelor in Economics and undertook a
major in Computer Science at the University
of Adelaide. I am currently working towards
my CFP. I love all things related to trading
but my specific areas of interest are:
algorithmic trading systems, artificial
intelligence, game theory and poker.
Forex From Scratch is a compilation of the most useful

currency trading articles from TraineeTrader.com. They have
been put together in eBook format to make them easier to read
and print. The information provided is basic and is general in
nature and is intended for educational purposes only. This book
may contain errors and will be periodically updated. If you find
any errors or mistakes please let me know.
Mark Dooley
http://www.TraineeTrader.com
______________
★ LINKS
My Blog: http://www.traineetrader.com/popular-posts/
Email: editor@traineetrader.com
Table of contents
1. What’s All This Talk about Money? ........ 5

1.1. Introduction to Money ...................................................... 5
1.2. Characteristics of Money .................................................. 5
1.3. Vodka as Money ............................................................... 5
1.4. Paying the Man ................................................................. 6
2. The Forex Market, Exchange Rate & Bid

Ask Spreads ...................................................... 7
2.1. Introduction to the Forex Market ...................................... 7
2.2. Over the Counter Markets ................................................ 7
2.3. Example: Travel & the Exchange Rate............................. 8
2.4. Exchange Rates: Indirect Quotes ...................................... 8
2.5. Exchange Rates: Direct Quote .......................................... 9
2.6. Base Currency or Commodity Currency .......................... 9
2.7. Exchange Rates: The Bid Price ........................................ 9
2.8. Exchange Rates: The Ask Price ...................................... 10
2.9. Why is the Ask price always more than the Bid price?   10
3. Pips, lots and a little bit of math ........... 11

3.1. Introduction .................................................................... 11
3.2 What is a Pip? ................................................................. 11
3.3. How Much is a Pip worth? ............................................. 11
3.4. What is a Lot? ................................................................. 12
3.4. Pip Calculation: Indirect Currency ................................. 12
3.5. Pip Calculation: Direct Currency.................................... 13
3.5. Pip Calculation Summary ............................................... 14
4. Understanding the lingo ........................ 15

4.1. Introduction & Key Forex Terms ................................... 15
4.2. The Spot Market ............................................................. 16
4.3. The Long and Short of it ................................................. 16
4.4. A Closer Look at Currency Symbols .............................. 16
4.5. Liquidity ......................................................................... 17
F O R E X F r o m S c r a t c h
5. The Big Three in Forex: Leverage,

Margin & Equity .............................................. 19
5.1. Introduction .................................................................... 19
5.2. Leverage ......................................................................... 19
5.3. Margin ............................................................................ 20
5.4. Equity ............................................................................. 21
5.5. Final Word on Margin .................................................... 21
6. The Best Trading Times in the 24 Hour

Market .............................................................. 22
6.1. Introduction .................................................................... 22
6.2. When Can I Trade Forex? .............................................. 22
6.3. Best Times to Trade Forex ............................................. 23
6.4. Simple Time Zone Conversion ....................................... 24
7. Putting it Into Practice............................ 25

7.1. Setting up a Demo Account ............................................ 25
7.2. MetaTrader Client Terminal ........................................... 26
7.3. Creating a Chart in MetaTrader ...................................... 29
7.4. Chart Time Frames ......................................................... 29
7.5. Charts Toolbar ................................................................ 30
7.6. Line Drawing Tools ........................................................ 31
7.7. Placing an Order ............................................................. 34
7.8. Modifying or Closing an Order ...................................... 36
7.9. Moving Forward ............................................................. 38
4
1. What’s All This Talk
about Money?
1.1. Introduction to Money
Everyone deals with money on a daily basis. People often

complain “I don’t have enough money”, “I don’t have any
money” and more rarely “I have too much money”. Money is
such a big deal, as without it we could not survive. Money is
often linked to the state of a person’s happiness, however I
don’t subscribe to this school of thought.
1.2. Characteristics of Money
Money generally has four important characteristics:

1. It acts as a medium of exchange.
2. It is a unit of account.
3. It is a store of value.
4. It offers a standard of deferred payment.
Put most simply money is anything that can be exchanged for

goods and services. This is referred to as a medium of
exchange. For example in Russia in times of high inflation
cigarettes and vodka was used as a medium of exchange.
1.3. Vodka as Money
It is widely understood that there are five criteria that needs to

be met to ensure a good as suitable to be used as money.
 The good has to be acceptable to most traders.

