Forex School

Goal: To become a Forex Winner. Not a Forex sucker!

General Idea about Forex!

Forex stands for Foreign Exchange.The Foreign Exchange market, also referred to as the FOREX or Retail Forex is the largest financial market in the world, with a volume of over $4.5 trillion a day. The purpose of this market is to help international trade and investment.

Benefits of trading in Forex market

# High Trading Volumes

# Very high profit margins due to high volume of trading

# The use of leverage ( 1:400,1:200.1:100 etc We'll discuss this later)

# Market is open 24 hours a day ( From Monday till Saturday early morning)

# No commission to be paid to anyone. No brokerage fee, no exchange fee, no government fee.

# No middleman. Forex currency trading eliminates the middlemen, and allows the person to trade directly with the market.

# Freedom to open or close trade at anytime you want.With the click of a mouse, person can instantaneously buy and sell the currencies. No one nor any condition can stuck you in any trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).

You can earn or loose money at the click of your mouse, within few seconds. Sometimes even in a fraction of second. It is very very essential for every individual to understand the market first. In Short, you need to find an answer only to this question " What makes the Forex Market Move?". Once you got the answer to this question, you will never fail. There are various factors to be taken into consideration when trading for a currency pair in the forex market. Emphasis should be on the Fundamental analysis with a pinch of Technical Analysis.

What you actually do in the Forex Market !

A very simple answer to this question is - simultaneous buying of one currency and the selling of another. This is what we do in the forex market. Currency is always traded in pairs for eg: GBP/USD, USD/JPY etc. These currency pairs are always traded through a broker or a dealer. These brokers also provides you the electronic platform (software) , which you use for trading. Example of some well know brokers are Saxo Bank, FXCM, FXDD,Real Time Forex, Alpari, IG markets etc. These brokers also tops the google searches when you search for Forex platforms to trade. You visit their websites, download their software and starts trading.

The main idea behind forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold i.e simultaneous buying of one currency and the selling of another.

Let's understand this with an example.

Suppose,you are trading the pair GBP/USD. You purchase 10,000 GBP (Pounds) at the GBP/USD exchange rate of 1.18. This means you purchase 10,000 GBP for a price of 11,800 USD (10,000 x 1.18 = 11,800).

5 hours later,you exchange your 10,000 GBP back into US dollars at the exchange rate of 1.26. This means you sold 10,000 GBP for a price of 12,600 USD (10,000 x 1.26 = 12,600).

You purchased for 11,800 USD and sold for 12,600 USD. Profit of 800 USD (12,600 - 11,800 = 800) in 5 hours. This is just for 1 currency pairs in 5 hours. There are many currency pairs traded in the market. You can imagine your profit margins for everyday.

Suppose you are trading on 10 currency pairs every day, with the pre-assumption that you are an expert trader. If you are making an average of 800 dollars on every currency pair, 800x10=8000 dollars everyday or in every few hours.

Understanding the currency Pair !

In the above example of GBP/USD , GBP will be read as base currency while the currency on right side of slash will be termed as quote currency or counter currency.

When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.18 U.S. dollar to buy 1 British pound.

When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.26 U.S. dollars when you sell 1 British pound.

The base currency is the “basis” for the buy or the sell. If you buy GBP/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.

You would buy the pair if you believe the base currency will appreciate (go up) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (go down) relative to the quote currency

Long and Short

You will hear this term the most in stock and forex markets. You need to remember only this

Long = Buy and Short=Sell.

When you go long or when you buy , you want the base currency to rise in value, so that you can sell it at higher price.

Similarly, when you open a trade taking Short position i.e when you go short or put the base currency on sell, you want the base currency to decrease in value, so that you can buy it back at a lower price and thus be in profit.

This way, in this market you can make money not by just purchasing currency but also by selling currency. For example, you have not opened any trade. You are just looking at the market and doing your analysis. Now your analysis tells you that for GBP/USD the price of GBP will go down. All the fundamental and technical analysis done by you show this. Then you can go short on the currency pair and as the price moves down, you purchase that currency pair ad earn a decent profit.



Now sit down and relax . Do not stress yourself much. Think about what you have read just now. Then proceed further.

In the next part, we will talk about Bid and spreads, Pips, different forex brokers and forex trading platforms.


Comments are always welcome !