by ifcmarkets

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Make Forex Trading Simple

Published Mar 7, 2014 in Business & Management
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Make Forex Trading Simple... Read more

For ordinary person not engaged in Forex trading, it
is very easy to explain the definition of Forex with an
example of travelling to different countries. When arriving
at one country, the first thing to do for a visitor
is to exchange the money of his/her country with the
currency of the particular country. This process is itself
participation in Forex market- exchange one currency
for another.

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Presentation Slides & Transcript

Presentation Slides & Transcript


CHAPTER 1OPENING THE GATES OF FOREXYou may have asked yourself why you are getting interested in the Forex market, what attracts you that much and why you have decided to start trading. Actually, there may be many reasons, but let us note that the most important one is the independence. The advancement of the Internet made the market available around the globe and thus possible for people to trade online. The reason of the growing interest is the financial independence which is possible to gain through going deep into Forex and trading wisely. No matter you are a doctor, teacher, manager or a journalist, still you may be involved in this limitless market. Here you do not have to deal with any boss and bare someone’s appeal or anger; you are accountable only to your personality and thus are free to make your own decisions.Are you interested? Let us introduce you some important features about Forex market, which will help you in studying this interest- ing area and obtaining profit from it.What?For ordinary person not engaged in Forex trading, it is very easy to explain the definition of Forex with an example of travelling to different countries. When ar- riving at one country, the first thing to do for a visitor is to exchange the money of his/her country with the currency of the particular country. This process is itself participation in Forex market- exchange one currency for another.Who?In general, the Forex market is comprised of four different groups. The most influential participants of the market are the major banks. A few of the largest banks that make up the in- terbank market include UBS, Barclays Capital, Deutsche Bank, and Citigroup. In addition, some governments and their cen- tral banks, such as the European Central Bank, the Bank of En- gland, and the Federal Reserve, are commonly involved in this group too. The aim of such market players as central banks is not getting a profit, but adjusting the currency rates, and thus, the economy of their countries. Very often, central banks make deals not directly, but through one or more commercial banks, concealing their activities. In fact, it becomes obvious that these banks are not ‘’just’’ making deals, but also suggest their own prices, thus they are very active participants. Active participants of the market, as usual, make deals up to millions of USD and do not use margin trading. In Forex, such participants are called market makers. In addition to active participants, there are pas- sive ones, which already belong to the second layer.The term Forex stands for the Foreign Exchange and canbe defined as an international currency market. Forex is very unique in its essence because it is everywhere neglecting the factor of time zone and geography. In contrast to other physical markets, where monopoly can exist, in Forex market despite the very different market participants, there is no any dominance, and the market remains out of any control.A question may arise: what is exchanged on Forex?The answer may be quite surprising for you: absolute- ly “nothing”. All the instruments, including the most popular currencies are not physically exchanged on the foreign exchange market. The prices of all Foreign Ex- change instruments are calculated according to their market price.The second layer belongs to the investment funds, and largecorporations. The purpose of participation is assuredly busi- ness. These companies, performing currency speculations, put their money in securities of governments and corporations in various countries. One of the largest investment funds in the world is ‘’Quantum’’ of George Soros. Funds that are available equal to billions of dollars: in fact, they can attract billions of dollars of borrowed money, so the funds can withstand even the central bank intervention in the foreign exchange market.The rate of the currency is always changing, fluctuates,and this happens because of different factors. Due to these fluctuations it becomes possible to make a profit from speculative trades. Foreign Exchange is the World’s largest and most active market. It operates every day except the weekends, and its volume reaches up to $5 trillion a day and surely, the volume is different for vari- ous participants.Click here to

