Here
are the SECRET ingredients needed to create the ultimate business:
1. You
2. Computer
3. Internet connection
4. Desk (or sofa)
That’s it! No
employees. No advertising. No cold calling. No inventory. Imagine a business
with just you, your computer, and a high-speed Internet connection?! That’s all
you need trade in the foreign exchange market!! In other words... A properly
trained Forex trader can potentially earn BIG PROFITS in every single month,
week, or day! (Of course a poorly trained Forex trader can suffer BIG LOSSES
as well.)
Let’s
continue with the TOP SECRET directions:
1. Walk about ten steps
and
2. Sit in front of your
computer (or sit on your sofa and place laptop on your lap)
3. Turn on computer and
make sure Internet connection is working
4. Open charts and
trading platform
5. Trade currencies
6. Make money!
Presto! You’ve just
learned how to create the ultimate business.
Okay it's not that easy
but you get the picture.
Consider
the Following and Judge for Yourself
· You
are your own boss!
· You
don’t need any customers!
· You
don’t need employees!
· You
can operate from home, work, vacation or anywhere else in the world as long as
you have a high-speed Internet connection.
· You
never have to worry about job security, harassment or any other employment-related
anxiety.
· You
never need to worry about employer payroll, strikes, theft, rent increases, health
inspectors, lease problems, being sued, etc…
· You
don't need to do any cold calling.
· You
decide which days you wish to work.
· You
make the decision to take a vacation at a moment's notice.
· You
are your own boss!
THE
SKINNY ON FOREX
What
is FOREX?
The Foreign Exchange
market, also referred to as the "FOREX" or "Forex" or
"Retail forex" or “FX” or "Spot FX" or just
"Spot" is the largest financial market in the world, with a volume of
about $2 trillion a day. If you compare that to the $25 billion a day volume
that the New York Stock Exchange trades, you can easily see how enormous the Foreign
Exchange really is. It actually equates to more than three times the total
amount of the stocks and futures markets combined! Forex rocks!
What
is traded on the Foreign Exchange?
The simple answer is
money. Forex trading is the simultaneous buying of one currency and the selling
of another. Currencies are traded through a broker or dealer, and are traded in
pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound
and the Japanese Yen (GBP/JPY). Because you're not buying anything physical,
this kind of trading can be confusing. Think of buying a currency as buying a
share in a particular country. When you buy, say, Japanese Yen, you are in
effect buying a share in the Japanese economy, as the price of the currency is
a direct reflection of what the market thinks about the current and future health
of the Japanese economy.
In
general, the exchange rate of a currency versus other currencies is a
reflection of the condition of that country's economy, compared to the other
countries' economies.
Unlike other financial
markets like the New York Stock Exchange, the Forex spot market has neither a
physical location nor a central exchange. The Forex market is considered an Over-the-Counter
(OTC) or 'Interbank' market, due to the fact that the entire market is run
electronically, within a network of banks, continuously over a 24-hour period. Until
the late 1990’s, only the “big guys” could play this game. The initial
requirement was that you could trade only if you had about ten to fifty million
bucks to start with! Forex was originally intended to be used by bankers and
large institutions - and not by us “little guys”. However, because of the rise
of the Internet, online Forex trading firms are now able to offer trading
accounts to 'retail' traders like us. All you need to get started is a
computer, a high-speed Internet connection, and the information contained
within this site. BabyPips.com was created to introduce novice or beginner
traders to all the essential aspects of foreign exchange, in a fun and easy-to-understand
manner.
What
is a Spot Market?
A spot market is any
market that deals in the current price of a financial instrument.
Which
Currencies Are Traded?
The most popular
currencies along with their symbols are shown below:
Symbol
Country Currency Nickname
USD United States
Dollar Buck
EUR Euro members Euro
Fiber
JPY Japan Yen Yen
GBP Great Britain Pound
Cable
CHF Switzerland Franc
Swissy
CAD Canada Dollar
Loonie
AUD Australia Dollar
Aussie
NZD New Zealand Dollar
Kiwi
Forex currency symbols
are always three letters, where the first two letters identify the name of the
country and the third letter identifies the name of that country’s currency.
When
Can Currencies Be Traded?
The spot FX market is
unique within the world markets. It’s like a Super Wal-Mart where the market is
open 24-hours a day. At any time, somewhere around the world a financial center
is open for business, and banks and other institutions exchange currencies
every hour of the day and night with generally only minor gaps on the weekend. The
foreign exchange markets follow the sun around the world, so you can trade late
at night (if you’re a vampire) or in the morning (if you’re an early bird).
Keep in mind though, the early bird doesn’t necessarily get the worm in this
market - you might get the worm but a bigger, nastier bird of prey can sneak up
and eat you too…
Time
Zone New York GMT
Tokyo Open 7:00 pm 0:00
Tokyo Close 4:00 am
9:00
London Open 3:00 am
8:00
London Close 12:00 pm
17:00
New York Open 8:00 am
13:00
New York Close 5:00 pm
22:00
The
Forex market (OTC)
The Forex OTC market is
by far the biggest and most popular financial market in the world, traded
globally by a large number of individuals and organizations. In the OTC market,
participants determine who they want to trade with depending on trading conditions,
attractiveness of prices and reputation of the trading counterpart. The chart
below shows global foreign exchange activity. The dollar is the most traded currency,
being on one side of 89% of all transactions. The Euro’s share is second at 37%,
while that of the yen is at 20%.