 It should have a standardized quality.
F o r e x F r o m S c r a t c h
 It should be durable.
 It should be valuable relative to its weight.
 It should be divisible.
Vodka meets all but one of these criteria. In order to purchase a

house there would be significant cost in transfer of the vodka
from buyer to seller. All things considered vodka meets these
requirements fairly well.
1.4. Paying the Man
By now you should have a good understanding about the

fundamentals behind the concept of money. Money makes
transactions in the economy more efficient.
The use of money to facilitate a trade or exchange is referred to

as a payment system. As with anything payment systems have
evolved over time. From precious metals to currency, checks
and credit to electronic money.
6
2. The Forex Market,
Exchange Rate & Bid
Ask Spreads
2.1. Introduction to the Forex Market
The term Forex is short for Foreign Exchange. The Forex

market is the most widely traded market in the world. The
figure most often cited as the trading volume for the Forex
market is $1.9 trillion US dollars daily. If you wish to read
more about where this figure came from read making up the
numbers.
One thing that I will note here is that this figure is often quoted
on broker’s website and information material however this does
not draw a distinction between the retail Forex market and the
institutional Forex market.
2.2. Over the Counter Markets
The Forex market is quite different from other markets you

might be familiar with. The Forex market is known as an
interbank market or an Over The Counter (OTC) market. There
is no centralised exchange were trading takes place like in the
securities market.
In the Forex OTC market there are hundreds of entities usually

banks offering to buy and sell different currencies at given
rates. These banks tend to offer the currencies at very similar
prices due to the arbitrage effect.
Getting back to the meaning of Forex we can think of Forex as

simply the exchanging of one currency for another. The need
for Forex arises when individuals from one country wish to
purchase goods or services from a foreign currency.
2.3. Example: Travel & the Exchange Rate
I wish to travel to America and visit New York’s financial

district. In order for me to pay for goods and services I need to
exchange my Australian dollars for American dollars. I take my
Australian dollars down to my bank and on a large screen I read
the exchange rate information. The rate I am interested in is
shown below:
I now hand over $AUD 3,000 and the teller consults the rate
above and she would for every Australian dollar I give her give
me back $USD 0.8186 which off course is $USD 2,450.40.
The above example highlights what is known as an exchange

rate. An exchange rate is most commonly defined as the price
of one currency in terms of another. Exchange rates are usually
quoted in two different ways an indirect quote and a direct
quote.
2.4. Exchange Rates: Indirect Quotes
An indirect quote can be defined as;  A quote that expresses a

currency price in terms of one unit of the home currency and x
units of the foreign currency. In short it just means that the
home currency is the base currency or first currency expressed
in terms of the foreign currency.
8
If we live in Australia an example of an indirect quote would be

AUD/USD 0.8168. Generally the banking system of England
and countries formally of the Commonwealth quote on an
indirect basis.
2.5. Exchange Rates: Direct Quote
An Indirect quote can be defined as;  A quote that expresses a

currency price in terms of one unit of the foreign currency and x
units of the home currency. If we live in Australia we can
convert the indirect quote AUD/USD 0.8168, into a direct quote
of approx. USD/AUD 1.2243. This is achieved by dividing one
by the indirect quote and adding one.
2.6. Base Currency or Commodity Currency
Another important thing you need to know is about exchange

rates is the base currency or the commodity currency. The base
or commodity currency is the currency whose price is given in
the exchange rate. The base currency is always the first
currency quoted and is always one.
2.7. Exchange Rates: The Bid Price
The next aspect we need to understand about foreign currency

