Professional Documents
Culture Documents
� INTRODUCTION
� WHAT IS FOREX?
� CURRENCY PAIRS
INTRODUCTION TO FOREX
WHAT IS FOREX?
With a Total Daily Liquidity of about US$5.3 Trillion, it is larger than the New York Stock
Exchange (NYSE) market and the Crypto market altogether.
The Crypto market has a daily market cap of US $225 billion. This is not the net worth,
but just the amount traded on daily basis.
The second larger market is the New York Stock Exchange (NYSE); it trades
US $169 Billion daily .
Lastly, the greatest of all which is our own FOREX MARKET trades US $5.3 trillion
daily.
It is a market for all, but the interesting thing is, we have only few Forex traders across
the world, who are milking the wealth out this lucrative market.
The majority of people are left ignorant to the existence of this market and the
knowledge & skills required to trade it.
Forex basically deals with the major currencies of the world, and the appreciation and
depreciation of the value of one currency to another.
Currencies are not of the same value; they differ in values. That is why it would cost one
about GH¢5.8 to get US$1.
Another interesting fact is that, the value of these currencies keep fluctuating over time.
In a couple of years back, US$1 was way less than GH¢5.8, but what is the case now?
There was a time US$1 was equivalent to just GH¢1.20
Assuming you bought thousands of US Dollars during that time, you can imagine how
much you would make now.
This is a rough illustration anyway, just to help you understand the whole concept about
FOREX.
So in simple terms, Forex Trading is simply taking advantage of the fluctuations in the
value of currencies to make money.
So we have seen a Brief Introduction of the Forex market, We would still see more as
we move further.
This is not the form of market where you buy your clothes or shoes.
This is not the ordinary Makola or Kantamanto market where you buy tangible
products from!
2) Commodities
3) Oil
5) Some Cryptos
6) Bonds etc.
I will take you all through how to trade on them, so please follow me closely.
Let me give you a classic illustration of what goes on the Forex market.
We all know that, during certain times of the year, some crops are in excess supply on
the market.
And during other times too, these same crops go scarce on the market.
Usually, when a particular crop is in Excess Supply, the Price of that crop is relatively
low.
And when the same crop becomes scarce on the market, the price usually rises.
So assuming you are a trader who wants to maximize profit, what would you do?
When the crop is abundant in the system and the price is low, you would Buy more of
this crop now and store them...
So that when the crop goes scarce in the system and its price subsequently rises, you
would then sell at a higher price, and earn more profit.
Assuming you also know that, the price of a crop would fall in some time to come, what
do you do?
You would Sell them now (at the higher price), so that in the future, when price falls, you
then buy at a reduced price.
So on the Forex market, when we anticipate that price WOULD RISE in some time to
come, we just BUY now.
And when we anticipate that Price WOULD FALL in some time to come, we just SELL
now.
These are the two basic transactions we execute on the Forex Market:
And as a FOREX Trader, you don't have to worry about whether price would rise or fall.
That's all.
All you want is that price would change and you'll make your money.
As simple as that
So in this case, the Future Scarcity of the Crop becomes the Indicator signaling the
trader to BUY now.
So you just need to learn how to read these indicators and interpret them.
These indicators look like charts, so if you don't know how to read them, you cannot
make any prudent trade decision.
L2
Forex Brokers are firms (Online) that give you access to the FOREX MARKET.
They serve as intermediaries through which you can trade the Forex market.
Assuming, you want to buy Treasury Bills or any other investment package, you
execute the entire transaction through the bank.
The bank may not be the one floating the Shares or the Treasury Bill, or an Official
Paper but the bank becomes a sort of an agent, or provides the investor the platform or
means to participate in the investment.
They provide you, the Forex trader with the Trading platform so that you can also trade
on the Forex market.
They also give you the trader what we call LEVERAGE (We will look at that later).
But what this means is, they allow you trade substantial amounts of currency pairs with
your little capital, so that you can earn adequate profits.
They provide you as a Trader access to the Financial market by providing you with a
Trading account.
The thing is, when Forex started, not everybody could trade Forex.
Only certain categories of people who met some criteria were allowed to trade the Forex
market.
The Forex market was actually supposed to be traded only by people we call the
KABALS or MEN OF WALL STREET.
These are usually Investment Banks, Wealthy Men, Monarchs, Big Business Men,
Company owners etc.
Individuals like you and I wouldn't have benefited from this lucrative business.
The advent of the internet has made the world become a global village, such that you
can buy and sell from any part of the world.
This led to the proliferation of Online Forex brokers who provide individuals like you and
I the platform to trade this lucrative and volatile market.
