Forex Learning Material PDF

1 Part 1 Sessions & Types of Currency Pairs: It is a global financial market that allows anyone to trade currencies. It is a decentralized market. Anyone can trade in this market with the help of the internet. Sessions: **The forex market can be broken up into f...

1 Part 1 Sessions & Types of Currency Pairs: It is a global financial market that allows anyone to trade currencies. It is a decentralized market. Anyone can trade in this market with the help of the internet. Sessions: **The forex market can be broken up into four major trading sessions: -the Sydney session, -the Tokyo session -the London session -the New York session. We trade in London & NY session because it is the most volumed session among sessions Types of Symbols: There are multiple symbols that exist in the forex market to trade. For example: Forex/Currency, Commodities, Indices, Crypto etc. **What is a forex/currency pair? A forex/currency pair is a pairing of currencies where the value one is relative to the other. For example, GBP/USD is the value of the British pound relative to the U.S. dollar.  2 **What are the major forex/currency pairs? 👇👇👇 Major currency pairs (“majors”) are those that include the U.S. dollar and are the most frequently traded There are seven of them: EUR/USD, USD/JPY, GBP/USD, USD/CAD,USD/CHF, AUD/USD, and NZD/USD **What are the currency crosses/minor pairs? Currency crosses (“crosses”) are the more frequently traded currencies that do NOT include the U.S. dollar in 👇👇👇 their pairing. Crosses include EUR/GBP, EUR/CAD, GBP/JPY, EUR/CHF, EUR/JPY, etc.  3 **What are the Exotic pairs? Exotic pairs are currency pairs in the Forex market that are less traded than major currencies. They are distinguished for having low liquidity and high volatility. Trading exotics usually returns higher gains for investors, but they are not as safe as the major currency pairs. 👇👇👇 Examples of exotic pairs include USD/SGD, EUR/TRY, AUD/MXN, GBP/ZAR, and JPY/NOK etc.  4 Part 2 Broker: **Who are brokers: Brokers work as a medium who will provide you the platform where you can trade pairs. A forex broker is a link between a trader and the network of banks that have access to forex liquidity  5 Brokers basically come in two forms: Market makers, as their name suggests, “make” or set their own bid and ask prices themselves. Market makers are typically large banks or financial institutions. They help to ensure there's enough liquidity in the markets, meaning there's enough volume of trading so trades can be done seamlessly. Electronic Communications Networks (ECN), who use the best bid and ask prices available to them from different institutions on the interbank market. Electronic Communication Network is the name given for trading platforms that automatically match customers’ buy and sell orders at stated prices. Whenever a certain sell or buy order is made, it is matched up to the best bid/ask price out there. Due to the ability of traders to set their own prices, ECN brokers typically charge a VERY small commission for the trades you take. ***There are various trading platforms offered by the brokers, however, MetaTrader 4 and Meta Trader 5 are the basic platforms that have been offered from the beginning. Other Platform names: Ctrader, DX Trade, Tradelocker, 👇👇👇 Match-Trader etc.  6 👇👇👇 This is the image of forex market hierarchy:  7 **Retail Forex Brokers: Thanks to retail forex brokers and the Internet, With hardly any barriers to entry, anybody could just contact a broker, open up an account, deposit some money, and trade forex from the comfort of their own home. Types of Trading Account: Trading account refers to the account through which you will trade. It is like a bank account where we keep our money for transactions. There are various types of trading accounts but basic two types are- 1. Real account- In this type of account, traders deposit real money to trade. 2. Demo account- This type of account is for practice or test because there is no real money to deposit. You can get virtual money to practise. Trading Platforms: There are various types of trading platforms brokers offer. For example-  8 Metatrader 4 Metatrader 5  9 C-trader DXtrader  10 Tradelocker Match-trader  11 Part 3 Forex Terms: Trading Signals: A trade signal is a trigger, based on technical indicators or a mathematical algorithm, that indicates it is a good time to buy or sell in the forex market. Each trade pair has different prices, so whether to Buy or Sell them- is given in a trade signal. Most retail traders who are not a pro about forex market analysis and want to earn some passive/side cash opt for trading signals. A trading signal consists of five things- -Symbol/Pair Name (Mandatory to be in the signal) - Order Direction: BUY or SELL (Mandatory to be in the signal) - Entry price - Stop Loss price (SL) - Take Profit price (TP) (Multiple TPs can be in the signal) Symbol/Pair Name: Reference “Types of Symbols” Order Direction: There are two types of direction that exist in the forex market. BUY (Bullish): In the BUY direction, it is predicted that the market will go UP. SELL (Bearish): In the SELL direction, it is predicted that the market will go DOWN.  12 Entry Price: It’s the exact price where you buy or sell a symbol/ pair. Often, you might find a price after the pair name and BUY/SELL direction. StopLoss (SL): StopLoss refers to a price that will limit your losses in a trade if the market doesn’t go according to your direction. Take Profit (TP): StopLoss refers to a price that will limit your profits in a trade if the market goes according to your direction. Sometimes, you might find multiple TPs mentioned in the signal.  