transactions are the bid and ask prices. You may have noticed in
the figure on the previous page that the AUD/USD has a bid
price and an ask price.
The bid price is the price the bank is willing to buy the
currency for. If you wanted to sell one Australian dollar to the
bank they would buy it to from you for $USD 0.8158. This is
known as the bid price.
9
2.8. Exchange Rates: The Ask Price
The ask price is the price the bank is willing to sell the
currency for. If you wanted to buy one Australian dollars from
the bank you would need to give them $USD 0.8168. This is
known as the ask price.
2.9. Why is the Ask price always more than

the Bid price?  
The difference between the ask price and the bid price is known
as the bid ask spread. This is very simple when you think about
it, the bank will always sell the currency for a higher price than
what it pays for it. In the above example the bank would make
$USD 0.0010 for every buy/sell transaction they undertake.
After reading this section you should understand the key

financial terms and also what Forex actually means. It is very
important that you thoroughly understand difference between
bid and ask prices. The terms may be confusing at first however
as time goes on it will become easier.
10
3. Pips, lots and a little
bit of math
3.1. Introduction
If you have had any experience in the foreign currency market

or the forex market, I am sure you would have heard of the term
pip. If however you are new to the forex market the term pip
will probably have you thinking of those little seeds found in
fruit.
3.2 What is a Pip?
In terms of Forex a pip is the smallest increment a currency can

move, it is usually the fourth decimal place in a quoted price. I
note however some brokers are now quoting in fractional pips
and use 5 decimal places.
If for example, the Australian dollar moves from $0.8342 to

$0.8343 we can say the Australian dollar has increased in value
by one pip. If the Australian dollar moves from $0.8342 to
$0.8242 we can say the Australian dollar has decreased in value
by one hundred pips.
3.3. How Much is a Pip worth?
Now that we all know what a pip is, what is a pip worth? There
is good and bad news here. The good news is the software
program you use as a trading platform will usually calculate this
for you. The bad news is I think it is a requirement that you
understand how to do this manually. Before we get onto
calculations, we need to know a few basics first.
3.4. What is a Lot?
In forex, the standard unit size of a transaction is referred to as a

lot. In general, there are three lot sizes offered by forex dealers
or brokers.
Standard lot- A standard lot is usually equal to 100,000 units

of the base currency.
Mini lot- A mini lot is usually equal to 10,000 units of

the base currency.
Micro lot- A Micro lot is usually equal 1000 units of the

base currency.
Returning to the discussion about pip value. Pip value can be

fixed or variable dependent on the base currency of your
account and also the currency pair in which you are trading. It
is also very dependent upon the size of the lot that you trade. 
3.4. Pip Calculation: Indirect Currency
First, we will look at the pip calculation for an indirect

currency. The currency, we will use is the AUD/USD. Most of
the time calculating the pip value will be a three-step process,
using AUD/USD 0.8232 as an example.
Step one
The first step is to divide one pip by the current price.
Current price = 0.8232

Pip = $AUD 0.0001
Pip / Current price
= 0.0001 / 0.8232
= $AUD 0.00012148
12
Step two
The next step is to convert to the currency in which our account
is based. In this example our account is based in US dollars.
Current price = 0.8232 

= 0.00012148 * 0.8232
= $USD 0.0001
Step three
The final step, we multiply the previous result by the lot size to
determine the profit or loss from one pip.
For a Standard lot 

0.0001 * 100,000 = $10 per pip. 
For a Mini lot 
0.0001 * 10,000 =$1 per pip. 
For a Micro lot 
0.0001 * 1000 = $0 .10 per pip.
3.5. Pip Calculation: Direct Currency
Now, we look at the pip calculation for a direct currency. The

currency we use is the USD/JPY. We apply the three-step
process to this new currency pair. We will use USD/JPY 115.69
as an example.
Step one
The first step is to divide one pip by the current price. Notice
with this example, one pip is equal to 0.01. As already
discussed a pip is the smallest increment in which a currency
can move.
Current price = 115.69 

Pip = 0.01
Pip / Current price 
= 0.01 / 115.69
= $USD 0.00008644
13
Step two
The next step is to convert to the currency in which our account
is based. In this example the account is based in US dollars
therefore no conversion is necessary.
Step three
The final step, we multiply the previous result by the lot size to
determine the profit or loss from one pip.
For a Standard lot

