FOREX

TRADING
DYNAMICS OF THE
FOREX MARKET
BASICS OF THE FOREX MARKET EXPLAINED
FOREX?
IS AN ABBREVIATION FOR
FOREIGN EXCHANGE
Foreign Exchange Market (FX)
is the World’s biggest financial
trading market where
transactions (buying & selling)
of currencies take place with the
help of banks, individual traders
and other financial institutions.
COMPARATIVE MARKETS
THE FOREX MARKET IS THE
LARGEST FINANCIAL MARKET $6.6 TRILLION
IN THE WORLD

STOCK MARKETS
$22.4 BILLION
$18.4 BILLION

$7.2 BILLION

LONDON STOCK TOKYO STOCK NEW YORK STOCK FOREX MARKET

EXCHANGE EXCHANGE EXCHANGE
BASICS OF THE FOREX MARKET EXPLAINED
The Foreign Exchange Market is
opened 24 Hours daily, 5 days
weekly; from Mondays to Fridays.
COMPARATIVE MARKETS
OTHERS
.LIQUIDITY /
TRADING VOLUME
Forex is more profitable and
COMMODITY
.POSITION TAKING
.EASIER TO MONITER
FOREX
STOCKS
.LOWER TRANSACTION
COST advantageous than all other
.HIGH LEVERAGE
financial securities markets
(Stocks, shares, bonds,
FOREX
STOCKS
COMMODITY
OTHERS options, futures, commodity)
MOST TRADED CURRENCIES
SYMBOL | COUNTRY | CURRENCY

USD UNITED STATES DOLLAR

GBP GREAT BRITAIN POUND
EUR EUROZONE EURO
CAD CANADA DOLLAR
JPY JAPAN YEN
CHF SWITZERLAND FRANC
AUD AUSTRALIA DOLLAR
NZD NEW ZEALAND DOLLAR

8 MAJOR CURRENCIES
DECENTRALIZED NATURE OF THE MARKET

EBS & REUTERS

ONLINE MARKET MAKERS

INTERESTING FACTS (SIZE & LIQUIDITY)
Unlike other financial markets like the NYSE or LSE,
the forex market has neither a physical location nor a
central exchange.

The forex market is considered an over the counter

(OTC) or “inter-institutional” owing to the fact that
the entire market is run electronically, within a
network of banks, continuously over a 24 hour period.
FOREX TRADING SESSIONS * ASIAN | LONDON | NEWYORK
New York Session (1:00pm -8:00pm GMT) - Correction
London Session (8:00am – 4pm GMT) – Impact
Asia Session (10:00pm -7:00am GMT) – Correlation
GMT

MAIN TRADING SESSION OUR TIME ZONE

FACTS ABOUT:

LONDON NEWYORK OVERLAP

SUNDAY MARKET OPENING
FRIDAYS AFTER 3PM
BANK HOLIDAYS
HOW TO MAKE MONEY TRADING FOREX
The objective of trading forex is to exchange one
currency for another, expecting to make profit off the
transaction.

Specifically, in the forex market you BUY or SELL

currencies.
Once you buy, you are speculating that the currency you
bought will increase in value compared to the one you
sold.
READING FOREX QUOTES
Currencies are always quoted in GBP / USD
pairs. 1.35 85 2 1.35 87 9

In every foreign exchange sell 10.00 buy

transaction you are

simultaneously buying one
currency and selling another. BASE QUOTE
CURRENCY CURRENCY

The first listed currency is the

base currency, while the second is
the quote currency.
READING FOREX QUOTES
The BASE CURRENCY is the basis for every transaction.
If you make a decision to buy, you are buying the base and
simultaneously selling the quote. Vice versa*

A trader would buy a pair if there is the believe that the base
currency will appreciate(gain value) relative to the quote
currency.
A trader would sell a pair if there is the believe that the base
currency will depreciate(lose value) relative to the quote
currency.
WHEN DO YOU BUY OR SELL?
TECHNICAL ANALYSIS
FUNDAMENTAL ANALYSIS STUDY OF PRICE MOVEMENT
TRADERS STUDY HISTORICAL
HAPPENSTANCES WITH RESPECT
TO PRICE MOVEMENTS TO
EACH CURRENCY BELONGS TO A DETERMINE THE CURRENT
COUNTRY, A REGION OR A STATE. TRADING CONDITIONS
FUNDAMENTALS FOCUSES ON THE
OVERALL STATE OF THE ECONOMY
WITH RESPECT TO PRODUCTIVITY,
EMPLOYMENT, MANUFACTURING,
INTERNATIONAL TRADE & INTEREST
RATE
 FOUR MAIN STYLES OF TRADING
• SCALPING
• DAY TRADING
• SWING TRADING
• POSITION TRADING
The difference between the styles
is based on the length of time that
trades are held for.
Choosing a trading style requires the flexibility to know when a trading style is not
working for you, but also requires the consistency to stick with the right trading style
even when it is not performing optimally.
 SCALPING
A very rapid trading style involving an attempt to make profits from
small price changes in the market. This
DAYmeans that they tend to
TRADING
place lots of small bets throughout the day and constantly monitor
the price levels of each trade.

Scalping is best suited to active traders that can make immediate

decisions and act on those decisions without hesitation.
Impatient people often make the best scalpers because they expect
their trades to become profitable immediately, and will exit the
trade promptly if it goes against them.
Being a successful scalper requires focus and concentration. So, it is
not a suitable trading style for people who are easily distracted or
who often find themselves daydreaming
 DAY TRADING
Day trading as a style of trading is more suitable for traders that
prefer opening and closing a trade on the same day.