Why
Trade Foreign Currencies?
There are many benefits
and advantages to trading Forex. Here are just a few reasons why so many people
are choosing this market:
· No
commissions.
No clearing fees, no
exchange fees, no government fees, no brokerage fees. Brokers are compensated
for their services through something called the bid-ask spread.
· No
middlemen. Spot currency trading eliminates the middlemen, and allows you to
trade directly with the market responsible for the pricing on a particular currency
pair.
· No
fixed lot size.
In the futures markets,
lot or contract sizes are determined by the exchanges. A standard-size contract
for silver futures is 5000 ounces. In spot Forex, you determine your own lot
size. This allows traders to participate with accounts as small as $250
(although we explain later why a $250 account is a bad idea).
· Low
transaction costs.
The retail transaction
cost (the bid/ask spread) is typically less than 0.1 percent under normal
market conditions. At larger dealers, the spread could be as low as .07
percent. Of course this depends on your leverage and all will be explained later.
· A
24-hour market.
There is no waiting for
the opening bell - from Sunday evening to Friday afternoon EST, the Forex
market never sleeps. This is awesome for those who want to trade on a part-time
basis, because you can choose when you want to trade--morning, noon or night.
· No one
can corner the market.
The foreign exchange
market is so huge and has so many participants that no single entity (not even
a central bank) can control the market price for an extended period of time.
· Leverage.
In Forex trading, a
small margin deposit can control a much larger total contract value. Leverage
gives the trader the ability to make nice profits, and at the same time keep
risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage,
which means that a $50 dollar margin deposit would enable a trader to buy or
sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade
with $100,000 dollars and so on. But leverage is a double-edged sword. Without
proper risk management, this high degree of leverage can lead to large losses
as well as gains.
· High
Liquidity.
Because the Forex
Market is so enormous, it is also extremely liquid. This means that under
normal market conditions, with a click of a mouse you can instantaneously buy
and sell at will. You are never "stuck" in a 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).
· Free
“Demo” Accounts, News, Charts, and Analysis. Most online Forex brokers
offer 'demo' accounts to practice trading, along with breaking Forex news and
charting services. All free! These are very valuable resources for “poor” and SMART
traders who would like to hone their trading skills with 'play' money before
opening a live trading account and risking real money.
· “Mini”
and “Micro” Trading:
You would think that
getting started as a currency trader would cost a ton of money. The fact is,
compared to trading stocks, options or futures, it doesn't. Online Forex
brokers offer "mini" and “micro” trading accounts, some with a minimum
account deposit of $300 or less. Now we're not saying you should open an
account with the bare minimum but it does makes Forex much more accessible to
the average (poorer) individual who doesn't have a lot of start-up trading capital.
What Tools
Do I Need to Start Trading Forex?
A computer with a
high-speed Internet connection and all the information on this site is all that
is needed to begin trading currencies.
What
Does It Cost to Trade Forex?
An online currency
trading (a “micro account”) may be opened for with a couple hundred bucks. Do
not laugh – micro accounts and its bigger cousin, the mini account, are both good
ways to get your feet wet without drowning. For a micro account, we'd recommend
at least $1,000 to start. For a mini account, we’d recommend at least $10,000
to start.
HOW
YOU MAKE MONEY TRADING FOREX
In the FX market, you
buy or sell currencies. Placing a trade in the foreign exchange market is
simple: the mechanics of a trade are very similar to those found in other
markets (like the stock market), so if you have any experience in trading, you
should be able to pick it up pretty quickly.
The object of 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.
Example
of making money by buying Euros Trader's Action EUR USD
You purchase 10,000
euros at the
EUR/USD exchange rate
of 1.18 +10,000 -11,800*
Two weeks later, you
exchange your
10,000 euros back into
US dollars at the exchange rate of 1.2500.
-10,000 +12,500**
You earn a profit of
$700. 0 +700
*EUR
$10,000 x 1.18 = US $11,800 ** EUR $10,000 x 1.25 = US $12,500
An exchange rate is
simply the ratio of one currency valued against another currency. For example,
the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss
franc, or how many Swiss francs you need to buy one U.S. dollar.
How to
Read an FX Quote
Currencies are always
quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in
pairs is because in every foreign exchange transaction you are simultaneously
buying one currency and selling another. Here is an example of a foreign exchange
rate for the British pound versus the U.S. dollar: GBP/USD = 1.7500
The first listed
currency to the left of the slash ("/") is known as the base
currency (in this example, the British pound), while the second one on the
right is called the counter or quote currency (in this example,
the U.S. dollar). 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 1.7500 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 1.7500 U.S. dollars when you sell 1 British pound.