0.01 * 100,000 = $8.644 
For a Mini lot 
0.01 * 10,000 = $0.8644 
For a Micro lot 
0.01 * 1000 = $0.08644
3.5. Pip Calculation Summary
If you have your account balance in US dollars general rule of

thumb emerges. For indirectly quoted currencies like
AUD/USD, EUR/USD and GBP/USD the pip value for a
standard lot will always be $10.
To recap, calculation of the pip value is usually a three-step

process with step one determining the value of a pip and then
dividing one pip by the current price, step two is to convert to
the currency in which your account is held and the final step is
to multiply by lot size. You should practice this for yourself, a
couple of times just too get the hang of it.
14
4. Understanding the
lingo
4.1. Introduction & Key Forex Terms
In the Forex market as with any market there are many terms
you have to be familiar with, some of these are unique to the
Forex market. As already discussed an exchange rate is quoted:
Once again we should think back to what a Foreign Currency or

Forex transaction actually is, it is the simultaneous buying of
one currency and selling of another currency.
In the above example when we place a BUY order we are

buying Australian dollars and selling US dollars. Conversely if
we place a SELL order we are selling Australian dollars and
buying US dollars.
4.2. The Spot Market
The next term you will hear is Spot Market. This term is not
unique to the Forex market. In general any financial market that
deals with an instrument based on current price is usually
termed a spot market. Nearly all retail Forex brokers deal in the
spot market.
4.3. The Long and Short of it
Two other terms you need to get your head around that are not
unique to the Forex market are “long position” and “short
position”.
Long Position
A “long position” or “going long” refers to the buying of a
given exchange rate or currency pair. Or more simply you buy
the commodity or base currency and sell the counter or quote
currency.
Short Position
A “short position” or “going short” refers to the selling of a
given exchange rate or currency pair. Or put more simply you
sell the commodity or base currency and buy the counter or
quote currency.
4.4. A Closer Look at Currency Symbols
Let us now take a closer look at currency quotation symbols.

Currency quotation symbols are governed by ISO 4271, this is a
standard defined by the International Standards Organization.
The standard defines a unique three letter symbol for each

country. The first two letters represent the country and the final
letter represents the unit in which the currency is expressed. For
16
example AUD represents Australia and the currency is dollars

while GBP represents Great Britain and the currency is pounds.
Below is a table of the most commonly traded currencies and

there nicknames. You should familiarize yourself with these
terms.
Country Nickname Symbol Currency

Australia Aussie AUD Dollar
Canada Loonie CAD Dollar
Euro Countries Fiber EUR Euro
Great Britain Cable GBP Pound
Japan Yen JPY Yen
New Zealand Kiwi NZD Dollar
Switzerland Swissy CHF Franc
United States Buck USD Dollar
The eight currencies shown above are known as the major

currencies. As a new trader it is best to focus on these
currencies.
These currencies are generally more liquid and it is easier to

obtain commentary and data on them. Another advantage with
focusing on these currencies is they tend to have a lower spread
then some of the minor less liquid currencies.
4.5. Liquidity
Liquidity refers to the ease in which an asset, in this case

foreign currency can be converted to cash. There are three
primary measures of liquidity for a market, these are:
 The asset can be bought or sold promptly.

 The asset can be bought or sold with a minimal loss of
value.
 The asset can be bought and sold anytime during market
hours.
17
A definition of liquidity I like is this one: “Liquidity is the

probability that the next trade is executed at a price equal to the
last one”. Another common measure of liquidity is volume,
which is how often a security is bought and sold.
18
5. The Big Three in
Forex: Leverage, Margin
& Equity
5.1. Introduction
Leverage, Equity and Margin are three concepts, which the

understanding of is crucial. Leverage is one of the factors that
makes Forex trading so attractive and also makes trading of
Forex fraught with danger. In most other financial markets you
cannot lose more than your initial deposit, however in Forex
dependent on your broker you can lose much more than your
initial deposit. The Forex market is often referred to as the
“Wild West” of the finance industry as there are little
regulations and so many rouge operators.
5.2. Leverage
Leverage can be defined in many different ways however we