You also make all Deposits and Withdrawals through your Broker. So if you want to
deposit say $200 and start trading, you'll do that through your Broker.
And when you make a profit of say $500, and want to withdraw, you equally do so
through your Broker.
We usually recommend that you start trading with at least $100 to $200 as minimum
deposit on your Real Trading Account but if you want to trade in cedis you can start with
at least Ghc500 to Ghc1,000. With this, you can grow your account to larger amount
but Time, Patience and Discipline required
Maximum amount to start with would always depend on your broker's deposit limit and
your financial status.
The FOREX market is actually a 24-hour market. The market is usually open on
Weekdays only.
Generally, the Forex market opens on Sundays at 9:00pm or 10:00pm GMT and closes
on Fridays at 9:00pm GMT.
But then we have different Trading Sessions which take place at different times of the
day.
Trading Session simply refers to a time period or interval within which the traders of a
given Time Zone or in particular geographical area are actively on the Forex market.
Each Trading Session has its own Opening and Closing Times. Also, each Session
lasts for a period of 8 hours.
There are basically 4 major Trading Sessions on the Forex market. These are:
The London Session represents the United Kingdom (UK) and the countries within it.
The New York Session represents the Americas. It Opens at 1:00 pm GMT and Closes
at 9:00pm GMT.
The Tokyo Session represents Japan and some of the Asian countries. It Opens at
12:00am GMT and Closes at 8:00am GMT.
The Sydney Session represents Australia and other countries around that Time Zone. It
Opens at 10:00pm GMT and Closes at 6:00am GMT.
Kindly note down these Trading Sessions and their Respective Times of Opening and
Closing.
They are very necessary and vital in determining your Success in Forex.
THE BEST TIMES TO TRADE.
In as much as the Forex market is a 24-hour market, there are certain times that it
would be more appropriate to trade.
The issue about VOLATILITY is a major underlying factor on the Forex market, as it
determines the amount of profit you can make at a given time.
Volatility simply refers to the degree of change or fluctuation in the price of a financial
instrument like Currency pairs.
In the Forex market, the higher the Volatility, the higher your profit making ability.
The lower the volatility, the lower your chances of making enough profit.
This is because, in FOREX, we only make money when price moves, whether it rises or
falls.
So the pace at which the prices of currency pairs fluctuate determines the level of profit
you can make on a given trade.
The time at which you trade determines the level of Volatility on the market, and hence
the potential of making adequate profits.
For example, between 12:00am GMT and 6:00am GMT, Sydney and Tokyo Sessions
will be open. And so, you can trade within this time period.
Also, between 1:00pm GMT and 4:00pm GMT, both the New York Session and the
London Session will be open, so you can also trade during this time.
But it is known that, the time period within which the New York and London Sessions
overlap records the highest Volatility.
So most traders trade during this time; Between 1:00pm GMT and 4:00pm GMT.
So for every new field you explore in life, you would encounter new terminologies and
keywords which are peculiar to such field (be it Law, Medicine, Journalism, Engineering
etc)
And you would have to get yourself acquainted with their terminologies so as to be able
to communicate effectively in that field.
So also it is in Forex. For you to be able to learn and Trade, you should get to know
some of the basic terms used in FOREX Trading; so that you can flow easily with your
fellow Forex traders and analysts.
Please do well to note these terms down as they would be very useful throughout your
Forex journey.
� BULLISH MARKET:
This refers to a market that is moving Upwards. What this means is that, the price of a
particular currency pair has been rising continuously and consistently, and will continue
to rise in the foreseeable future. This is where we look for LONG or BUY opportunities.
Let me give you a typical and practical example. For a couple of years now, the value of
the dollar as against the cedi has been rising uncontrollably.
So a Bullish Market and a Bearish Market are the two forms of a Trending Market.
So you can hear people say "The market is Trending upwards or the market is Trending
downwards."
The price of the currency pair moves up and down in that wavy manner; it rises for
some time, and then falls, rises again and continues in that fashion.
So when someone says, "The market is ranging, he is indirectly telling you that the
market has not found any direction yet.
� BULLS: This refers to the Buyers of the market. So if you go long on (Buy) a currency
pair, you can be referred to as a Bull.
� NFP: Stands for Non-Farm Payroll. This is a major news event about the Economy of
USA.
If the first day of the month happens to fall on a Friday, the news will, in most cases, be
released on the second Friday.
This news causes much volatility on the Forex market.
This is because, the state of the economy of a country has a major impact on the
strength of that country's currency.
Also, Most of the Currencies have Special Terms by which they are called:
4) The Aust
These are some of the basic terminologies we would encounter in our Forex journey,
and you need to understand these terms as a Forex Trader.