Many day traders would not consider making swing or position

trades because they would not be able to sleep at night knowing
that they have an active trade that could be affected by price
movements during the other trading sessions outside their
trading hours.

Many day traders would not consider scalping because they

would not have the time to enter and monitor trades
consistently during the day.
 SWING TRADING
Swing trading almost always involves holding trades overnight,
so it is not suitable for people that would be nervous holding a
trade while they are away from their computer or phone. It is
compatible with people that have the patience to wait for a trade
to materialize to their speculated price level before closure. This
kinds of trades could take more than a day to materialize
because profit targets are wider.

Swing trading generally requires a larger stop-loss than day

trading, so the ability to keep calm when a trade is against you is
a necessity.
 POSITION TRADING
Position trading is the longest term trading of all and often has
trades that last for months or several years. Therefore, position
trading is only suitable for the most patient and least excitable
traders.

Position trading targets are often several thousand pips, so if

your heart starts beating fast when a trade hits 25 pips in
profit, position trading is probably not suitable for you.
If other people’s opinions easily sways you, then position
trading is going to be difficult for you.
 FOREX
TERMINOLOGIES
FOREX TERMS
LONG/SHORT/BULL/BEAR SPREAD
LEVERAGE MARGIN
BALANCE EQUITY
FREE MARGIN STOP LOSS
TAKE PROFITS LOT SIZE
PIP / PIPETTE SLIPPAGE
BID/ASK
LONG & SHORT / BULL & BEAR MARKET
These are termed as
THE BASIC TERMINOLOGY OF OPTION
You can have two opinions about a security, the price will go up or come down.

• If you believe that prices of your asset are likely to increase, you are bullish. If the price of a
market instrument is going up during a time period, it is referred to as
bull market.
• If you believe that prices of your asset are likely to go down, you are bearish. If the price of
a market instrument is declining during a time period, it is called a
bear market.
• The general direction that the market is moving in is called a trend. Trends can be in
bullish, bearish & sideways.
• If you buy an asset, your position is long. When long an asset, you benefit if the price of the
asset increases
• If you sell an asset, your position is short. When short an asset, you benefit if the price of
the asset decreases
BUY WHEN YOU EXPECT SELL WHEN YOU EXPECT
PRICE TO GO UP PRICE TO COME DOWN

TAKE PROFIT
STOP LEVEL

ENTRY PRICE

ENTRY PRICE

STOP LEVEL
TAKE PROFIT

LONG | BUY | BULLISH TREND SHORT | SELL | BEARISH TREND

LEVERAGE & LOT SIZE
LEVERAGE in forex means a ratio in 1. THE MARKETS BEING TRADED
respect of Transaction Size and Initial
Margin in CFD trading where 1:100 ratio 2. ACCOUNT SIZE
means the Initial Margin is one hundred
3. GENERAL EXPERIENCE IN
times less than it’s Transactions Size.
FOREX
Brokers offer this feature to help retail TRADING
POWER
traders gain the purchasing power even if
their accounts are not huge enough to
LEVERAGE
indulge in some transactions on the forex g
CAPITAL
market.

The appropriate leverage for a trader to use

varies based on several factors like;
Forex is commonly traded
in specific amounts called
THERE ARE 4 TYPES OF LOT SIZE.
a LOT SIZE.

A “LOT” is a unit
measuring a transaction
amount.
It basically represents the
amount of currency you
will either buy or sell.
When you place orders on
your trading platform,
orders are placed in sizes
quoted in lots and not in
currency.
MARGIN
Margin is essentially the
amount of money a trader
needs to put forward in order
to place a trade or maintain a
position.

Basically a security deposit

that the broker holds while
a forex trade is open.
BALANCE
BALANCE is the amount of
capital a trader has in their
trading account devoid of open
positions.

The capital of the illustrative

account is 4,177.12 USD
EQUITY
EQUITY refers to your account
balance plus the floating profit or
loss of your open positions.

EQUITY = BALANCE + FLOATING PROFIT/LOSS

IF THERE ARE NO OPEN POSITIONS,

THERE WILL BE NO RUNNING
PROFIT/LOSS THEREFORE,

EQUITY = BALANCE
FREE MARGIN
FREE MARGIN is the difference
of your account equity and the
open position’s required margin.

Free margin = Equity - Floating Margin

When you have no running

positions, you have no used
margin.

Your Equity = Free Margin

MARGIN LEVEL
• A ratio of equity to margin
ML = EQUITY
x 100
MARGIN
Broker use ML to determine if
a trader can take any new
position. $$
10% margin 100% value
Margin level has it limits.
Open trades begin to close
when the ML limit is reached.
PIP & PIPETTE
The unit measure in expression of the
change in value of a trading instrument is
PIP.
1.3840 1.38408
It is represented from the fourth decimal
place of a currency quote (There are
exceptions when it comes to Japanese Yen
which is usually two decimal places)

There are brokers that quote beyond the PIP PIPETTE

usual four decimals. When that happens,
the fifth decimal place is a mere fraction of
a pip. This fraction is called PIPETTE.
META TRADER 4 SET UP

EXPLAINED
MARKET WATCH

NAVIGATOR

TERMINAL
 SYMBOL

LOT SIZE

TAKE PROFIT
STOP LOSS

PRICE
SCALE

EXECUTION