are only interested in the financial definition of leverage. In
simple terms leverage in the Forex market allows you to buy a
standard lot without requiring you to have $100, 000 of the base
currency. You are only required to have a pre-defined
percentage of the full amount in your trading account. The most
eloquent definition I have come across is that by the National
Futures Association:
“[Leverage is] the ability to control large dollar amounts of a

commodity with a comparatively small amount of capital.”
The amount of leverage offered is usually broker dependent and

can also depend on the lot size in which you are trading.
Generally brokers will offer leverage at rates of either 50:1,

100:1 or 200:1, if however you have a restricted mini account
some brokers will offer up to 400:1 leverage.
If we look at 50:1 leverage this means that the initial margin

required to trade one lot is $2000. Effectively for every dollar
that we invest our broker will loan fifty more. We can see why
leverage is so attractive and dangerous, in the equity markets
leverage is usually 2:1.
5.3. Margin
Margin is basically collateral or security that a broker requires

you to keep in your account. This collateral allows you to trade
leveraged positions.
A simple way to calculate margin is shown below:
Margin = contract size / leverage
Using the previous example of buying one lot at leverage of

50:1:
Margin = 100, 000 / 50 Margin = $2000
In essence when you undertake a leveraged trade the margin is

subtracted from your trading account and you are left with what
is called usable margin. Your usable margin will fluctuate with
price movements.
It should be noted that your broker will require a minimum

useable margin level. If your usable margin drops below this
predefined level your broker will either issue a margin call or
liquidate your account, this is of course dependent on your
broker agreement.
20
It cannot be stressed enough the importance of knowing your

useable margin requirements and margin call policy before you
open an account.
5.4. Equity
Equity In pure financial terms is the difference between an

individual or company’s assets and liabilities. In Forex while
we have open trades the account equity is simply the margin
plus the free or useable margin. Generally equity should always
be above margin. When we have no trades in progress:
Account Balance = Equity = Free Margin
5.5. Final Word on Margin
Trading on a margin can accelerate both profit and loss so it is

very important to balance the risk/reward of differing amounts
of leverage and to choose an amount you are comfortable with.
The best way to understand these differing terms is through
using the demo features of MetaTrader.
21
6. The Best Trading
Times in the 24 Hour
Market
6.1. Introduction
In the Forex market as with other markets there are things that
you can control and things that you cannot. The Forex market
provides the opportunity to choose what currency you wish to
trade in. It enables you to choose:
 What to trade.
 How much to trade.
 When to trade.
These are all key considerations that you have control of and
need to consider before trading.
6.2. When Can I Trade Forex?
The Forex market is very different to futures and equity

markets. The Forex market is open 24 hours a day 5.5 days of
the week, however as I live in Australia there is no real volume
on Saturdays and there are no open markets on Sundays.
The reason the Forex market is a 24 hour market is that as soon

as trading ceases in one geographical location it has generally
already begun in another. Therefore if markets in your region
are closed usually you can trade somewhere else.
The Forex market opens in New Zealand followed shortly after

by Australia then Asia, Europe and America. It is very
important to be aware of the times major trading countries are

open.
6.3. Best Times to Trade Forex
I think that it is important that you know the time markets open
and close. Due to the globally dispersed nature of the Forex
market the best way to do this is in GMT time. GMT time is
used by default in MetaTrader. Below is a MetaTrader screen
capture that highlights the open and close time in GMT.
As you can see the image above shows the AUD/USD currency
pair on September 4th, 2007(A Tuesday). The range for the day
was approximately 73 pips. Below highlights the range during
each period:
23
Australian/Asian 71 pips 
European 43 pips 
London/New York 39 pips 
New York 38 pips
Generally in the middle of the week (Tuesday and Wednesday)

there is more movement in the major currencies. An important
occurrence happens on Wednesday on positions held overnight,
it is called triple swap, however I will leave this for future
discussion.
6.4. Simple Time Zone Conversion
Knowing the times in which currency markets are open for