13 Trading Signal Format Sample: Important Note: In BUY direction, Stop loss is always lower than Entry Price and TP higher than Entry Price BUY: Entry Price> Stop Loss Entry Price< Take Profit In SELL direction, Stop loss is always higher than Entry Price and TP lower than Entry Price SELL: Entry Price> Take Profit Entry Price< Stop Loss  14 Account Balance: In order to start trading forex, you need to open an account with a retail forex broker or CFD provider. Once your account is approved, then you can transfer funds into the account. Account Balance or simply Balance is the amount of CASH in your account. If you deposit $1,000, then your Balance is $1,000. Equity: Equity represents the current value of your trading account. Equity = Account Balance + Floating Profits (or Losses); If you have open positions/trades  15 Pip: The unit of measurement to express the change in value between two currencies is called a “pip.” Pip Value: Pip value is the monetary value of a one-pip move in a forex trade. The pip value is defined by the currency pair being traded, the size of the trade and the exchange rate of the currency pair. Lot size/Volume: Lot refers to the quantity of the trade you are trading. Standard lot:(100,000 units of the base currency)= Expressed as 1.0 lot Mini lot: (10,000 units of the base currency) = Expressed as 0.1 lot Micro lot: (1,000 units of the base currency)=Expressed as 0.01 lot Dynamic Lot/Risk Percentage: It calculates the lot size based on account balance and Stop loss.  16 Floating Profit/Loss: Floating profit or loss is the amount of profit or the amount of loss in a running/ongoing trade. Margin: When trading forex, you are only required to put up a small amount of capital to open and maintain a new position. This capital is known as the margin. Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open. It is a “good faith” assurance that you can afford to hold the trade until it is Closed. Margin is NOT a fee or a transaction cost. Margin is simply a portion of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.  17 Spread: The forex spread is the difference between a forex broker's sell rate and buy rate when exchanging or trading currencies. Spreads can be narrower or wider, depending on the currency involved, the time of day a trade is initiated, and economic conditions. Slippage: The difference between the market price you wanted to enter and the slipped price you actually entered in the market is the “slippage”. Suppose, you wanted to enter the market at 2350.5 which is market price now but as the market was volatile, within milliseconds, the price got changed in the market and became 2350.9 and you entered at this price. Slippage is more likely to occur in the forex market when volatility is high, perhaps due to news events, or during times when the currency pair is trading outside peak market hours.  18 ROI: Return on Investment (ROI) is a popular profitability metric used to evaluate how well an investment has performed. Risk-to-Reward Ratio(RRR): To increase your chances of profitability, you want to trade when you have the potential to make 2 times more than you are risking. If you give yourself a 1:2 risk-to-reward ratio, you have a significantly greater chance of ending up profitable in the long run. This is what we suggest to our clients. Drawdown: A drawdown is the reduction of one’s capital after a series of losing trades. Leverage: Leverage in the forex market is like a loan that lets you trade with more money than you have in your account. It allows traders to control a large position with a smaller amount of their own  19 money. For example, if you have 1:100 leverage, it means you can trade $100,000 with just $1,000 in your account. While leverage can increase your potential profits, it also increases the risk of losing money. Part 4 Additional Terms: Order Types: There are two types of order: 1. Market Order: Market order refers to the market execution. A 👇👇👇 trade is supposed to be executed at whatever market price it is in the market. The trade is active in this case.  20 2. Pending Order (Buy Limit/Stop, Sell Limit/Stop): A pending order refers to the trade which is still pending/inactive. The 👇👇👇 entry price is still not at market price. It will activate when the market reaches the mentioned price.  21 Close Half: Closing Half of your lot of running/ongoing trades. Close Partial: Closing partial of your lot of a running/ongoing trade. Note: 0.01 lot cannot be closed half and closed partial. If any command comes with close half/close partial, the trade will be fully closed. **Why Close half and Partial is important- As the forex market is volatile, the trade has the possibility of going backwards and making a loss. But if we close half or partial of a running profitable trade, we can secure some profits.  