This guide provides basic information on methods and techniques of trade, necessary for the beginner, making their first steps in the exciting world of Forex. Why Forex?
If you read this guide, it is quite possible that you are interested in the Forex market. But this market has to offer?
Accessibility - It is not surprising that the daily volume of transactions in the Forex market reaches more than 3 trillion - all what it takes to become a participant in this market is a computer and an Internet connection.
Hour Access - The Forex market is open around the clock, which allows you to perform transactions at the right moment when you suddenly hear a financial sensational news. No need to sit and wait for the opening of the place.
The narrow focus - Unlike the stock market, which has tens of thousands of stocks to choose from, Forex market is centered around approximately eight major currency pairs. A small selection to avoid confusion despite the fact that the market is huge. Forex is easy to see a clear picture of what is happening.
Liquidity - The foreign exchange market is the largest financial market in the world with daily turnover of over U.S. $ 3 trillion! In addition to the impressive statistics on this huge scale of this market provide traders with tremendous advantages. Thanks to the huge volume of daily transactions Forex market is considered the most liquid market in the world, which means that under normal market conditions, you can literally buy and sell currency in accordance with their wishes.
The absence of a monopoly in the market - Huge turnover of the Forex market to ensure non-monopolizing. Even the big banks is not enough capacity to control this market for a long period of time, which makes it an ideal place for small investors.
No need to be a financial genius to understand that the most important attractiveness of any market or any financial business is opportunity to make a profit. Forex profitability is expressed in several ways.
First of all I would like to point out that we should not be a millionaire to start trading in Forex. Unlike most financial markets, Forex allows you to start to trade at a relatively low initial capital.
You may be asking yourself: "What are the chances I have for you to earn a profit at such small initial investment?" The Forex market does not require large investments, as you will be able to trade using leverage. In this case you can open positions worth tens of thousands of dollars by investing only $ 2,000. This means that trading in the Forex market has the potential gains (and losses) amounting to tens or even hundreds of percent in a day!
A unique feature of the Forex is also the fact that any movement on the market gives you the opportunity to trade. Falls or the price soars currency, you will always find an opportunity for speculation, since you can always buy or sell a currency of your choice. Unlike the stock market you do not limited to only a speculation at higher prices, falling market is as good for transactions, as well as growing.
Given the above, it is important to remember that, despite the profitability of the forex market, it also carries all the risks associated with financial investments. You should always remember this and never risk the money means that you can not afford to lose.
Trading in the Forex market - this is a very exciting business. The market is in constant motion and every little change in prices may lead to a gain or a loss of hundreds and sometimes thousands of dollars!
We offer a look at an example:
In general, the basic eight most traded currencies are:
Trading in the Forex market is always performed on the pair, as any transaction involves the simultaneous buying of one currency and selling another. The main activities are focused around the following currency pairs:
When buying or selling a currency pair, each pair has a quote bid / ask, for example:
This means that you can:
Buy a pair at the Bid 1.3961 - or - buy a pair at the Ask 1.3963
Price of the currency pairs are very volatile and constantly changing. The first option profit - buying a pair, and then sell it at a higher price. The second option - selling the pair, and then buying it at a lower price.
As soon as your position will be profitable, you will immediately see it in the online trading platform for Forex. When you close a profitable position, the profit will also be summarized to the balance of your account.
Trend analysis based on the idea that what happened in the past, will help trader to understand what will happen in the future. Although this definition may seem too simple, but the possibility of determining the moment when the currency is in the trend, helping to increase your chances of making a profit in the Forex market.
When you can discern a trend, you can also assess to what direction will change the price currency. You need to use the trend that you have determined to place trades in a given direction.
If this upward trend, an increase of prices, the purchase of foreign currency provide you with greater rigor the opportunity to earn profits. If this downward trend, which means prices are falling, sales of the currency pair may allow you to earn money.
How can I determine the trend? What are the characteristics of the market trends? Most a simple way to identify the market trend - is to use different patterns of price behavior of the currency. This will allow you to see if the market moves up or down.
Definition of a trend in forex market when there is a trend for the currency pair, price movements begin to form peaks and flat areas on the chart that can be easily determined
With the trend to an increase in price movements form a series of arranged higher than the other peaks, alternating with one located above another flat plots. Since it is much easier to trace the image, we offer you read the data graph: :
This graph indicates that the trader has to buy a currency pair (and close the deal by selling it at a profitable price increase for quotes).
With the trend towards a decrease in price movements form the dropping alternating peaks and level areas:
This graph indicates that the trader must sell the currency pair (and close deal by buying it at a profitable price quotes after reduction).