When?In general, the Forex market operates 24/5 (from Monday to Friday). However, 4 market sessions are distinguished: Sydney session, the Tokyo session, the London session, and, the New York session.How?You may have a question how to be involved in Forex market? The answer is quite simple: through broker- age firms! Brokers are the ones who give an oppor- tunity to small investors to initiate operations on the Forex market.New York opens at 8:00 am to 5:00 pm EST (EDT)Tokyo opens at 7:00 pm to 4:00 am EST (EDT) Sydney opens at 5:00 pm to 2:00 am EST (EDT) London opens at 3:00 am to 12:00 noon EST (EDT)For advantageous trading it is more suitable to trade during the high liquidity of the market, which takes place when several countries are trading at the same time. In each time zone across the world, Forex markets operate in different time zones. Thus, to take advantage of significant trading volume, it is worthy to find out when Forex market hours in different countries overlap. So, it becomes obvious that in case of low liquidity taking very high profit is much more difficult, that is why experienced trad- ers prefer trading when there is high liquidity and more chancesfor high profits.For becoming a client of a broker, one needs to openan account and make a deposit. The deposit require- ments vary from broker to broker. For instance, IFC Markets requires a minimum of $1 per starting trad- ing. For the purpose of increasing the client’s profits, every company establishes certain credit level, which is called leverage. The deposited amount is multiplied with the leverage size, and the trader trades with great- er lot, while losing only the money he has invested on his/her own. Thus, it may be concluded that for trading with 100,000lot in case of 1:100 leverage, $1000 depos- it is required.Why?LIQUIDITY: Forex market is different from the markets where people buy or sell products, property, etc. For in- stance, when selling an apartment, how many buyers can you find for only 1 second? Zero… How many of them can you find during a day? –Maybe 3-4. In contrast, Forex market does not have such limits, as a trader may open positions and make deals with the market maker only in1 second. High liquidity is highly attractive point for every investor because it enables the possibility of entering andexiting the market with any volume.closed, thus hurry up to manage your trading until Fridaynight.COSTS: The client sells the traded currency with the Bid priceand buys with the Ask price. The difference between them is called Spread. Surely, this spread is different depending on the currency pair and the clients prefer low spread, because, in fact, it is the cost of their trading activity. The spread is greater for those currencies that are traded less frequently, thus the spreads of major currencies is quite low. IFC Markets offers low and fixed spreads to its clients which makes the company more attractive for the clients.PROMPTNESS AND AVAILABILITY: As Forex market op-erates for 24 hours, the access is possible at any time in contrast to stock market, which is open only during the working hours, which surely may not correspond to your time zone. Forex traders do not need to wait to react on an event as it happens in other markets. 24 hours operation lets traders trade whenever they like: after work, at nights, during their leisure time, etc. For trading one needs just to have a laptop or a mobile and Internet connection. Take into consideration that at the weekends Forex market isLEVERAGE: All traders have an opportunity to trade withgreater volume due to the leverage which is provided by the broker. More precisely saying, it is the availability to make profit from a large position in the market for a small cost, known as margin. Different companies provide dif- ferent leverage sizes. For instance, IFC Markets suggests up to 1:400 leverage. There are some leverage limitations depending on the account types.www.ifcmarkets.comClick here to share