Let's do well to note down these terms in our Exercise books or Jotters and revise from
time to time.
L3 begins
1) FUNDAMENTAL ANALYSIS
2) TECHNICAL ANALYSIS
FUNDAMENTAL ANALYSIS
This is also known as News Trading ( Trading The News )
Here you are analyzing the Forex market with respect to the News.
Virtually every day, various news from various countries are released. And the
respective currencies used by these countries are affected based on the news.
One of these news is the NFP, as we talked about in the previous lesson.
So as a trader, you just make your Trading decision based on the news you heard or
read.
Also some sites like forexfactory.com, dailyfx.com etc gives you a summary of these
News.
Whether the News is Positive or Negative, as a Forex trader, that is none of your
business because you make money both ways.
Those into Crypto Trading would tell you that, you only make money when a Coin is
appreciating.
If the news is positive, and thus affects the currency positively, you buy that currency,
and vice versa.
But it is not as simple as that. There are other factors you will need to consider before
you decide whether to go long or short.
We will look at them in subsequent lessons. We will delve deeper into how to trade the
news later.
Because, whatever be the case, there would always be an opportunity to trade; either
you buy or sell.
TECHNICAL ANALYSIS
This form of Trading is when you analyze the Market using Indicators, Chart Patterns ,
Candlesticks, Fibonacci, Support and Resistance, Pivot Points, Elliott waves etc (We
will look at them in subsequent modules)
When you use any of the above to analyze the market, It's called Technical Analysis.
This is because High Volatile News is not released everyday, so you cannot just depend
on Fundamental Analysis alone.
So as a Forex Trader, you must learn how to trade the market using Technical Analysis,
in the absence of any major News release.
That's what makes you a complete and fully fledged Forex Trader.
They are all written in abbreviations. Below is the meaning of each abbreviated
currency:
EUR - EURO
USD - US DOLLAR
ETC.
These are some of the Popular Currencies traded on the Forex market.
EURUSD
GBPUSD
NZDUSD Etc
The reason behind the pairing is that, Currencies do not appreciate or depreciate on
their own; they do so in relation to another Currency.
That's why we usually hear or say that, "The Cedi has depreciated against the Dollar"
It is telling us that, the strength of the Dollar has superseded that of the Cedi.
That should tell you how far the cedi has come in relation to the dollar.
Assuming you had bought about 1000 Dollars at the time that $1 was around ¢1 cedi.
Now that a dollar has risen to GH¢5.75, you would now be having about GH¢5750.
But in Forex trading now, you don't have to wait for years to earn money oo.
Currencies keep fluctuating in seconds and minutes, so you can make money out these
fluctuations virtually every day.
QUOTE CURRENCY
So in a pair like EURUSD, EUR (EURO) is the Base Currency, and the USD (US
Dollars) is the Quote Currency.
The value or price of a Currency pair is simply how much of the Quote Currency you
would need to get one unit of the Base Currency.
For Example: If
EURUSD = 1.12978
So the price you see beside the Currency pairs is simply the Exchange rate of the
Quote Currency for one (1) unit of the Base Currency.
So let's form a Currency pair like USDGH₵ (US Dollar against the Ghana Cedi).
If USDGH₵ = 5.75, It means you need GH₵5.75 to get $1. Hope we now understand it
better with this example.
But when you look on your MT4 chart, you would see two values or prices beside each
Currency pair.
Yes, the first one is what we call the BID PRICE, and the second one is the ASK
PRICE. But we would talk about them later.
Usually when you walk into the bank, you would see this Foreign Exchange Rates
displayed in the hall.
You would realize that, for each currency, there are 2 values or rates. And you would
also see something like, "Buying" on one price and "Selling" on the other.
I believe we have all noticed it.
In Most cases, the Base Currency is stronger than the Quote Currency.
Sometimes, the Quote Currency may be stronger than the Base Currency.
This is how you can tell whether or not the Base Currency is stronger than the Quote
Currency:
When the value of the currency pair is greater than 1 (Eg. 1.2132), it tells you that the
Base Currency is stronger than the Quote Currency.
On the other hand, when the value or price of the currency pair is less than 1 (Eg.
0.68396), it is telling you that; the Quote currency is rather stronger than the Base
currency.
There is simple mathematics that comes to play here, in explaining why the above is so.
We all know that the price of a currency pair is how much of the Quote currency you
would need to get one unit of the Base currency.
Alright, now if we need an equal value of the Quote currency to get the same value of
the Base currency, then the currency pair would have a value of 1.0000.
Ok, now if we need more of the Quote to get 1 unit of the Base, then it means the Base
is stronger than the Quote.