The
base currency is the “basis” for the buy or the sell. If you
buy EUR/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/Short
First, you should
determine whether you want to buy or sell. If you want to buy (which actually
means buy the base currency and sell the quote currency), you want the base
currency to rise in value and then you would sell it back at a higher price. In
trader's talk, this is called "going long" or taking a "long
position". Just remember: long = buy. If you want to sell (which
actually means sell the base currency and buy the quote currency), you want the
base currency to fall in value and then you would buy it back at a lower price.
This is called "going short" or taking a "short position". Short
= sell.
Bid/Ask
Spread
All Forex quotes
include a two-way price, the bid and ask. The bid is always lower
than the ask price. The bid is the price in which the dealer is willing
to buy the base currency in exchange for the quote currency. This means the bid
is the price at which you (as the trader) will sell. The price at which the
dealer will sell the base currency in exchange for the quote currency. This
means that the price at which you will buy. The difference between the bid and
the ask price is popularly known as the spread. Let's take a look at an
example of a price quote taken from a trading platform: On this GBP/USD quote,
the bid price is 1.7445 and the ask price is 1.7449. Look at how this broker
makes it so easy for you to trade away your money. If you want to sell GBP, you
click "Sell" and you will sell pounds at 1.7445. If you want to buy
GBP, you click "Buy" and you will buy pounds at 1.7449. In the
following examples, we're going to use fundamental analysis to help us decide whether
to buy or sell a specific currency pair. If you always fell asleep during your economics
class or just flat out skipped economics class, don’t worry! We will cover fundamental
analysis in a later lesson. For right now, try to pretend you know what’s going
on…
EUR/USD
In this example Euro is
the base currency and thus the “basis” for the buy/sell. If you believe that
the US economy will continue to weaken, which is bad for the US dollar, you
would execute a
BUY EUR/USD
order. By doing so you have bought euros in the expectation that they will rise
versus the US dollar. If you believe that the US economy is strong and the euro
will weaken against the US dollar you would execute a SELL EUR/USD
order. By doing so you have sold Euros in the expectation that they will fall
versus the US dollar.
USD/JPY
In this example the US
dollar is the base currency and thus the “basis” for the buy/sell. If you think
that the Japanese government is going to weaken the Yen in order to help its export
industry, you would execute a BUY USD/JPY order. By doing so you have
bought U.S dollars in the expectation that they will rise versus the Japanese
yen. If you believe that Japanese investors are pulling money out of U.S.
financial markets and converting all their U.S. dollars back to Yen, and this
will hurt the US dollar, you would execute a SELL USD/JPY order. By
doing so you have sold U.S dollars in the expectation that they will depreciate
against the Japanese yen.
GBP/USD
In this example the GBP
is the base currency and thus the “basis” for the buy/sell. If you think the
British economy will continue to do better than the United States in terms of
economic growth, you would execute a BUY GBP/USD order. By doing so you
have bought pounds in the expectation that they will rise versus the US dollar.
If you believe the British's economy is slowing while the United State's
economy remains strong like bull, you would execute a SELL GBP/USD order.
By doing so you have sold pounds in the expectation that they will depreciate
against the US dollar.
USD/CHF
In this example the USD
is the base currency and thus the “basis” for the buy/sell. If you think the
Swiss franc is overvalued, you would execute a BUY USD/CHF order. By
doing so you have bought US dollars in the expectation that they will
appreciate versus the Swiss Franc. If you believe that the US housing market
bubble burst will hurt future economic growth, which will weaken the dollar,
you would execute a SELL USD/CHF order. By doing so you have sold US
dollars in the expectation that they will depreciate against the Swiss franc.
I
don't have enough money to buy $10,000 euros. Can I still trade?
You can with margin
trading! Margin trading is simply the term used for trading with borrowed
capital. This is how you're able to open $10,000 or $100,000 positions with as little
as $50 or $1,000. You can conduct relatively large transactions, very quickly
and cheaply, with a small amount of initial capital. Margin trading in the
foreign exchange market is quantified in “lots”. We will be discussing these in
depth in our next lesson. For now, just think of the term "lot" as
the minimum amount of currency you have to buy. When you go to the grocery
store and want to buy an egg, you can't just buy a single egg; they come in
dozens or "lots" of 12. In Forex, it would be just as foolish to buy
or sell $1 EUR, so they usually come in "lots" of $10,000 or $100,000
depending on the type of account you have.
For
Example:
· You
believe that signals in the market are indicating that the British Pound will
go up against the US Dollar.
· You
open 1 lot ($100,000) for buying the Pound with a 1% margin at the price of
1.5000 and wait for the exchange rate to climb. This means you now control
$100,000 worth of British Pound with $1,000. Your predictions come true and you
decide to sell.
· You
close the position at 1.5050. You earn 50 pips or about $500. (A pip is the
smallest price movement available in a currency). So for an initial capital
investment of $1,000, you have made 50% return. Return equals your $500 profit
divided by your $1,000 you risked to trade.
Your
Actions GBP USD Your Money
You buy 100,000 pounds
at the GBP/USD exchange rate of 1.5000 +100,000-150,000 $1,000
You blink for two
seconds and the GBP/USD exchange rate rises to 1.5050 and you sell.