It is important to note that sometimes during some trading sessions can be very difficult to determine the correct trend, some days trend is completely no (observed range price fluctuations), and, of course, always it is likely that there will be a temporary reversal of trend in the opposite direction. In other words, this indicator is not 100% reliable for trade.
Here is the price range:
It is much easier to make predictions, using the trend, what price range. So profit, based on a trading range, it is necessary to be more fast and ready to "jump" and "jump" in the market for almost all the time. Needless to say that trade based on price ranges trader makes life more difficult and increases the risk of losing money.
Trading ranges can be confusing and unpredictable, so it's best Still looking to trade trends.
As a general rule is that it is better to trade in the direction of the trend than against it, which means that if the general trend of the market is increasing, it is necessary to be very careful when exposing position, based on the opposite trend.
The strategy of determining the trend implies that the current direction of change Prices will continue in the future. This applies to the three main time periods: short, medium and long in duration, with trends will be different for each of them.
Below we provide an example of a possible scenario in the Forex market:
Over the past 12 months, the trend of EUR / USD is rising over the past 30 days - falling, but in the last 24 hours (intraday trend) - upward.
Regardless of the selected time frame traders will remain open positions until such time as the trend starts to change.
Our goal is to determine the trend, which we believe, and to trade in According to his testimony. Trend-a must see to it that vovrem determine their possible errors or reversal, and the disappearance of the trend. If this happens, it is necessary to limit losses by closing loss-making deal. Also You can close the deal and then open another in the opposite direction.
If you have already tried to get acquainted with the trade in the Forex market, you may have heard such a thing as "leverage." What does it mean?
Leverage is an important component of trade in the Forex market, and it is important that you know how it works and how to use it. The term traders use to denote the ratio of the amount invested in respect to the real value of the transaction.
Forex brokers usually offer their customers the opportunity to trade with borrowed capital, so that traders do not have to invest tens of thousands of dollars for making a real profit. When you trade with a leverage of 1:100 (or "1 to 100"), this means that for every $ 1 you invest, your broker will invest $ 100 for you. As a result, you can to control the amount of $ 50,000 by investing only $ 500.
Perhaps you would not be surprised if we say that the increasing ability to earning profits and pose a risk of bolshy. Small changes in price Currency can help you as earn huge sums, and lead to rapid loss of deposit. The higher the leverage, the more profit you can earn and the faster you can losing their investment. Leverage 1:500 help you earn bolshie amount than the leverage of 1:100, but your initial deposit is subject to bolshemu risk.
If you trade with a leverage of 1:100, the market will have to change to 100 points against you, that your position was eliminated. When the shoulder 1:500 the market would be enough to turn by 20 points against you, to eliminate the position.
The ratio between the size of the lot , the size of the transaction and leverage.
The lot size for trading on Forex platform is $ 10,000. The advantage of trading with leverage is that the profit potential is virtually unlimited. In the forex loss is limited to the amount of your deposit. As only quote the price drops below, covered by your investments ("Free Margin» / «Usable margin»), and an indicator on the forex platform reaches zero, the transaction will be automatically closed.
Remember that leverage can be a trader's best friend when it is used with caution, and the worst enemy when used recklessly. This is a great way to increase profits, in fact, hardly anyone from the traders working without leverage. But you always must remember that the more leverage, the higher the risk.
Now that you have read the basic information , you can try to make my first deal!
An example of a simple transaction.
Are you ready?We proceed to trade!
You will receive a user name and password , as well as information about downloading software.Open a trading platform .Here is a list of mandatory Action before putting the deal:
- To determine the currency pair for the purchase or sale;
- To decide what will be the size of the transaction (the number of lots);
- Consider placing a stop or limit orders (more the issue will be discussed below);
- Open the transaction.
Suppose that after a detailed study of graphs of different currencies you determined that the EUR / USD tends to increase. What will be the solution based on this conclusion? You can make a profit when you buy EUR / USD (buy EUR / sell USD).
Remember - the purchase is made at a price of "Ask", for sale - at a price of "Bid".
Imagine that you bought one lot EUR / USD on the Forex. The following details of your transaction:
Used Margin: $ 20 Size of operation: 1 lot of EUR 10,000 or
Leverage: 1:500 (10,000 / 20 = 500)
EUR / USD (Ask): 1.3956
In other words, you now have bought 10,000 units of EUR / USD, which in this treated at a price quotation 1.3956 USD to 1 EUR.
Suppose that at some point the price EUR / USD rose to 1.4066. You sell 10,000 units of these Euro / USD 1.4066 at the new price, and earn $ 110. This means that a slight change in prices has allowed you to make a profit of $ 110, using a margin of $ 20.