So if USDGH¢ = 5.75, we all know that, we would need GH¢5.75 to get $1.
And with this, we all know the US Dollar is stronger than the Ghana Cedi. So here, USD
is the Base currency, while the GH¢ is the Quote currency.
And the value of the pair, which is 5.75, is greater than 1.
Hope we've all gotten it
MT4 INTERFACE 1
The Meta Trader 4 (MT4) is one of the most popular trading platforms in the Forex
market.
This app helps you to place trades (Buy and Sell Currency pairs), monitor your trades,
modify orders, and close orders (trades) etc.
It also has lots of inbuilt features which helps you the Forex trader to make the
necessary technical analysis before deciding on whether to buy or sell.
It's an all-in-one app that you need to know how to navigate through as it would be very
instrumental throughout your Forex journey.
Let's look closely at the image above and pay attention to the arrows. I will use it to
explain some features of the MT4.
1) The first button at the base of the image is what we call the QUOTE.
This button simply displays the Currency pairs and their prices, as well as the Spread
(we will talk about that later) of each currency pair.
Let's look at the top right corner of the image or the page.
Have you all seen that Plus sign (➕) up there? You click on it to Add Currency pairs
which are not part of the ones displayed already.
And the button next to it (that looks like a Pencil) is where you can arrange the order of
the currency pairs and also Delete or remove Currency pairs you're not interested in.
Please let's all try it on our MT4 as we read through. We are getting to the practical
aspects of the whole show.
So open your MT4 and try to add or remove some of the Currency pairs.
And do same for the other ones; as you read the meaning and use of each of the
features, just go to your MT4 and practice with it.
2) The Second button at the base is the CHART.
You click on to display the chart or the market of a particular currency pair.
When you click on it, it shows the trades/orders that you have placed, and how they are
faring (whether you're making profit or loss).
You can also modify and close your trades or orders. You just tap and hold on the
particular pair, and you'll see a pop up.
So depending on what you want to do, you select the corresponding command.
It shows you a record of all closed trades, as well your profit or loss level for each trade.
MT4 gives a summary of news concerning Currencies and other events which are likely
to affect the FOREX market.
✅ WHAT IS A PIP?
✅ WHAT IS SPREAD?
✅ LOT SIZE
✅ LEVERAGE
✅ TRADING PLAN
✅ COMMON MISTAKES BY TRADERS
WHAT IS A PIP?
If you miss the Concept of Pips here, believe me your foundation is going to be shaky
throughout your Forex journey.
A PIP is the smallest unit by which the value of a Currency pair can change.
It can also be said to be a standardized unit and the smallest amount by which the price
of a currency pair in the Forex market can change.
Though as you go further, you would learn that there are smaller versions called
micropips.
For most currency pairs in Forex, We start calculating the pips from the 4th decimal
place
The Pip is always calculated starting from the 4th decimal place.
Let's take GBPUSD for an example. It's currently at 1.31163, if it makes a move of
3pips, it would now become 1.31193.
How did we get it? We added 3 pips to the 4th decimal number, which is 6 and that
gives us 9.
Trust everything is clear and very simplified to every one of us. Alright let's make
progress!
So we would use this second but long method to do the two calculations we did above.
Therefore you add 0.0001 with your calculator to that original value of 1.17503
So we have
1.17503 + 0.0001 = 1.17513
You see that this method looks longer, though it's the real way of doing it.
In the first method, we just directly added 1 to the 4th decimal placed number of that
value of 1.17503
And we immediately got 1.17513
Let's see the second example where GBPUSD, at a current price of 1.31163, moved by
3 pips.
Therefore you add 0.0003 with your calculator to that original value of 1.31163
So we have.
1.31163 + 0.0003 = 1.31193
Once again, you see that this method looks longer, though it's the real way of doing it
So which ever method you think will be suitable to you, just go by that.
So 10 pips would be
0.0001 * 10 = 0.001
We know someone would ask, since the shortcut is easy, why teach us this long
method?
As we go higher, it gets more complicated especially with figures that are not round
numbers.
We would see that soon, for now let me give you guys examples to solve and give me
the answer using any method of your choice.
Example 1:
EURUSD is at a current price of 1.18243. Calculate its new price if it makes a move
(rises) by the following number of pips:
1) 15 pips
2) 30 pips
3) 100 pips
4) 86 pips
5) 57 pips
I KNOW SOME ARE NOT ONLINE SO PLEASE DO WELL TO ANSWER WHEN YOU
COME ONLINE!
Now for most currency pairs in Forex, the pip Calculation starts from the 4th decimal
place.
However, there are some currency pairs that are not up to 4 decimal places.