-100,000 +150,500**$1,500
You have earned a profit
of $500. 0 +500
When you decide to
close a position, the deposit that you originally made is returned to you and a
calculation of your profits or losses is done. This profit or loss is then
credited to your account.
We will also be
discussing margin more in-depth in the next lesson, but hopefully you're able
to get a basic idea of how margin works.
Rollover
No, this is not the
same as rollover minutes from your cell phone carrier! For positions open at
your broker's "cut-off time" usually 5pm EST, there is a daily
rollover interest rate that a trader either pays or earns, depending on your established
margin and position in the market. If you do not want to earn or pay interest
on your positions, simply make sure they are all closed before 5pm EST, the established
end of the market day. Since every currency trade involves borrowing one currency
to buy another, interest rollover charges are part of forex trading. Interest is
paid on the currency that is borrowed, and earned on the one that is bought. If
a client is buying a currency with a higher interest rate than the one he/she
is borrowing, the net differential will be positive (i.e. USD/JPY) – and the
client will earn funds as a result. Ask your broker or dealer about specific
details regarding rollover. Don't know what the interest rates are for each
currency? Here is a chart to help you out. Accurate as of 03/19/07.
Demo Trading
You can open a demo
account for free with most Forex brokers. This account has the full capabilities
of a "real" account. Why is it free? It’s because the broker wants
you to learn the ins and outs of their trading platform, and have a good time
trading without risk, so you’ll fall in love with them and deposit real money.
The demo account allows you to learn about the Forex markets and test your
trading skills with ZERO risk.
YOU
SHOULD DEMO TRADE FOR AT LEAST 2MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL
MONEY ON THE LINE. I REPEAT - YOU SHOULD DEMO TRADE FOR AT LEAST 2 MONTHS
BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.
"Don't
Lose Your Money" Declaration
Place your hand on your
heart and say...
"I
will demo trade for at least 2 months before I trade with real money."
Now touch your head
with your index finger and say...
"I
am a smart and patient Forex trader!"
KNOW
YOUR P’s AND L’s
Here is where we’re
going to do a little math. You've probably heard of the terms "pips" and
"lots" thrown around, and here we're going to explain what they are
and show you how they are calculated. Take your time with this information, as
it is required knowledge for all Forex traders. Don’t even think about trading
until you are comfortable with pip values and calculating profit and loss.
What
the heck is a Pip?
The most common
increment of currencies is the Pip. If the EUR/USD moves from 1.2250 to 1.2251,
that is ONE PIP. A pip is the last decimal place of a quotation. The Pip is how
you measure your profit or loss. As each currency has its own value, it is
necessary to calculate the value of a pip for that particular currency. In
currencies where the US Dollar is quoted first, the calculation would be as
follows. Let’s take USD/JPY rate at 119.80 (notice this currency pair only goes
to two decimal places, most of the other currencies have four decimal places) In
the case of USD/JPY, 1 pip would be .01 Therefore,
USD/JPY:
119.80
.01 divided by exchange
rate = pip value
.01 / 119.80 =
0.0000834
This looks like a very
long number but later we will discuss lot size.
USD/CHF:
1.5250
.0001 divided by
exchange rate = pip value
.0001 / 1.5250 =
0.0000655
USD/CAD:
1.4890
.0001 divided by
exchange rate = pip value
.0001 / 1.4890 =
0.00006715
In the case where the
US Dollar is not quoted first and we want to get the US Dollar value, we have
to add one more step.
EUR/USD:
1.2200
.0001 divided by
exchange rate = pip value
So
.0001 / 1.2200 = EUR
0.00008196 but we need to get back to US dollars so we add another calculation
which is
EUR x Exchange rate
So
0.00008196 x 1.2200 =
0.00009999
When rounded up it
would be 0.0001
GBP/USD:
1.7975
.0001 divided by
exchange rate = pip value
So
.0001 / 1.7975 = GBP
0.0000556
But we need to get back
to US dollars so we add another calculation which is
GBP x Exchange rate
So
0.0000556 x 1.7975 =
0.0000998
When rounded up it
would be 0.0001
You’re probably rolling
your eyes back and thinking do I really need to work all this out and the
answer is NO. Nearly all forex brokers will work all this out for you automatically.
It’s always good for you to know how they work it out. In the next section, we
will discuss how these seemingly insignificant amounts can add up.
What
the heck is a Lot?
Spot Forex is traded in
lots. The standard size for a lot is $100,000. There is also a mini lot size
and that is $10,000. As you already know, currencies are measured in pips,
which is the smallest increment of that currency. To take advantage of these
tiny increments, you need to trade large amounts of a particular currency in
order to see any significant profit or loss.
Let’s assume we will be
using a $100,000 lot size. We will now recalculate some examples to see how it
affects the pip value.
USD/JPY at an exchange
rate of 119.90
(.01 / 119.80) x
$100,000 = $8.34 per pip
USD/CHF at an exchange
rate of 1.4555
(.0001 / 1.4555) x
$100,000 = $6.87 per pip
In cases where the US
Dollar is not quoted first, the formula is slightly different.