CHAPTER 2CURRENCY, THE MAIN TRADED INSTRUMENTCurrencies: Prices and the PipsThe major instrument in the Foreign Exchange is the cur- rency. Currencies are written in ISO codes, which have become a traditional international practice. These codes have only 3 characters: the first two characters stand for the country name and the last character stands for the currency name.selling one unit of base currency. Certainly you buya pair when you predict it will appreciate and sell it, when you think that it will depreciate. For example, in case of the quote like USD/CHF 0.9355, it becomes ob- vious that what is being valued (the base currency) is one USD and that its value is given in terms of Swiss Franc (the quote currency). In general, the currencies are quoted against the US dollar. However, there are a few currencies, where US Dollar is quoted against (Brit- ish Pounds (GBP), Euros (EUR), Australian dollars (AUD) and New Zealand dollars (NZD)).In Forex market all the currencies are quoted in pairs(EUR/USD, GBP/USD), because in trading one needs to sell one currency for buying another, or vice versa. The first currency is known to be the base currency, whereas the second one is the quote currency.There is a measurement of the change in value betweenthe two currencies, which is called a Pip. The numbers after ‘’.’’ are called pips. In fact, the pips are the smallest changes in the price of the currency pairs. When saying that there was a change with 1 pip, in quotation it implies to be a change of 0, 0001 (the fourth symbol after coma). Pips are needed for calculating profit/loss and the differ- ence between the prices of BUY/SELL.When opening a BUY position, the trader makes his/her decision based on the exchange rate (currency price), which provides information about the number of required units of the quote currency to BUY one unit of base currency. In SELL position, as well, the deci- sion is based on the exchange rate, which shows how many units of the quote currency you will get whenTypes of Currencies: Major, Minor and CommodityThe list of Major Currencies includes all those currencies thatare most actively traded in the market. The prices of major currencies are less unstable than those of other currencies.USD American DollarEUR International European Currency- EuroAUD Aussie, Australian DollarCAD Canadian DollarGBP British Pound SterlingCHF SWF- Swissie, Swiss Frankwhich are based on the export of raw materials-oil, gas, met-als, etc. Actually, there is a quite large range of such curren- cies, which may assuredly be included in this list, but the most important ones are Australian dollar, Canadian dollar and the New Zealand dollar. It is also worth to know that the major currency pairs always are those quoted with the US Dollar.It should be noted that there are currency pairs which do nothave USD neither in base nor in quote currency; such curren- cy pairs are called cross pairs. In general, experienced traders deal with cross pairs, as for effective trading with them it is re- quired to have good economic knowledge of different coun- tries. Here are some examples of cross pairs: GBP/JPY, EUR/JPY and GBP/EUR.JPYYEN Japanese YenThe rest currencies are considered to be the Minor Currencies.And, finally the Commodity currencies are of those countries,Click here to

CHAPTER 3WELCOME TO THE UNPREDICTABLE WORLD OF TRADINGBasically, currency pairs are traded in 100,000 units (standard lots), 10,000 units (mini lots) or 1,000 units (micro lots).Standard = 1 lot = 100 000Mini = 0.1 lot =10 000Micro = 0.01 lot = 1000Just for keeping in mind let’s bring an example. If you open a position of 1 lot for GBP/USD for the ask price of 1.5000, you are pur-chasing 100,000 British Pound while selling 150,000 USD. In case of opening a micro position (0.01 lot), for GBP/USD for the bid price of 1,5000 you are purchasing 1000 US Dollars, while selling 1,500 British Pound.Buy/Sell = Long/ShortBefore opening any position, every trader has to determine whether to open a BUY or SELL position. If you want to buy the base currency and sell the quoted currency, this means that you are expecting the base currency to rise so as to sell it back at higher price. Such positions are used to be known as Long positions. In contrast, if you want to sell the base currency for buying a quote currency, this means that you want the base currency to fall in price so as to buy it at a low- er price. Such positions are known to be as Short positions. So, keep in mind, that Buy=Long and Sell=Short.has two prices- Bid Price and Ask Price. These pairs are usual-ly denoted by a slash “/”, where at front stands the rate of Buy, and after- the rate of Sell, such as USD / JPY 104.75/104.85. The bid price is the price at which the broker is ready to buy the base currency for the quoted one, while the ask price is the price at which the broker is selling the base currency for the quoted one. So it can be understood that the con- cepts of buying and selling in relation to you are actually “reversed.” Buying and selling in this formulation is not per- formed by you, but by the party offering you a quotation. More precisely saying, if you need to buy a base currency, you need to look at Ask price, while selling, you need to take into consideration the Bid price.When speaking about the prices of the currencies, we havealready mentioned that their prices are called rates. Anyway, it is very important to mention that in Forex every quotationTrading ExampleLet’s assume that the EUR/USD exchange rate is 1.3088/ 1.3090. Based on some technical analysis you have as- sumed that the euro is going to fall in value. That is why you make a decision to buy 10,000 EUR (0, 1 lot) at 1.3090 (the ask price). So, you bought 10,000EUR and paid 13,090US Dollars for that.need to have 130.9$ deposited on your account so as tomake that trade.If your predictions come true, and Euro rises, you then de-cide to sell at 1.3199/1.4001. In this case you have to sell your Euros at Bid price (1.3199). Thus, we are buying back the USD, but selling at higher price (1. 3199). So, we end up with 13,199 USD. As the broker takes the 13,090 USD, our profit becomes 109$.No one has to have that 13,090 US Dollars in order to buyEuro. Your deposited money may be much less, but due to the leverage provided by the broker you will have the opportunity to trade with high volumes. You just need to deposit an amount, which is considered to be the margin for providing you with higher virtual credit amount. For example, you may have 1:100 leverage. In this case youwww.ifcmarkets.comClick here to share