business is a very important factor in deciding to enter a trade.
When I first started out I drew up a table of the opening and
closing times of these markets in GMT and then wrote in the
local times. This is shown below:
Download 24 Hour Forex Trading Times Table here.  I

strongly recommend you download this chart and fill it in for
your local time zone. This will help reinforce your knowledge
and in no time at all you will be able to calculate in your head
the times overseas markets open and close.
24
7. Putting it Into Practice
7.1. Setting up a Demo Account
We are now ready to build on the fundamental skills presented

and open a demo Forex account. MetaTrader is a widely used
platform in the retail FOREX market.
The first thing you will need to do is download the latest copy
of MetaTrader.  Go to MetaQuotes and download the free
client terminal. After download is complete install the program.
The first screen you will see after you have installed
MetaTrader is the one below. It is completely your choice if
you enter correct details in here or not. I usually just fill the
fields with random characters.
Make sure you change the initial deposit to the required amount
you eventually plan on investing. Click through to finish your
install and you will be presented with a somewhat busy window
shown on the next page.
7.2. MetaTrader Client Terminal
Area A
Shows the market watch window this window contains a list of
symbols. These symbols represent a security or currency pair. It
contains three columns Symbol, Bid and Ask. This window will
generally be used for placing orders. An order can be placed by
double clicking on a symbol. This will launch an order window
where an order can be executed. This window also has another
sub window called a tick chart that can be activated by clicking
the bottom tab. This chart displays per tick bid price for a given
symbol.
Keyboard shortcut to open/close market watch:CTRL + M.
Area B
Shows the navigator window this window allows quick access
to features of the terminal. These are structured in a tree based
structure that means they can be expanded by clicking on the
26
plus sign. There are five groups listed these are Accounts,
Indicators, Expert Advisors, Custom Indicators and Scripts.
The account node allows for adding of new accounts (demo

accounts only, not live). The indicators node includes the built
in technical indicators that can be added to charts. The expert
advisors node allows for the use of automated trading programs
to be used on different currency pairs. Custom indicators allow
for the modifying of the built in technical indicators. The scripts
node contains programs. These programs are similar to expert
advisors however they are only run once. This window also has
a sub window called favourites this can be activated by clicking
the bottom tab. The favourite’s window stores indicators scripts
and experts that are used regularly.
Keyboard shortcut to open/close Navigator: CTRL + N
Area C
Shows the Terminal window, this window is a multipurpose
window that allows access to several features. From this
window trading activities can be controlled account history can
be accessed news can be read, alerts can be setup, mail can be
read, expert advisor logs can be accessed and finally a system
journal can be accessed showing terminal events.
The Trade Tab

In the Trade tab you can view what is occurring with open
positions and pending orders. It contains the following fields:
 Time security was bought.
 Type of order either Buy and Sell orders or pending
orders Buy Limit, Sell Limit, Buy Stop and Sell Stop
orders.
 The number of Lots for each order type.
 Symbol of the security.
 The price the security was bought for.
 The stop loss.
 The take profit.
27
 The current price.

 The commission charged.
 The swap paid or received.
 The current profit.
It also contains balance, equity, margin, free margin and margin
level.
The Account History Tab

The account history tab shows all previous transactions
undertaken and can be used to generate reports. Under the news
tab financial news service offered by your broker will arrive
here and can be read.
The Alerts Tab

Under the alerts tab you can modify or create alerts for different
events. Under the email tab all messages sent and received from
the terminal are displayed here.
The Experts Tab

Under the Experts tab all the output for the currently loaded
expert advisor are displayed.
The Journal Tab