Example:
USDJPY
EURJPY
GBPJPY
AUDJPY
NZDJPY etc
FOR JPY PAIRS, THE PIP COUNT STARTS FROM THE SECOND (2nd) DECIMAL
PLACE.
For example, in the image above, USDJPY is currently at 112.769. The PIP count would
start from the second decimal place, which is "6"
Because the number "6" is the figure at the second decimal place.
You would start adding the "5" from the 2nd decimal place. So you'll just add "5" to the
"6"
Let's now get to the Long but real method. Remember the above is a shortcut
1 pip = 0.01
0.01 * 5 = 0.05
It's not anything difficult. This is simple and basic mathematics. Ok let's move on.
2) EURJPY is at a current price of 126.608. It's value fell by 100 pips. Calculate this new
price.
3) USDJPY is at a current price of 110.365. Calculate its new price if it undergoes the
following:
a) Rises by 36 pips
b) Falls by 28 pips
c) Falls by 9 pips
d) Rises by 150 pips.
So I will leave the 3rd question for you guys to try on your own and present your
answers.
0.01 * 50 = 0.5
Since the price rose (increased), we add 0.5 to the current price to get our new value,
hence
EURJPY is at a current price of 126.608, and this price fell by 100 pips
Since the price fell (decreased), we would subtract 1 from the current price, hence
0.1 * 2 = 0.2
So to get the new value, you would add 0.2 to the current price, hence
0.1 * 50 = 5
1184.10 + 5 = 1189.10
1) What will be the new value of XAUUSD if at a current price of 1274.65 rises by 120
pips?
2) XAUUSD is currently at a price of 1179.32. It falls by 65 pips. Calculate its new price.
M2 l2
Today we are going to be answering the question that some of you were asking before
The First price you see beside each pair is the BID PRICE
While the Second price beside each pair is the ASK PRICE
While
While
Let's say you receive $10,000 from a friend abroad. And you walk into a Bank to
exchange it. The Bank would tell you that the latest CBN (Central Bank of Nigeria) rate
is let's say $1 = 350 Naira
So they would give you 3.5 Million Naira as equivalent to the $10,000
Let's say the next day, you walk into that same back.
You had an emergency and you needed to travel abroad and you are requesting for
same $10,000.
They would now tell you that their own Bank rate is $1 = 370 Naira
So you would now have to pay 3.7 Million Naira for the same $10,000
In this situation, #350 here is the BID price, while #370 is the ASK price.
They just made 200,000 Naira profit from you, in just a space of 24 hours.
And would always continue to live in Big houses and Drive Big cars and pay the workers
peanuts, and give meager interests on your savings.
Because Foreign Exchange is so liquid that it can change your Fortune around in just
few weeks of Trading.
However this Expensive knowledge of Forex Trading is being circulated among the
Elites in society.
But don't worry; you're on the journey to discovering their Secret, and in some few
weeks from now, you would be a Professional Forex Trader on your own.
So The BID Price is that price that Buyers in the Forex market are willing to Buy
While...
The ASK price is the price that the Sellers are willing to sell.
(Remember that the Ask price is the Price that Sellers are willing to Sell to you, who is
the Buyer)
While in reverse
(Remember that the BID price is the Price that Buyers are willing to Buy from you, who
is the Seller).
So in summary:
Also, in Forex, the ASK Price is always higher than the BID Price.
WHAT IS A SPREAD?
The Spread is
370 Naira - 350 Naira = 20 Naira
So also in Forex, the Spread is the profit of the Brokers, however in this case, it's very
small because it's measured in Pips.
When the Volatility is high and many markets are open at the same time, the spread is
always small.
That is another advantage of Trading when many markets or sessions are open.
However when only one market is open and the Volatility is low, the spreads are always
bigger.
You can see the Spread of each Currency pair on your MT4.
That is, the superscript digit you see after the 4th Decimal placed number is considered
in calculating the spread.
So if you want to get the Spread you see on the MT4 in terms of pips, just divide the
figure written as Spread by 10.
So in the image above, the Spread of EURUSD, as written on the MT4, is "14".
To get the Spread of EURUSD in terms of Pips, we divide 14 by 10, and this gives us
1.4 pips
Let's use our knowledge on Pips to find out why this is so.
So we say that, the Spread is the difference between the ASK PRICE & the BID PRICE
(Ask price - Bid price)
So to get the spread of EURUSD in the above image, we subtract 1.13051 (Bid price)
from 1.13065 (Ask price):
1.13065 - 1.13051
Ok, so our focus is going to be on the 4th decimal placed numbers of the 2 prices.