CHAPTER 4TOOLS NECESSARY TO PREDICT THE MARKETPrice movements depend on very many factors such as economic conditions, political policies, economic announcements made by influential officials, and many more. So, it is still possible to predict the market. There are mainly 3 analytical methods in Forex market: technical Analytics, Fundamental and Sentimental. We will refer to all of them separately.Technical AnalysisThis type of analysis is based on the assumption that the trend of the exchange rate is already incorporated in the his- tory of their past fluctuations. The basis of such an assump- tion is that the history tends to repeat. A trader, using techni- cal analysis, builds charts of currency rates, finds trend lines on those charts, determines the shape of a trend reversal and calculates various mathematical indicators, on the basis of which makes the decision to open a long or short position.Speaking about technical analysis it is highly importantto mention the tools that are used by the traders most often: technical indicators and patterns. There is a quite large range of such tools, but we will illustrate the most used ones:• TREND LINES - lines joining higher and higher low points(uptrend) or lower and lower high points (downtrend). Pric- es breaking through these lines can point out the beginning of a possible change in price direction.Certainly it is important to understand that the concrete pre-diction is impossible, because the factors affecting the cur- rency rates are physiological, political, economic, and so on. There is no any physical law that affects the market, based on which analytics may make 100% predictions.• MOVING AVERAGES - smooth out past movements andindicate a possible new trend if the price moves through the average.• REVERSAL PATTERNS - such as head-and-shoulders, topsand bottoms, triple tops and rounded tops.In technical analysis of the Forex market trading frames aregenerally considered. In fact, the time frames are the fol- lowing: 1 minute, 5 minutes, 15, 30, 60, 1 day, 1 week and 1 month. Numerical study of the time frames is not very com- fortable, and is almost never used by traders for forecasting. Mainly, temporary charts are built.• SUPPORT AND RESISTANCE - price points that a markethas had difficulty moving through in the past.• RELATIVE STRENGTH INDICATORS - show whether themarket can be considered overbought.By Chart analysis it is implied that for predicting the marketsolely graphical images of the market are used (price graph- ics, volume graphics) and its graphical models. Actually these are the simplest methods as they do not require any software. So, 5 basic types of charts may be distinguished:Tick chart Line chart Bar chartJapanese candlesticksPoint and figure chart• FIBONACCI LEVELS - levels that indicate a continuedmove in the current direction is breached.• MACD - Moving Average Convergences/divergerenceused to help spot early trends and trend reversals.• CYCLICITY INDICATORS - markets go through cycles ofbullish and bearish phases with periods in which they tend to return to their average. Cyclicity indicators help reveal such cycles.Click here to