EUR/USD at an exchange
rate of 1.1930
(.0001 / 1.1930) X EUR
100,000 = EUR 8.38 x 1.1930 = $9.99734 rounded up will be
$10 per pip
GBP/USD at an exchange
rate or 1.8040
(.0001 / 1.8040) x GBP
100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.
Your broker may have a
different convention for calculating pip value relative to lot size but
whichever way they do it, they'll be able to tell you what the pip value is for
the currency you are trading is at the particular time. As the market moves, so
will the pip value depending on what currency you are currently trading.
How
the heck do I calculate profit and loss?
So now that you know
how to calculate pip value, let’s look at how you calculate your profit or
loss. Let’s buy US dollars and Sell Swiss Francs. The rate you are quoted is
1.4525 / 1.4530. Because you are buying US you will be working on the 1.4530,
the rate at which traders are prepared to sell. So you buy 1 lot of $100,000 at
1.4530. A few hours later, the price moves to 1.4550 and you decide to close
your trade. The new quote for USD/CHF is 1.4550 / 14555. Since you're closing
your trade and you initially bought to enter the trade, you now sell in order
to close the trade so you must take the 1.4550 price. The price traders are
prepared to buy at. The difference between 1.4530 and 1.4550 is .0020 or 20
pips. Using our formula from before, we now have (.0001/1.4550) x $100,000 -=
$6.87 per pip x 20 pips = $137.40
Remember, when you
enter or exit a trade, you are subject to the spread in the bid/offer quote.
When you buy a
currency you will use the offer price and when you sell you will use the
bid price. So when you buy a currency, you pay the spread as
you enter the trade but not as you exit. And when you sell a
currency you don't pay the spread when you enter but only when you exit.
What
the heck is Leverage?
You are probably
wondering how a small investor like yourself can trade such large amounts of
money. Think of your broker as a bank who basically fronts you $100,000 to buy
currencies and all he asks from you is that you give him $1,000 as a good faith
deposit, which he will hold you for but not necessarily keep. Sounds too good
to be true? Well this is how forex trading using leverage works. The amount of
leverage you use will depend on your broker and what you feel comfortable with.
Typically the broker will require a minimum account size, also known as account
margin or initial margin. Once you have deposited your money you will then be
able to trade. The broker will also specify how much they require per position
(lot) traded. For example, for every $1,000 you have, you can trade 1 lot of
$100,000. So if you have $5,000 they may allow you to trade up to $500,000 of
Forex. The minimum security (margin) for each lot will vary from broker to
broker. In the example above, the broker required a one percent margin. This
means that for every $100,000 traded, the broker wants $1,000 as a deposit on
the position.
What
the heck is a Margin Call?
In the event that money
in your account falls below margin requirements (usable margin), your broker
will close some or all open positions. This prevents your account from falling
into a negative balance, even in a highly volatile, fast moving market.
Example
#1
Let’s say you open a
regular Forex account with $2,000 (not a smart idea). You open 1 lot of the
EUR/USD, with a margin requirement of $1000. Usable Margin is the money available
to open new positions or sustain trading losses. Since you started with $2,000,
your usable margin is $2,000. But when you opened 1 lot, which requires a
margin requirement of $1,000, your usable margin is now $1,000. If your losses
exceed your usable margin of $1,000 you will get a margin call.
Example
#2
Let’s say you open a
regular Forex account with $10,000. You open 1 lot of the EUR/USD, with a
margin requirement is $1000. Remember, usable margin is the money you have available
to open new positions or sustain trading losses. So prior to opening 1 lot, you
have a usable margin of $10,000. After you open the trade, you now have $9,000 usable
margin and $1,000 of used margin. If your losses exceed your usable margin of
$9,000, you will get a margin call. Make sure you know the difference between usable
margin and used margin. If the equity (the value of your account)
falls below your usable margin due to trading losses, you will either have to
deposit more money or your broker will close your position to limit your risk
and his risk. As a result, you can never lose more than you deposit. If you are
going to trade on a margin account, it’s vital that you know what your broker’s
policies are on margin accounts. You should also know that most brokers require
a higher margin during the weekends. This may take the form of 1% margin during
the week and if you intend to hold the position over the weekend it may rise to
2% or higher. The topic of margin is a touchy subject and some argue that too
much margin is dangerous. It all depends on the individual. The important thing
to remember is that you thoroughly understand your broker’s policies regarding
margin and that you understand and are comfortable with the risks involved. Some
brokers describe their leveraging in terms of a leverage ratio and other in
terms of a margin percentage. The simple relationship between the two terms is:
Leverage = 100 / Margin Percent Margin Percent = 100 / Leverage Leverage is
conventionally displayed as a ratio, such 100:1 or 200:1.
WOULD
YOU LIKE FRIES WITH YOUR PIPS?
The term
"order" refers to how you will enter or exit a trade. Here we discuss
the different types of orders that can be placed into the foreign exchange
market. Be sure that you know which types of orders your broker accepts. Different
brokers accept different types of orders.