So we are going to subtract the 4th decimal placed number of the BID price from that of
the ASK price. So we get:
6 - 5 = 1 pip
We now go and subtract the Superscript digits of the 2 prices. That is:
5-1=4
STOP ORDERS
LIMIT ORDERS
1) INSTANT MARKET EXECUTION simply means that you are Buying or Selling at the
Current Market Price.
Let's say a Currency pair like EURUSD is presently at 1.30251 and you Clicked on Buy
button, what you did was Instant Market Execution, because you bought at that current
price.
Instant Market Execution is the most popular or frequently used form of trading order.
The other Two Forms of Trading come to play when you want to Buy or Sell a Currency
pair at a Future price.
2) STOP ORDERS. There are 2 types of Stop Orders: Buy Stop and Sell Stop.
� Buy Stop: This is where you want to buy a currency pair at a price higher than the
current price.
We all know that, if we buy a currency pair now, we expect that it would rise, and that's
when we make profit.
But with the Buy Stop, we are rather waiting for the price to rise to a certain level before
we buy.
This technique is usually used when we are uncertain as to whether the Price will rise or
not, so with the help of Indicators like Bollinger, we are able to anticipate that when the
price gets to a certain level (higher than the current price), it would continue to rise.
We will come to understand this better when we start to talk about Technical And
Fundamental Analysis in Subsequent Lectures.
� Sell Stop: This is also where you want to sell a Currency pair at a price lower than
the Current price.
Once again, we all know that when we sell now, we expect the price to Fall, and that's
when we make our profit.
But with the Sell Stop, we are waiting for the price to fall to a certain level lower than the
market/current price, before we finally sell.
The rationale behind this is that, we expect that, once Price falls to that level, it would
surely continue to fall further.
3) LIMIT ORDERS. This form of Trading Orders is the opposite of Stop Orders.
There are also 2 forms of Limit Orders: Buy Limit and Sell Limit
� Buy Limit: Here, you want to buy a Currency pair at a price lower than the current
price.
So from your analysis, you expect that, the price of a currency pair would rise, but at the
moment, it is coming down, so you are waiting for it finish the retracement, so that you
can now enter the Buy Position.
As we said, you'll come to understand them better as we tackle other areas in higher
Stages, so relax.
� Sell Limit: Here, you want to sell a currency pair at a price higher than the current
market price.
You're expecting that Price would fall, but at the moment, it is rising, but you know for
sure that it would fall.
So you're waiting for it to rise by some Pips before you finally enter the Sell position.
For instance, EURUSD is currently at 1.41123, and after careful analysis, you're seeing
that it would fall.
But when you look at your chart, it is rising a bit, so you can decide to add about 10 Pips
to the Current price to get 1.41223, so that when price gets to that level, we assume
that the retracement has ended and so it would begin to fall.
As a Forex trader, you would not always be online monitoring all your Trades.
It's not as if we Forex Traders, just get a seat and stay in front of our laptops all day.
Some of your trades may stay over the Night, some may last for 2 days.
You have Champions League to watch, you may be having lectures to attend or you
may even have to go to work if you are a worker.
That's where Market orders including Take Profit and Stop Loss come into play.
TAKE PROFIT is a market order, that tells your Broker to Close your Trade for You and
Lock in your Profit when your Trade moves a certain number of Pips in your desired
direction even if you are not online.
Since you are buying, and your aim is that price would rise, in setting your Take Profit,
you would Add 20 pips to the Current Ask price. So let's do the calculation together:
In summary, when buying a Currency pair, you would add your profit target (number of
pips) to the Ask Price at which you bought the Currency pair.
1) You bought NZDJPY at 75.142, and you anticipated that the market would move 25
pips in your favor. Calculate the Take Profit.
2) I want to buy USDJPY at a price of 110.785; I target only 10 pips for this trade. What
will be my Take Profit (T.P?)
3) A Trader went long on EURGBP at an Ask Price of 0.85774, and he targeted 50 pips
for this trade. What will be his Take Profit (T.P) level?
We will solve Question 1 with you, and leave you to solve the rest.
Solution for Q1
For JPY pairs, 1 pip = 0.01 as we all know. So to get 25 pips, we multiply 25 by 0.01, ie;
0.01 * 25 = 0.25
What this means is that, when the market gets to 75.392, even when you're not online,
your broker, will lock in your profit for you.
Ok, let's now move on to the situation where we are Selling; how do we set our Take
Profit when we are going Short?
When we place a Sell order, we want the market to go down, or the price to fall, so that
we make profit.
So in setting the Take Profit in a Sell Situation, we subtract our target number of pips
from BID Price at which we sold.
0.0001 * 30 = 0.003
So what this means is that, when the market/price falls to 0.70901, whether you're
online or not, your profit would be locked in for you, or your broker would close this
trade, since it has reached or hit its Target.