Under the Journal tab all operations the terminal undertakes are
displayed here.
Keyboard shortcut to open\close Terminal: CTRL + T
Area D
Shows the charting area. The charting area is made up of
usually one or more charts, which graphically depict the price
of a currency at any given point in time. By default MetaTrader
opens up with four chart windows as shown. Expert advisors
and indicators can be applied to this chart area. The time
periods and size can all be modified.
28
Area E
Shows the toolbar area. In this area there are four built-in
toolbars separated by vertical lines. The first toolbar is known
as the standard toolbar. This toolbar is used for general terminal
management. The second toolbar is known as the charting
toolbar this toolbar is used for managing charts. The third
toolbar is called the line studies toolbar. This toolbar is used for
managing objects drawn on charts. Finally the periodicity
toolbar manages chart timeframes.
7.3. Creating a Chart in MetaTrader
In MetaTrader there are two ways to open a chart. The first is

by left clicking on the new chart icon in the toolbar and
selecting the chart you wish. Secondly you can right click a
symbol in the market watch window and then select “Chart
Window”. This is outlined in the figure on page 30.
7.4. Chart Time Frames
The quickest way to change the timeframe for a chart is via the
periodicity toolbar. This is the toolbar shown below:
On this toolbar it adjusts the period of the chart. The period

represents the difference between closing and opening times.
M1 represents one minute, M5 represents two minutes, M30
represents 30 minutes, H1 represents 60 minutes or one hour,
H4 represents four hours, D1 represents a day, W1 represents a
week and MN represents a month.
The greyed out area in the toolbar lets you know what time
period the chart is currently displaying.
29
7.5. Charts Toolbar
By clicking this icon the currently selected chart will be

displayed as a bar chart.
Keyboard shortcut ALT + 1.
30

displayed as a candlestick chart.

displayed as a line chart.
By clicking these icons you can zoom in or out of

the currently selected chart.
Keyboard shortcuts zoom in: + and Zoom out: -
By clicking this icon AutoScroll will be enabled meaning

the latest bar is always displayed.
These groups of icons allow for the

adding of technical indicators to a chart, changing the time
period of a chart and the final button allows for managing of
templates.
7.6. Line Drawing Tools
The line drawing toolbar allows you to add various geometric

shapes to a chart window. This can be helpful for technical
analysis and for highlighting different features on a chart.
By clicking this icon the crosshair will be enabled in the

chart window. The crosshair will graphically highlight the price
and time at any given point on the chart. Shown Below:
31
By clicking on this icon a vertical line is placed on the

chart window at the given point in which it has been drawn.
By clicking on this icon a horizontal line is placed on the

chart window at the given point in which it has been drawn.
By clicking on this icon a trend line can be drawn in the

chart window between two points. This is shown on next the
page:
32
By clicking on this icon an equidistant channel is drawn

on the chart from one point to another. This is shown below:
33
By clicking on this icon a corresponding Fibonacci

retracement lines can be added. Shown Below:
By clicking these icons text and arrow objects can

be added to charts at a given area.
7.7. Placing an Order
Placing an order in MetaTrader is very simple. You simply

need to double click (in the market watch window) on the
symbol of the security you wish to buy and the order window
will be displayed. Or if you have a chart open for the security
you wish to buy you can simply press F9 or go to Menu
Tools -> “New Order”. The order window will pop-up as
shown below.
34
As you can see a tick chart is displayed on the right that shows
both the Bid and Ask prices. The Bid price is shown in red and
the Ask price is shown in blue.
In this window you can change the security you wish to buy or
sell. You can also change the volume of the order with one lot
being the default. The order window also allows you to specify
hard stop loss and take profit levels. The next field is the
comment field, this allows for comments to be attached to an
order.
The type field allows for the specification of the type of order.
The default is instant execution or a market order. The second
type of order that can be specified is a pending order. If a
pending order is selected you can select a Buy Limit, Sell
Limit, Buy Stop and Sell Stop type the price and expiry can
also be set. The price set must differ from the market price by at
least five pips.
Returning to a standard market order we can choose to buy or

sell the given security. The final property we can change is
enabling a maximum deviation from a quoted price. This means
in times of extreme volatility you can guarantee your order gets
filled at a given price, similar to a pending order.
35
7.8. Modifying or Closing an Order
MetaTrader allows for orders to be modified after they have

initially been sent to the broker. This allows for stop losses to
be set or changed, orders to be closed and trailing stops to be
set. This functionality is provided via the terminal. In the
terminal the trade tab needs to be activated. To activate the
trade tab you simply need to click on it.
You can now right click on the order you wish to change and a
contextual menu will pop-up like the one shown below.
36
By clicking on modify or delete order this will bring up a