Order
Types
Basic Order Types
There are some basic
order types that all brokers provide and some others that sound weird. The
basic ones are:
· Market
order
A market order is an
order to buy or sell at the current market price. For example, EUR/USD is currently
trading at 1.2140. If you wanted to buy at this exact price, you would click
buy and your trading platform would instantly execute a buy order at that exact
price. If you ever shop on Amazon.com, it’s (kinda) like using their 1-Click
ordering. You like the current price, you click once and it's yours! The only
difference is you are buying or selling one currency against another currency
instead of buying Britney Spears CDs.
· Limit
order
A limit order is an
order placed to buy or sell at a certain price. The order essentially contains
two variables, price and duration. For example, EUR/USD is currently trading at
1.2050. You want to go long if the price reaches 1.2070. You can either sit in
front of your monitor and wait for it to hit 1.2070 (at which point you would
click a buy market order), or you can set a buy limit order at
1.2070 (then you could walk away from your computer to attend your ballroom
dancing class). If the price goes up to 1.2070, your trading platform will
automatically execute a buy order at that exact price. You specify the price at
which you wish to buy/sell a certain currency pair and also specify how long
you want the order to remain active (GTC or GFD).
· Stop-loss
order
A stop-loss order is a
limit order linked to an open trade for the purpose of preventing additional
losses if price goes against you. A stop-loss order remains in effect until the
position is liquidated or you cancel the stop-loss order. For example, you went
long (buy) EUR/USD at 1.2230. To limit your maximum loss, you set a stop-loss
order at 1.2200. This means if you were dead wrong and EUR/USD drops to 1.2200
instead of moving up, your trading platform would automatically execute a sell
order at 1.2200 and close out your position for a 30 pip loss (eww!).
Stop-losses are extremely useful if you don't want to sit in front of your
monitor all day worried that you will lose all your money. You can simply set a
stop-loss order on any open positions so you won't miss your basket weaving class.
Weird
Sounding Order Types
· GTC
(Good ‘til canceled)
A GTC order remains
active in the market until you decide to cancel it. Your broker will not cancel
the order at any time. Therefore it's your responsibility to remember that you
have the order scheduled.
· GFD
(Good for the day)
A GFD order remains
active in the market until the end of the trading day. Because foreign exchange
is a 24-hour market, this usually means 5pm EST since that that's U.S. markets
close, but I’d recommend you double check with your broker.
· OCO
(Order cancels other)
An OCO order is a
mixture of two limit and/or stop-loss orders. Two orders with price and
duration variables are placed above and below the current price. When one of
the orders is executed the other order is canceled. Example: The price of EUR/USD
is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation
of a breakout or initiate a selling position if the price falls below 1.1985.
The understanding is that if 1.2095 is reached, you will buy order will be triggered
and the 1.1985 sell order will be automatically canceled. Always check with
your broker for specific order information and to see if any rollover fees will
be applied if a position is held longer than one day. Keeping your ordering
rules simple is the best strategy.
Summary
The basic order types
(market, stop loss, and limit) are usually all that most traders ever need.
Unless you are a veteran trader (yeah right), don’t get fancy and design a
system of trading requiring a large number of orders sandwiched in the market
at all times – stick with the basic stuff first. Make sure you fully understand
and are comfortable with your broker’s order entry system before executing a
trade.
DO NOT
make a trade with real money until you have an extremely
high comfort level with the trading platform and order entry system.
CHOOSING
A FOREX BROKER
Before trading Forex
you need to set up an account with a Forex broker. So what exactly is a broker?
In simplest terms, a broker is an individual or a company that buys and sells orders
according to the trader's decisions. Brokers earn money by charging a
commission or a fee for their services. You may feel overwhelmed by the number
of brokers who offer their services online. Deciding on a broker requires a
little bit of research on your part, but the time spent will give your insight
into the services that are available and fees charged by various brokers.
Is the
Forex broker regulated?
When selecting a
prospective Forex broker, find out with which regulatory agencies it is registered
with. The Forex market is labeled as an “unregulated” market, and it basically is.
Regulation is typically reactive, meaning only after you’ve been bamboozled out
of your entire savings will something be done. In the United States a broker
should be registered as a Futures Commission Merchant (FCM) with the Commodity
Futures Trading Commission (CFTC) and a NFA member. The CFTC and NFA were made
to protect the public against fraud, manipulation, and abusive trade practices.
You can verify Commodity Futures Trading Commission (CFTC) registration and NFA
membership status of a particular broker and check their disciplinary history
by phoning NFA at (800) 621-3570 or by checking the broker/firm information
section (BASIC) of NFA's Web site at www.nfa.futures.org/basicnet/. Among
the registered firms, look for those with clean regulatory records and solid financials.
Stay away from non-regulated firms!
The NFA is stepping up
their efforts in educating investors about retail forex trading. They’ve
created a brochure fit for a Pulitzer Prize called, "Trading
in the Retail Off- Exchange Foreign Currency Market”. The NFA recommends you read
it before taking the forex plunge. They’ve also developed a Forex
Online Learning Program, an interactive self-directed program explaining how retail forex
contracts are traded, the risks inherent in forex trading and steps individuals
should take before opening a forex account. Both the brochure and the online
learning program are available at no charge to the public.