1) Dan went short on USDCHF at a price of 1.01875, and targets a 40 pip profit. What's
his T.P level?
2) I Sold EURJPY at 125.521. I am targeting a 100 pip profit. Calculate my T.P level.
3) A Forex Trader placed a Sell order on USDCAD at a Bid price of 1.34166. His T.P
level was 1.34096. How many pips did he target?
We are just applying the very things we learnt earlier on, including Pip Calculation; it's
no different thing we are doing.
So in summary, when selling, we subtract the Target number of Pips from the BID price
to get our Take Profit level.
STOP LOSS
This is another Form of Market Order which instructs your Broker to close your trade if
the market wants to go against you.
Sometimes you may enter a wrong trade; instead of let's say Buying, you rather sold a
currency pair.
And it could be that the market might have massively gone against you, such that your
account is on the verge of being wiped out.
In other to avoid this from happening or reduce the extent of your loss, you would need
to set a Stop Loss Order, telling your broker that, if the market goes the opposite
direction to the one you anticipated by a number of Pips, he should close your trade for
you, in order to forestall the incidence of losing so much.
So you're risking just a part of your account, so that you don't lose everything
completely.
Assuming you know that, if the market is to go against you by 100 pips, you would lose
everything in your account. And you set a Stop loss of say 30 pips.
When the market happens to go the opposite direction, once it moves against you by 30
pips, your broker would automatically close your trade for you, so that you don't lose
beyond the 30 pips.
Because in times of very High Volatility, especially when there's a news release on a
particular currency, the market can move in a certain direction by as much as 100 pips
in less than an Hour.
So assuming you were not monitoring your trade and you didn't set Stop loss, and the
market rather went the other way, you may end up Blowing your Account.
So this is basically the reason why we set Stop loss - to Minimize Losses.
But we can also use the Stop Loss for another Purpose - to lock in Profits.
You may enter a trade and you would be in Profits, but you don't want to close the
trade, because you haven't reached your target or Take Profit.
So you're waiting for the market to move further, but you're also scared the market
might reverse and you may enter losses.
So assuming you bought a currency pair, you can set your stop loss at a level below the
prevailing market price, but which is also above the price at which you bought it.
For instance, you bought GBPUSD at 1.30056, and the market has made a move of 40
pips upwards and is currently at 1.30456.
So you can set your stop loss 10 pips less than the prevailing market price (1.30456).
So your stop loss becomes 1.30356
In this case you have locked in a profit of 30 pips.
Even when the market is to reverse and hit your stop loss, you would still make a profit
of 30 pips, so you don't lose.
Let's now get to how to calculate for stop loss. Let's start with a BUYING Situation; How
do we Calculate Stop Loss when Buying?
When buying, we simply SUBTRACT the number of pips from the price at which we
bought, to get our Stop Loss.
For instance, if I bought EURUSD at 1.11625, and I want to set a Stop Loss of 40 pips, l
would just subtract 40 pips from 1.11625.
So we will get
1.11625 - 0.004 = 1.11225
Let's move on to the SELLING Situation; How do we calculate Stop Loss when Selling ?
Here, we simply ADD the number of pips to the price at which we Sold, to get our Stop
Loss.
For instance, if you sold AUDUSD at 0.70525, and you want to set a Stop Loss of 50
pips. You will just Add 50 pips to 0.70525.
So in Summary:
When BUYING,
▪�Your TAKE PROFIT is ABOVE the ASK PRICE at which you bought.
▪�Your STOP LOSS is BELOW the ASK PRICE at which you bought.
When SELLING,
▪�Your TAKE PROFIT is BELOW the BID PRICE at which you sold.
▪�Your STOP LOSS is ABOVE the BID PRICE at which you sold.
Let me show you where you can enter your TAKE PROFIT and STOP LOSS on the
MT4.
Ⓜ2 L 4
Ask yourself, that if this trade is to go against me by 100 pips or more, considering the
lot size, will I lose everything?
2) Tap and Hold on the Currency pair you would like to Close or Modify.
A pop-up window will show with the Options like Close Order, Modify Order, Etc..
� If you want to make changes to your Take Profit or Stop Loss, Click on Modify Order
3) Click on the Plus (+) Sign at the Top right corner of the page above
5) In the "Find broker" region, Type the Server that your Broker gives you.
After creating an account with a Broker, your Broker will give you some Login Details
including:
� Server
� MT4 Login ID
� Password (Use the Trader's Password)
LOT SIZE
It is simply the amount or quantity of a currency pair that you bought or sold. It's
sometimes called your Position size or Trade size.