Fundamental AnalysisThis type of analysis studies the macroeconomic events, political news and other events of the world which some- how affect the rates of the currencies. The main difference between the fundamental and Technical analysis is that the Fundamental one is based on the principle that the prices of the currencies on the Forex market are the reflection of sup- ply and demand, which in their turns depend on fundamen- tal factors of the economy. In contrast, technical analysts do not consider the study of the reasons of price changes im- portant and put an emphasis only on the study of the prices themselves.changed. In contrast, fundamental analysts pay high atten-tion to the factors affecting that change.So, what factors have the most focal affect on the currencyprice changes?GDP (Gross Domestic Product)The volume and dynamics of government expenditureThe volume and dynamicsof income to the state budget Deficit / surplus of the budget The aggregate consumptionThe aggregate private investmentThe level of private savings The volume of the export The volume of the import UnemploymentInflationIt should be mentioned that traders may not wish to spend their time on studying Fundamental analysis and doing it themselves. Most of all they prefer following the profession- al financial analysts. Such kind of analysis is available, be- cause it is published in newspapers, is present in Web, on TV and Radio. In addition, there are brokers which provide their own analytics on their websites which makes the process of trading much more easy for the traders.Events affecting the market may be distinguished between2 groups: expected and unexpected. These events include the publication of various economic indicators, which con- tribute to prediction of upcoming important events. In con- trast, unexpected events may not be forecasted in any way because the group of such events includes natural disasters, political revolutions, acts of terrorism, etc.According to Fundamental analysis predicting the chang-es of the prices is possible through predicting the factors which affect the supply and demand. So, the difference between the two analysis methods is the following: for technical analysts if the prices have changed, then “some- thing” has changed in supply or demand, that “something” is not important any longer because the prices have alreadySentimental AnalysisThe name of the analysis already implies that it deals with the mood and sentiments, and surely in this context it deals with the sentiments of the market participants-traders. In contrast to technical analysis, which focuses on the past movements, sentimental analysis attempts to realize what is driving trader decisions for now and the immediate future. During the trad-ing process every participant has his/her opinion, and surelysome groups are formed, that as a result may influence the outcome of the trading. So, they form a general sentiment of the market. Understanding and assessment of sentiment is quite an effective opportunity to understand how its partici- pants are going to act in present and near future.www.ifcmarkets.comClick here to share

CHAPTER 5TRADING IN ACTION: 5 THINGS YOU MUST KNOW1ent ways. Some of them judge the market as a very“When you know better you do better.”Different people think about Forex market in differ-those, who have economic education, are able to be in-volved in Forex. Every individual may start studying Forex and needs to know the basic things in order to start. The most important things necessary to traders is the analytics, which is a precondition to success. Besides the analytics, the beginners should understand that even when starting trad- ing they may always develop their skills, because Forex is not an area with any limits in terms of advancement, thus every day is possible to learn a new thing, which has become quite easy with the help of Internet.confusing sphere, and think that trading in Forexis very difficult. In contrast, others think that trading is very easy and does not require any knowledge. So, who is right?Actually, both views are wrong: Forex market is not a com-plicated and difficult one, but at the same time everyone who wants to start trading needs to have knowledge about the market so as to be able to make profit rather than losses from it. Surely, this does not mean that, for example, only2Just Do it yourself. Trading plan.Trading in Foreign Exchange market is a very risky process. Mainly, the reason people lose at the beginning is that they do not have enough• Your objective in trading – it should be your target or anexpected result (in terms of profit) from your trading.• Use of trading strategies that have been proved to work inthe past.knowledge, have not ever trained and studied the market,do not know how it works. Of course in this case it is easy to suffer losses.• Trading strategies, use of analysis based on which you willdecide to enter the market.You should have your trading plan before starting trading.Never follow someone’s experience, because somebody’s strategy will not necessarily work for you. You had better fol- low your own market views, risk tolerance level and make your own trading plan. Your trading lan should include the following essential aspects:• How you will decide when to exit a trade. This is also a re-sult of your understanding of the trading strategies and the proper use of technical analysis and chart patterns.• Definition of your risk-management system.3Knowledge is of no value unless you put it into practice.No matter how curious you are towards theForex market, you should understand that in or- der to have a better understanding of the mar-nity to try yourself in Demo account without any deadline.By this way you will study everything you will need in fu- ture real trading. Thus, open a real account and invest real money only when you feel sure you are ready for entering the world of trading.ket, and the way the quotation works, you need first of alltrade in Demo account. IFC Markets gives you an opportu-Click here to