Customer
Service
Forex is a 24-hour
market, so 24-hour support is a must! Can you contact the firm by phone, email,
chat, etc.? Do the reps seem knowledgeable? The quality of support can vary
drastically from broker to broker, so be sure to check them out before opening
an account. Here’s a good tip: choose several online brokers and contact their
help desks. Seeing how quickly they respond to your questions can be key in gauging
how they will respond to your needs. If you don't get a speedy reply and a
satisfactory answer to your question, you certainly wouldn't want to trust them
with your business. Just be aware that as in other types of businesses,
pre-sales service might be better than post-sales service.
Online
Trading Platform
Most, if not all, Forex
brokers allow you to trade over the Internet relatively easy. The backbone of
any trading platform is their ordering system. So trading software is very important.
Get a feel for the options that are available by trying out a demo account at a
few online brokers.
Closely examine the
broker’s screen layout. It should include:
· the
ability to view real-time currency exchange rate quotes,
· an
account summary showing your current account balance with realized and unrealized
profit and loss, margin available, and any margin locked in open positions. Most
trading platforms are either Web based (in Java), or a client-based program you
can install on your computer, and which version you choose is your personal
preference:
· Web
based software is hosted on your broker’s web site. You won’t have to install
any software on your own computer, and you’ll be able to log in from any
computer that has an Internet connection.
· A
client-based software program, or one that you download and install, will only allow
you to trade on your own computer (unless you install the program on every
computer you use). Usually, the "download and install" program runs
faster, but most programs are operating system specific. For example, most
brokers only offer their trading platform application to run on Microsoft
Windows. If heaven forbid you are a Mac user (!), you won’t be able to install
the application and will have to use your broker’s Web based or Java-based trading
platform. These two (the Web or Java-based) will run on any computer since they
run through your internet browser. Java-based software programs are preferred
by most brokers, who think they are more safe and reliable. Java-based software
tends to be less vulnerable to attack from viruses and hackers during
transmissions than "download and install" software. But always be
sure to open a demo account and test out the broker's platform before opening a
real account!
Don’t
forget your high speed Internet connection
The Forex market is a
fast moving market and you will need up-to-the second information to make
informed trading decisions. Make sure you have a high speed Internet
connection. If you don’t, you might as well not even bother trading. Dial-up
will absolutely not work for Forex! If you plan to trade online you will need a
modern computer and high speed Internet connection, and we can’t stress this
enough!
Bells
and Whistles
Any Forex broker worth
his salt should offer you real-time quotes and allow you to quickly enter and
exit the market. These are minimal requirements of any trading software.
Upgraded software packages are usually offered as an extra monthly fee by
brokers. Most brokers now offer integrated charting and technical analysis
packages with their trading platforms. The level of integration with the trading
platforms varies and is worth understanding carefully.
Mini/Micro
Accounts
Most brokers offer very
small “mini-accounts” and even smaller "micro-account" for as little
as a couple hundred bucks. These little cute accounts are a great way to get
started and test your trading skills and gain experience.
Broker
Policies
Before selecting an
online Forex broker, you should closely examine their features and policies.
These include:
· Available
Currency Pairs
You should confirm that
the prospective broker offers, at minimum, the seven major currencies (AUD,
CAD, CHF, EUR, GBP, JPY, and USD).
· Transaction
Costs
Transaction costs are
calculated in pips. The lower the number of pips required per trade by the
broker, the greater the profit that the trader makes. Comparing pip spreads of
half dozen brokers will reveal different transaction costs. For example, the
bid/ask spread for EUR/USD is usually 3 pips, but if you can find 2 pips, that’s
even better.
· Margin
Requirement
The lower the margin
requirement (meaning the higher the leverage), the greater the potential for
higher profits and losses. Margin percentages vary from .25% and up. Low
margin requirements are great when your trades are good, but not so great when
you are wrong. Be realistic about margins and remember that they swing both
ways.
· Minimum
Trading Size Requirement
The size of one lot may
differ from broker to broker, spanning 1,000, 10,000, and 100,000 units. A lot
consisting of 100,000 units is called a “standard” lot. A lot consisting of
10,000 units is called a “mini” lot. A lot consisting of 1,000 units is called
a “micro” lot. Some brokers even offer fractional unit sizes (called odd lots)
which allow you create your own unit size.
· Rollover
Charges
Rollover charges are
determined by the difference between the interest rate of the country of the
base currency and the interest rates of the other country. The greater the
interest rate differential between the two currencies in the currency pair, the
greater the rollover charge will be. For example, when trading GBP/USD, if the
British pound has the greater interest differential with the U.S. dollar, then
the rollover charge for holding British pound positions would be the most
expensive. On the other hand, if the Swiss Franc were to have the smallest interest
differential to the U.S. dollar, then overnight charges for USD/CHF would be
the least expensive of the currency pairs.
· Margin
Account Interest Rate
Most brokers pay
interest on a trader’s margin account. The interest rates normally fluctuate
with the prevailing national rates. If you decide to take an extended break
from trading, the money in your margin account will be accruing interest. Keep
in mind that most brokers DO NOT allow you to accrue interest unless your
margin requirement is at least 2% (50:1).