Lot size also determines the amount of profit or loss you can make on a given trade.
The higher the lot size, the higher your Profits or Losses and vice versa.
On the Forex Market, Currency pairs are not bought or Sold in single units. They are
bought and Sold in Packs called Lot sizes.
That is what makes the gain or profit appreciable. If not, your profit in Forex would have
been $0.0001 or something like that.
But because you buy these Currency pairs in bulk or packs known as Lot size, that's
why the profit we make in Forex, is Significant.
Let's use a practical illustration to explain what Lot size is, and how it works in the Forex
market.
You know that, for them to make Profit, they can't just buy a single shirt from the
wholesaler.
They need to buy these shirts in Bundles for the profit made to be appreciable.
Now assuming...
While
You would agree with me that Trader A would make more money than Trader B, who
would in turn make more money than Trader C.
And what determined how many Bundles of shirts they bought is the Capital they
invested in the Business.
Hope the pairing of the Lot size with the illustration has now made everything even
clearer.
Now, if 1 Micro Lot size is equivalent to 1,000 units of a currency pair, then we can say
that:
The highest Micro Lot size is 9 Micro Lot size, which is equivalent to 9,000 units.
The same applies to the other 2 types of Lot size.
Now on the Forex market, you won't be seeing the 1,000 , 10,000 and 100,000 as we
talked about.
1 Micro lot size is represented as "0.01" and it is the least Lot size you can use.
So assuming you bought a currency pair with a lot size of 0.01, and the market went up
by 10 pips, your profit will be:
$0.1 * 10 = $1
So assuming you bought a currency pair, and it went up by 50 pips, your profit will be:
$1 * 50 = $50
So if you sold a currency pair and the market went down by 20 pips, your profit will be:
$10 * 20 = $200
And the Last Trader C, traded 1 Micro Lot size of the pair.
While
So although they all participated in the same trade and the market moved in their
direction for the same amount of pips...
Their profits were different because, the amount (Lot size) of that particular Currency
pair they traded was different.
Let me show you guys where to Enter your LOT SIZE when placing a trade
Open your MT4 and click on the Second Button down there.
LEVERAGE
This Concept is however related to LOT SIZE, that's why it comes directly after we had
treated LOT SIZE.
So please apply your knowledge on Lot Size to help you easily understand this Concept
(LEVERAGE).
LEVERAGE IN FOREX
Leverage simply refers to the ratio by which your actual account (capital) is multiplied to
enable you the Forex trader trade bigger volumes or lot sizes, which could have
otherwise been impossible with your limited capital.
Leverage is a way that Brokers help clients with very little capital to also get the
opportunity to trade on the Forex market.
From our knowledge on lot size, we all know that, the least lot size you can use for your
trade is " 0.01 " (1 Micro Lot size).
And we also know that this lot size represents 1,000 units of a currency pair.
So assuming the price of EURUSD is 1.22341 and you bought it with a lot size of 0.01,
then it means you bought $1223.41 worth of EURUSD.
With only $100, you cannot place any trade, since even with the least lot size, you
should get about $1300 as a capital.
In order not to prevent or hinder individuals like you and I, who may want to start with
little capital like $100 or $200 from trading this lucrative market...
Forex brokers offer their clients with leverage, which will increase or multiply the trader's
account into a larger sum, so that they can trade bigger volumes of currency pairs and
earn significant profit.
So assuming your broker offers you a leverage of 1:100, it means that, every $1 of your
capital is seen as $100.
So you deposited only $200 to trade, but on the Forex market, this amount is interpreted
as $20,000
So it means you can now place trades which are worth up to $20,000
Meanwhile, with only your $200, you couldn't have even placed just one trade with 0.01
lot size.
So leverage is really beneficial to all traders, especially for individuals whose capital is
not be very huge.
To me, a leverage of between 1:500 to 1:1000 is Ok for Traders like you and 1.
Some people or Forex analysts are of the view that, the higher the leverage, the higher
the risk of making huge losses.
It's not a fixed rule that, once you choose a bigger leverage, you'll make bigger profits or
losses.
But a large leverage can increase your potential of making high profits as well as
incurring high losses.
What determines your profit or loss level is the lot size you use or the number of trades
you place.
But the relationship that exists between leverage & lot size is that, with a bigger
leverage, you can use a relatively bigger lot size. That's all.
But if your leverage is very big and you decide to use smaller lot sizes, how does the
high leverage increase your profit or loss level?
That's why as a FOREX trader, you shouldn't be overambitious to make huge profits
with your small capital.
It could be that, your leverage can permit you to use a bigger lot size, but then once
your capital is small, then it means you can easily wipe out account; you may end up
losing everything.