window similar to the initial order window. As you can see
below the only fields that can be modified are the stop loss and
take profit. Once again these must be set at minimum five pips
away from the current price.
After this modified order has been processed the chart window
will be updated to reflect stop loss and take profit levels. On the
chart the price in which was paid for the security is shown with
a dashed green line. The stop loss and take profit level are
shown with a dashed red line. In this example the stop loss was
set at 0.8545 and take profit at 0.8570 and the price paid for the
lot was 0.8552. This is depicted graphically below.
37
This ends our whirlwind tour of the very basics of MetaTrader.

You should now be able to place orders, modify orders and
understand the basics of the User Interface.
7.9. Moving Forward
We have covered the basics in this book to help give you a

better understanding of the Forex market. It is important that
you continue your education. Some books that you may find
useful include:
Day Trading the Currency Market

Currency Trading and Intermarket Analysis
Technical Analysis of the Currency Market
7 Winning Strategies for Trading Forex
I wish you every success. Be sure to join the community at

TraineeTrader.com.
38

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© TraineeTrader.com 2010 All Rights Reserved

Forex From Scratch is a compilation of the most useful

1. What’s All This Talk about Money? ........ 5

2. The Forex Market, Exchange Rate & Bid

3. Pips, lots and a little bit of math ........... 11

4. Understanding the lingo ........................ 15

5. The Big Three in Forex: Leverage,

6. The Best Trading Times in the 24 Hour

7. Putting it Into Practice............................ 25

1.1. Introduction to Money

Everyone deals with money on a daily basis. People often

1.2. Characteristics of Money

Money generally has four important characteristics:

Put most simply money is anything that can be exchanged for

1.3. Vodka as Money

It is widely understood that there are five criteria that needs to

 The good has to be acceptable to most traders.

Vodka meets all but one of these criteria. In order to purchase a

1.4. Paying the Man

By now you should have a good understanding about the

The use of money to facilitate a trade or exchange is referred to

2.1. Introduction to the Forex Market

The term Forex is short for Foreign Exchange. The Forex

2.2. Over the Counter Markets

The Forex market is quite different from other markets you

In the Forex OTC market there are hundreds of entities usually

Getting back to the meaning of Forex we can think of Forex as

2.3. Example: Travel & the Exchange Rate

I wish to travel to America and visit New York’s financial

The above example highlights what is known as an exchange

2.4. Exchange Rates: Indirect Quotes

An indirect quote can be defined as; A quote that expresses a

If we live in Australia an example of an indirect quote would be

2.5. Exchange Rates: Direct Quote

An Indirect quote can be defined as; A quote that expresses a

2.6. Base Currency or Commodity Currency

Another important thing you need to know is about exchange

2.7. Exchange Rates: The Bid Price

The next aspect we need to understand about foreign currency

2.8. Exchange Rates: The Ask Price

2.9. Why is the Ask price always more than

After reading this section you should understand the key

If you have had any experience in the foreign currency market

3.2 What is a Pip?

In terms of Forex a pip is the smallest increment a currency can

If for example, the Australian dollar moves from $0.8342 to

3.3. How Much is a Pip worth?

3.4. What is a Lot?

In forex, the standard unit size of a transaction is referred to as a

Standard lot- A standard lot is usually equal to 100,000 units

Mini lot- A mini lot is usually equal to 10,000 units of

Micro lot- A Micro lot is usually equal 1000 units of the

Returning to the discussion about pip value. Pip value can be

3.4. Pip Calculation: Indirect Currency

First, we will look at the pip calculation for an indirect

Current price = 0.8232

Current price = 0.8232

For a Standard lot

3.5. Pip Calculation: Direct Currency

Now, we look at the pip calculation for a direct currency. The

Current price = 115.69

For a Standard lot

3.5. Pip Calculation Summary

An indirect quote can be defined as;  A quote that expresses a

An Indirect quote can be defined as;  A quote that expresses a

Current price = 0.8232 

For a Standard lot 

Current price = 115.69 

Download 24 Hour Forex Trading Times Table here.  I