· Trading
Hours
Nearly all brokers
align their hours of operation to coincide with the hours of operation of the
global Forex market: 5:00 pm EST Sunday through 4:00 pm EST Friday.
Other
Policies
Be sure to scrutinize a
prospective broker’s “fine print” section to be fully aware of all the nuances
that a specific broker may impose on a new trader. Finding the right broker is
a critical part of the process. It’s not easy and requires some real work on
your part. Don’t pick the first one that looks good to you. Keep looking and trying
different demo accounts.
Summary
What to look for in an
online Forex broker/dealer:
1. Low Spreads.
In Forex trading the
‘spread’ is the difference between the buy and sell price of any given currency
pair. Lower spreads save you money.
2. Low minimum
account openings.
For those that are new
to Forex trading and for those that don’t have millions of dollars in risk
capital to trade, being able to open a micro trading account with only $250 (we
recommend at least $1,000) is a great feature for new traders.
3. Instant automatic
execution of your orders.
This is very important
when choosing a Forex broker. Don’t settle with a firm that re-quotes you when
you click on a price or a firm that allows for price ‘slippage’. This is very
important when trading for small profits. You want what we call a WYSIWYG
(pronounced wiz-ee-wig) broker! This means you want instant execution of your
orders and the price you see and "click" is the price that you should
get...WYSIWYG = What You See Is What You
Get!
4. Free charting and
technical analysis
Choose a broker that
gives you access to the best charting and technical analysis available to
active traders. Look for a broker that provides free professional charting
services and allows traders to trade directly on the charts.
5. Leverage
Leverage can either
make you super rich or super broke. Most likely, it will be the latter. As an
inexperienced trader, you don't want too much leverage. A good rule of thumb is
to not use more than 100:1 leverage for Standard (100k) accounts and 200:1
forMini (10k) accounts.
OPENING
A TRADING ACCOUNT
Opening a new online
trading account with a Forex broker can be done in three simple steps:
1. Selecting an
account type
2. Registration
3. Activating your
account
Before trading a dime
of your hard earned money, you may want to think about opening demo account.
Actually, open up two or three demos - why not? It’s all FREE! Try out several
different brokers to get a feel for the right one for you.
Account
Types
When you're ready to
open a live account, you have the choice of opening a Forex trading account
under your personal name or a business name. Also, you will have to decide whether
or not you want to open a "standard" account or a "mini"
account (or "micro" account if available). Inexperienced traders or
traders with a small amount of capital to trade should always open a mini
account. Only experienced traders with lots of money should open a standard
account.
Always
read the fine print.
Some brokers have a
“managed account” option in their applications. If you want the broker to trade
your account for you, pick this, but obviously you’re here to learn how to trade
the Forex for yourself. Besides, opening a managed account typically requires a
pretty big minimum deposit - $25,000 or higher - and the broker also takes a
portion of the profits. Also, make sure you open a Forex spot account
and not a “forwards” or “futures” of account.
Registration
You will have to submit
paperwork in order to open an account and the forms will vary from broker to
broker. They are usually provided in PDF format and can be viewed and printed
using Adobe Acrobat Reader program.
Account
Activation
Once the broker has
received all the necessary paperwork, you should receive an email with
instructions on completing your account activation. After these steps have been
completed, you will receive a final email with your username, password, and
instructions on how to fund your account. So all that’s left is for you to
login and start trading. Pretty easy huh? We strongly advise you spend some
time at our entire School of Pipsology before you start risking real
money.
Why?
Because if you don’t, you
will lose all of your money and freak out! You’re probably
thinking, “So if I read through your School of Pipsology first, I will
not lose any money?”
No, we’re not saying
that. You will still probably lose money... But you’ll lose LESS,
much less, and probably feel fine that you lost money. Go through our
entire School of Pipsology and you'll understand what we
mean.
Print and run! Prefer to print out these lessons? Buy the PDF (E-BOOK).
Only N4300 or $20.
Bank: Diamond Bank
Account Name: John Chukwudi Njoku
Account Number: 0045173672
OR Pay $20 With Pay-pal, Our Pay-pal E-mail Address
Is; valdonfirm@gmail.com.com
You can also do internet transfer to any of the above bank account information.
After making payment send a mail or message to valdonfirm@gmail.com or
07031633709 or +2347031633709 respectively.
Your message must contain Subject line “FOREX TRADING INFO”, Amount Paid, Date
of Payment, Bank Paid to, Depositors Name and Teller Number”. Then we will send
the download link of all the reports to your email address within 12 hours.
Thanks, Comrade J.C Njoku
PS: "Just for you to know in case you don’t know, I will never consider
your purchase binding until you have had time to preview all of these materials
and put it into action. So, use what you learn for days. Then, if it does not
have a significant tangible impact on your results, just keep all the ebooks
and ask for a full refund, no questions asked! Frankly, there is really no
reason not to place your order today. Just All risk is lifted from your
shoulders and placed squarely on mine. Place your order today."
PSS: This is a customize offer and I am afraid you might not find anything like
this anywhere on the internet again. So take advantage of this special offer
today. It’s just N4300 or $20 for some products worth of N8,385 or $39.
Yesterday, 