4You’d better manage your risks!• You do not need to risk more than 1% of your total capital. This will help you to avoid suffering high losses on any trade.• Determine your position size based on how much you willlose if the stop is triggered at the indicated level, and the 1 per cent rule. You should know in advance how much the likely maximum loss will be on the trade.• Use of stop losses. These orders are for closing your posi-tion at a particular price so as to limiting losses. Stop losses are essential for risk management, and require close study so that you use them appropriately for your position size and amount at risk.• Control your emotions, which may overrule the situationand make your trading stressful and nervous. Don’t forget that rationality is the key to successful trading.5Confidence – half the battle.It was already mentioned about the risky charac- ter of trading. In spite of the different methods of analysis that are used by the traders, still ev-may go in another direction, thus resulting in high losses.Anyway, the most important think while trading is to remain psychologically balanced and strong, because when falling into depression, you may not make a rational decision. You just need to be relaxed so as not act nervously and irratio- nally.eryone should know that the market cannot be predictedby 100%. Surely, people invest much money in Forex, and it sometimes turn to be very ineffective because the marketwww.ifcmarkets.comClick here to share

CHAPTER 6READY TO STARTChoose a brokerThe choice of broker is very important because the trad- er deals with it regarding any matter and surely it is very important to refer to a trusted one, with which you may work for a long time. Here are the most important fea- tures to take into consideration:on commodities. One more thing to take into account isfixed spreads. So, pay special attention to the spreads to be fixed.DEPOSIT METHODS – the web site should also containthose methods that are implemented for transferring in- vestment. These methods are also specific for each broker.Another important point is that the brokerage companybe REGISTERED in a specific place under a specific num- ber. The legality of the broker serves as a stimulating fac- tor for traders. After all, everyone needs to be involved in legal and secure operations.FOREX EDUCATION – in this section one is able to geta general notion about Forex trading, particularly how trading is realized in Forex, what the Forex analysis meth- ods are, how to handle them, what margin trade is, what one needs to know about currency pairs etc..CONTACT MEANS – without any contact means a broker-age company cannot be considered a properly operating one. Among all contact means (Telephone, E-Mail, Skype, Callback, and Live Chat) live support plays a very signif- icant role. It partially represents the company’s image, its quality. The more punctual, the more precise it is, the higher the company’s rating will be.PLATFORMS – every brokerage company suggests a cou-ple of trading platforms, moreover a brokerage company providing its own platform is likely to have an advantage over others. Procedures for opening an account with each of them are to be described in details; otherwise, traders will face real difficulties.ACCOUNT TYPES – each brokerage company has variousaccount types. They differ from each other by minimum and maximum deposits, as well as by minimum and max- imum leverage ratios.The rating of the company also depends on the ability toTRANSFER MONEY AS FAST AS POSSIBLE. The velocity of transfers is one of the indicators of a brokerage compa- ny to be highly-qualified.TRADING INSTRUMENTS – this is a very significantpoint, since they are not the same for all brokers. They greatly differ among the brokerage companies. That dif- ference lies in the variety of currency pairs available for trading, as well as in the variety of Contract for Difference trading. For example one brokerage company may cre- ate an opportunity to trade with CFDs on equities, an- other one with CFDs on indices, the third one with CFDsHaving all the information above written in mind and thefeeling of enthusiasm, you may already start studying this interesting market. For some of you it may be a new sphere of activity, and you will need to be patient and positive in order to succeed. Spend your time effectively and you will definitely make high profits from Forex. Be risky, as “Nothing ventured nothing gained.”Click here to

Foreign Exchange BooksForex for the BeginnersBy Viktor BarishpoletsCurrency OperationsBy Souren LiselottEssentials of Foreign Exchange TradingBy James ChenCurrency Trading for DummiesBy Mark Galant and Brian DolanAn Introduction to Equity MarketsBy ReutersFundamental Analysis of International Currency marketsBy Likhovidov V. N.Internet Sources here to share