That is, you've just made a profit of 708% of your investment with changes in exchange rates and the use of leverage.
In this example, your profit is unlimited, and the loss is limited by the amount of your deposit.
Forex Trading - risky. In this chapter we will explain warrants the use of Stop Loss ("Stop") and Limit (sometimes called "Take Profit "). They are used to hedge risks, determining your income and minimizing losses.
Many companies have the ability to automatically close your transaction on a certain level to prevent the loss you have a larger amount than you invested (an operation called a Margin Call and reflected "MC" in Steytment to Your account). If you quote the open position falls below than the level covered by the used margin ("Used Margin" or "Investment") in your account position is automatically closed. This means that the maximum amount kotorouyu you can lose in the deal is limited to the initial investment.
No need to wait until you lose the full amount of investment to deal closed. By placing a stop order, you can set to the value of your position did not fall below a certain level. So you limit the maximum amount you are willing to lose in a transaction without the need around the clock monitoring of the market impact on her.
Availability of losing trades can not be prevented. One of the key elements of successful trading is the ability to limit losses in the unprofitable operations, using stop orders and controlling risks.
Limit orders are sometimes called "Take Profit" or "T / P", identical stop-loss, but only in relation to profits. Limit orders are responsible for the fact that When your transaction reaches a certain level of profitability, it will be closed, and you'll get it for profit.
For example, imagine that you have opened a long trade (ie, you bought) a pair of EUR / USD at a price of 1.3950. A few hours later the quotation rose to 1.4050, while another an hour later it fell to 1.3900. Without a limit order you can skip the time increase in the price and get a close a deal with the loss.
If you have set a limit order, the potential profits of the transaction would be obtained no need for you to continuously monitor changes in the market.
Note that the stop and limit orders are very simple mechanisms for building a successful trading career. Think of the possibilities to use them, making each transaction.
The forex market is open around the clock, but what can I earn points?
Although trading in the Forex market and the possible clock except for the weekend days, Not all watches are equally good for trading. The reason for the operation of the market lies in the fact that it consists of various trading sessions on the globe, which together form a continuous period of 24 hours.
The more active markets at some point, the more deals carried out and the higher your chance of making a profit.
Since the London session is the busiest, the best time to Trade 6AM-9AM (GMT), and 13PM-15PM (GMT), because in those hours London Session overlap with others.
Remember that although you can trade forex around the clock, yet better plan their trading activity to improve their chances of making a profit and minimize their losses.
The secret to a successful trader?
There is a method used by all successful traders and that is not secret. This method is called managed funds (money management).
Cash Management is not an obscure professional jargon. This concept implies knowledge and skill to manage your trading account to work on Forex. While this may seem a simple solution, but it the key point to a long and successful career trader. At the same time on this mechanism is often overlooked in most of chance, but the crucial moments. We would like to comment on the basic rules, following which you will be able to effectively manage their trading account.
Do not look for huge profits, very often it ends in huge losses. Successful trading - is consistent trade, in which a small profit over time develops into a decent income. Never Be sure that all your trades will be profitable, be prepared for losses.
You have to risk only a small percentage of the total amount of account on each trade. This will minimize your risks. And while you may lose full amount of investment a particular transaction, it will not affect much on the general the balance of your account. The recommended amount of investment for the deal - 2% of the deposit to your account. Aggressive traders are sometimes at risk to 5%, but never more than that. This is a very important point, since the lower the deposit becomes your account, the harder it is to recover.
Using a limit order.
Learn how to effectively use the stop and limit orders. They keep your money and help you earn a profit. These fairly simple techniques can greatly change the status of your account.
The size of the transaction.
We recommend that you open a small deal, because if they would be operating at a loss, you can then open a big deal in the opposite direction, thus compensating for the losses.
Practice on a free demo account.
Use the free demo account to practice. All the companies offer a fully functional demo version of the platform on which you can work with a trading account, equipped with a virtual deposit. The program works just like on a real platform, with You are not risking real money. We recommend that you practice on a demo account to familiarize themselves with the platform and the operating time trading experience.
Even after you start working with a real account, demo account is ideal tool to test new trading strategies. It makes no sense risking real money by checking out a possible theory, if you can do it on a demo platform without much risk. Only after you make sure that Your strategy is working, you can try it on real account.
Keep in mind that the management of funds is very easy to speculate, but difficult to apply in practice. As soon as you develop your successful management system with money, try to stick to it and do not let their emotions get in the way of obtaining long-term profit, even if it means humility, with short-term loss-making transactions.
We have shared with you the basic information needed trader. Not Take your time and Practice on a demo account, perfecting their skills and skills.