22 Full Close: Closing full trade. It doesn’t matter if the trade is profitable or not. Move SL to Entry: Moving/ modifying your stop loss or SL price to entry price. This will also reduce your loss probability. This part is very interesting and most of the traders use this strategy to reduce the possibility of losing. But you need to note that MOVE SL TO ENTRY is only possible when the trade is in profit. You cannot move the SL to entry when the trade is in loss! Breakeven: When you close a trade in breakeven, it simply means you have not made any profit or loss from that trade. Part 5 Other Forex Parts connected to our services: Prop Firm/Prop Challenge: A "prop challenge" in forex is a test that traders take to show they are skilled at trading. Prop trading firms (short for "proprietary trading firms") set these challenges to find talented traders they can fund. Here’s how it works: 1. The Trader Pays a Fee: You pay a small fee to join the challenge. 2. Prove Your Skills: You trade on a demo account and must meet specific goals, like reaching a profit target or avoiding big losses.  23 3. Get Funded: If you pass the challenge, the firm gives you real money to trade, and you share the profits with them. There are many prop firm challenges in the forex market and here are some: FTMO, Funded Trader, FundedNext, E8 Funding, The 5%ers etc. MYFXBOOK: Myfxbook is a website that helps forex traders track their trading and see how well they are doing. When you connect your forex account to Myfxbook, it shows charts, statistics, and reports about your trades. It also provides tools like an economic calendar to check important market events, market sentiment to see how others are trading, and demo accounts for learning and practice. It’s useful for anyone who wants to improve their trading skills and strategies.  24 Trading Tools: In the forex market, there are various kinds of trading tools for various purposes. For example: for trading platforms, we have metatrader 4/5. Again to calculate risk, we have Lot calculator, Pip calculator, Moreover, to copy signals automatically from telegram/accounts, we have copiers. So there are many trading tools in the forex market and we will get to know them eventually. Virtual Private Server (VPS): It stands for Virtual Private Server. VPS is just like a PC but it is portable and easy to access from anywhere. It is a computer which is running all the time in the cloud. So there is no hassle of getting switched off! It will be running without letting any software sleep. Part 6 Forex Trading Strategy: Smart Money Concept: The Smart Money Concept in forex is a way to understand how big players, like banks and financial institutions, trade in the market. These big players have lots of money and use it to move the market in their favor. Here’s how it works in simple steps:  25 1. Big Players Control the Market: They have the power to move prices because they trade with large amounts of money. 2. Fake Moves (Stop Hunts): Sometimes, they push the price in one direction to trick smaller traders into taking the wrong trades. This is called a "stop hunt." 3. Real Moves: After tricking traders, they move the price in the direction they actually want, which is where they make money. Following Smart Money: Traders who use this concept try to spot where these big players are entering and follow their moves to make profits. Hedge: A hedge in forex is a way to protect yourself from losing too much money when the market moves against your trade. It’s like having insurance for your trades. Here’s how it works in simple terms: 1. Two Opposite Trades: You open two trades in opposite directions (buy and sell) on the same currency pair. This way, if one trade loses, the other can make money. 2. Reduce Risk: The idea is to limit your losses while waiting for the market to settle or move in your favor. 3. Example: Let’s say you buy EUR/USD because you think it will go up. But if you’re unsure, you can also sell EUR/USD. If the price goes down, your sell trade will cover some or all of the losses from your buy trade.  26 Hedging is useful, but it needs careful planning. If not done right, it can lead to more costs or reduced profits. Revenge Trading: Revenge trading is when a trader tries to recover losses by making high-risk trades. This happens when a trader becomes frustrated or emotional after losing money and makes impulsive decisions to get back what was lost, often leading to even bigger losses. Here's how it works: 1. Initial Loss: The trader loses money on a trade and feels upset or angry. 2. Emotional Reaction: Instead of thinking clearly, the trader tries to quickly make back the money by taking bigger or riskier trades. 3. Bigger Losses: Because the trader is acting out of emotion, the chances of making poor decisions increase, leading to even larger losses. Revenge trading is dangerous because it’s based on emotions rather than strategy, which can cause a cycle of continuous losses. FIFO: FIFO stands for First In, First Out. It’s a method used in trading and accounting to determine which positions or trades are closed first when multiple trades are opened in the same currency pair or asset. Here’s how it works: 1. First Trade Closed First: If you have several positions in the same currency pair, the FIFO rule means that the first trade you  27 opened will be the first one to be closed when you close multiple positions. For Example: If you buy 1 lot of EUR/USD at 1.1000 and later buy 1 more lot at 1.1050, and then decide to close both positions, the FIFO rule would close the first buy (at 1.1000) first, before closing the second one at 1.1050. 2. Why It Matters: This rule is important because it affects your profits and losses. The way trades are closed first can impact your overall trading strategy, especially if you’re using different entry points. In some countries, like the United States, FIFO is required by law for certain accounts, especially for tax purposes.