What is Forex
The foreign exchange (also known as FX or forex) market is a global marketplace for exchanging national currencies against one another.
Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be the largest and most liquid asset markets in the world.
Currencies trade against each other as exchange rate pairs. For example, EUR/USD.
Forex markets exist as spot (cash) markets as well as derivatives markets offering forwards, futures, options, and currency swaps.
Market participants use forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among several other reasons.
Major Currency Pairs
Leverage is used by both investors and companies.
Investors use leverage to multiply their buying power in the market.
Companies use leverage to finance their assets: instead of issuing stock to raise capital, companies can use debt to invest in business operations in an attempt to increase shareholder value.
Leverage is the ratio of your own funds to the size of the borrowed funds provided by a broker for trading. 1:50 1:100 1:200 1:300 1:400.
1:100, the meaning of 1:100, it’s that the broker allocates you funds for trading 100 times
greater than yours.
For that reason, you can invest 100000$ instead of 1000$.
Let say you want to invest 1000$, and you want to trade on oil, cost 50$ per barrel.
Without leverage: you can buy/sell 20 barrels of oil
With Leverage 1:100: you can buy/sell 2000barrels of oil
Do not forget that high leverage allows making big profits but it can also cause major losses.
Margin trading allows you to take a position of much higher value than the monies deposited in your account. Margin trading or trading with leverage allows trading in the Forex market without having a large amount of capital.
Is the smallest price change on the exchange rate in the direction of a decrease or increase.
1Pip in EUR/USD is equal to 0.0001
Old price: 1.07050
New price: 1.07060
The price changed by 1pip
The monetary value of pips depends on the volume of a trading transaction and is expressed in the quote currency second currency of the pair.
For comparative analysis of the major currency pairs, PIP is accepted to quote to 4 decimal places: 0.0001.
Why is it necessary to know the value of one pip in the forex markets?
The concept of PIP allows you to calculate the value of the smallest price change for a given volume of a trading position
You invest 1000$ leverage 1:100
You have opened a position with the volume of 10000EUR
Pip, point: EUR/USD=0.0001
You have opened a buy position at the price EUR/USD: 1.06350, and you sold when the price reached 1.07000
It is the number of lots traded in a currency pair or the entire market within a specified period (also known as the Turnover). As a measure of trading activity, it is simply the amount of currency that changes hands from sellers to buyers. Being the spot FX a decentralized market, partial volume figures are taken as a proxy for the overall numbers: either from a particular market maker or derived from liquidity aggregators. Notice that volume is not synonymous of speed or volatility, as price can rapidly rise or fall in a thin market as well.
A lot is the amount of the currency pair that you are buying or selling. The three most common types of lots are: Standard, the mini, the micro lot
1 standard lot = 100000 units of the base currency
1 mini lot = 10000 units of the base currency
1 micro lot = 1000units of the base currency
Example: 1 lot 1mini lot (0.1) 1micro lot (0.01)
EUR/USD = 100000€ 10000€ 1000€
GBP/USD = 100000£ 10000£ 1000£
USD/JPY = 100000¥ 10000¥ 1000¥
Is the difference between bid (sell) and Ask (buy)
For example, if EUR/USD
So the spread will be: ASK- bid= Spread
The spread of EUR/USD is 1pip
Take Profit (TP)
A take profit order is an order that closes your trade automatically once it reaches a certain level of profit. When your take profit order is hit on a trade, the trade is closed at the current market value. Take profit orders are also sometimes referred to as limit orders
Take-profit orders are limit orders that are closed when a specified profit level is reached.
Take-profit orders are placed using technical analysis.
Take-profit orders are beneficial for short-term traders interested in profiting from a quick bump in the security costs.
A stop-loss is an order that you place with your FX broker and CFD Broker in order to sell a security when it reaches a particular price. A stop-loss order is developed to reduce a trader’s loss on a position in a security.
A stop-loss order is an automatic trade order to sell a given stock but only at a specific price level.
A stop-loss order can limit losses and lock in gains on stock.
The brokerage uses the prevailing market bid price to execute the stop-loss order.
Volatile market conditions or dramatically fluctuating individual stocks can inadvertently trigger a stop-loss order.
Volatile conditions may also cause the final realized price to be lower than the stop-loss price.
The Forex market is open 24 hours a day The Forex market opens at 10 pm GMT on Sunday, and is open continuously throughout the week, until it closes at 10 pm GMT on Friday, and it is important to know which is the most active trading period in which you can trade your chosen currency pairs profitably.
The 24-hour forex trading session can be broken down into three manageable trading periods.
Traders often focus on one of the three trading periods, rather than attempt to trade the markets 24 hours per day.
Peak activity periods are the Asian, European, and North American sessions, which are also called Tokyo, London, and New York.
Sometimes sessions will overlap, such as a four-hour period for peak activity in both Europe and North America.
Volatility is sometimes elevated when forex trading sessions overlap.
The Forex economic calendar refers to the schedules dates of significant releases or events that may affect the movement of individual security prices or markets as a whole. An FX calendar contains information for future and past economic events of different countries and can clue the trader in on potential volatility expansions of certain currency pairs. Investors and traders use the economic calendar to plan trades and portfolio reallocations, as well as to be alert to chart patterns and indicators that may be caused or affected by these events. The economic calendar for various countries is available for free on multiple financial and market websites.
ADP: The ADP National Employment Report is a monthly economic data release tracking levels of nonfarm private employment in the U.S. It is also referred to as the ADP Jobs or ADP Employment Report. The ADP National Employment Report is viewed as a useful preview to the more detailed Bureau of Labor Statistics’ employment situation report.
NFP: The non-farm payroll (NFP) report is a key economic indicator for the United States (The NFP data is normally released on the first Friday of every month at 8:30 AM ET). It is intended to represent the total number of paid workers in the U.S. minus farm employees, government employees, private household employees and employees of nonprofit organizations. Understanding this data release can help set up forex trades to take advantage of unexpected changes in employment.
What is Technical Analysis ?
Technical analysis is the study of historical price action to identify patterns and determine probabilities of future movements in the market through the use of technical studies, indicators, and other analysis tools.
Technical analysis of a market can help you determine not only when and where to enter a market, but much more importantly, when and where to get out.
Technical analysis boils down to two things:
Identifying market trend
Identifying support/resistance through the use of price charts and/or timeframes
Markets can only do three things: move up, down, or sideways.
Prices typically move in a zigzag fashion, and as a result, price action has only two states:
Range – when prices zigzag sideways
Trend – prices either zigzag higher (up trend, or bull trend), or prices zigzag lower (downtrend, or bear trend)
What is Fundamental Analysis ?
Trading on the fundamentals – also referred to as trading the news – is the study of news events and economic statistics to determine trading opportunities. Referred to as fundamentalists, these traders pay close attention to changes in economic indicators such as interest rates, employment rates, and inflation.
Technical VS Fundamental analysis in Forex
Fundamental and technical analysis involves very different strategies and approaches to trading; offering unique value and insights to support trading decisions, and when to enter or exit a trade. While some traders prefer to use these types of analysis separately based on their preferred trading style and goals, many use a combination of the two.