Ask - the price the seller: the price at which the broker or dealer would sell a financial instrument. Has the same meaning as the Offer / offer price.
Balance: The cost of your bill, which does not include unterminated gain or loss on open positions.
Bid price: the price at which the broker or dealer would buy a financial instrument.
Bid / Ask Spread : The difference, usually expressed in points, between the prices of the seller and buyer. A lower spread is favorable for the trader.
Cost of Carry (also Interest or Premium) - the cost of maintaining investment position (Also commission or swap): costs, often expressed in U.S. dollars or points per day, for the maintenance of an open position.
Currency Futures : futures contracts, Exchange Traded mostly on Chicago Mercantile Exchange (CME). Always listed as the price of the currency against the U.S. dollar. Terms of futures contracts are standardized exchange.
Drawdown-reduction factor: the amount of depreciation of account, calculated as a percentage or U.S. dollars and measured from peak to subsequent minimum. For example, if the cost of trader's account increased from $ 10,000 to $ 20,000, then dropped to $ 15,000 and then increased to $ 25,000, then the maximum reduction factor for this account amounted to $ 5,000 (Reporting a fall from $ 20,000 to $ 15,000), even if the trader's account has never been profitable.
EBS : "Electronic Brokerage System" - the electronic bidding system, used by major banks for transactions. It is considered the most accurate measure of prices at which trades are really on the market, especially for such currency pairs as EUR / USD and USD / JPY.
Forex : short for "Foreign Exchange". This term applies generally to the field of trade in foreign currencies and / or currencies themselves.
Fundamental Analysis : a method of strategic assessment and forecasting changes in exchange rates, based on analysis of any other criteria except the price change. The main criteria are generally considered the economic situation in the country under consideration currency, monetary policy and other "fundamental" issues.
Leverage : the amount, expressed as multiples of, on which the notional amount traded exceeds the margin required for trade. For example, if the amount of notional traded (also seen as "Lot size" or "contract value") is $ 100,000, and the required margin - $ 2,000, the trader can make a deal with the "leverage" of 50 ($ 100,000 / $ 2,000).
Limit Order : An order to buy at a set price for the market moves down to that price or to sell at a set price for the market moves up to the given price.
Liquidity : a function of volume and market activity. It profitability and cost efficiency when trading positions and performance warrants. A more liquid market provides a more frequent price changes at lower spreads.
Margin : the amount of funds on the customer's account required to open a position or to maintain an open position. For example, the margin is equal to 1%, means that the position size of $ 100,000 required deposit is $ 1,000.
Margin Call : requirement of a broker to additional funds to an account in order to maintain an open positions. Sometimes the term "margin call" means that the position of that there is insufficient amount of funds on deposit will be closed by the broker. This procedure allows customers to avoid further losses or a negative balance on the account.
Market Order : An order to buy at the current price the seller.
Offer price: the price at which the broker or dealer would sell the financial instrument. Has the same meaning as Ask / price the seller.
Pip - point: the smallest step to change the prices of currencies. This concept for the futures market is usually called "tick." For example, for EURUSD price change from 0.9015 to 0.9016 is one point. For a USDJPY point - a change from 128.51 to 128.52.
Premium (also "Interest" or "Cost of Carry") - swap (as commission or the cost of maintaining investment position): the costs are often expressed in U.S. dollars or points per day, for the maintenance of an open position.
Rollover : change the past to a new futures contract.
Spot Foreign Exchange - Currency "spot" market: often considered as the interbank market and includes trading between currencies the two parties, which usually serve the largest banks. Trading in the foreign exchange "Spot" market, is usually carried out with the use of margin, and is the primary market, which focuses this web site, given its large liquidity as compared to currency futures and popularity among financial institutions and professional traders.
Stop : An order to buy at the market only if the market moves up to the established price or sell order on the market only when the market moves down to a set price.
Technical Analysis : Forecasting changes in market prices, not taking as a basis for the fundamental factors for the development and adoption of trading decisions.
Tick, point : the smallest step to change the prices for futures or contracts for difference. This concept for the currency market is usually called "pip". For example, for Down Jones Industrials price change from 8845 to 8846 is equal to one tick, for the S&P 500 a tick - a change from 902.50 to 902.51.
Usable Margin : The amount on your account, available as a margin to open new positions. Usable Margin = Equity - Used Margin.
Used Margin : The amount that is used on your account for open positions. Margin requirements for Forex account is $ 200 per standard lot. For example, if you have an open position with a 3 lots, Your Used Margin will be 3 x $ 200 = $ 600. We draw your note that the margin - this is not the commission and it will not be deducted from your account.