Scribd
Upload
714 views16 pages

Lesson 1 Introduction To Forex Trading

Uploaded by

Khin Yadana Aye
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
714 views16 pages

Lesson 1 Introduction To Forex Trading

Uploaded by

Khin Yadana Aye
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 16

Lesson 1

Introduction to Forex Trading

FreedomTrader Copyright © 2021


What is Forex?

• The Foreign Exchange (Forex) market is one in which a nation’s
currency is traded for that of another at a mutually agreed rate.
• Forex market is run electronically within a network of banks, 24 hours,
5 days a week.
• Largest market in the world- $3 trillion per day versus $500 billion for
stocks

The Business of Forex Trading



• Minimal Investment
• Mini trading account starts at USD200
• Minimal Time Commitment
• 3-6 hours a day is more than sufficient
• No Employees, Office or Inventory
• Recession Proof!
•To succeed, you must be willing to work hard and master this
professional skill!

FreedomTrader Copyright © 2021


The Business of Forex Trading


• 24-Hour Market Gives Flexibility


• Build your business from anywhere in the world
• Plan your daily trading routine around your day job
•Generate Consistent Profits
• Profit returns of 5%-20% a month are very possible
• $100,000 account $5,000-$20,000 a month profits

FreedomTrader Copyright © 2021


Forex Basics

Forex is quoted in currency pairs. Each currency is given a 3-letter code .

8 Most Common Other Currency


Currency Symbols Symbols
EUR Euro SEK Swedish Krona
USD US Dollar DKK Danish Krone
GBP British Pound NOK Norwegian Krone
JPY Japanese Yen SGD Singapore Dollar
CHF Swiss Franc ZAR South African Rand
AUD Australian Dollar
CAD Canadian Dollar
NZD New Zealand Dollar

Successful traders only trade the most common & liquid 7 pairs:
EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD
and USD/CAD.
FreedomTrader Copyright © 2021
Currency Exchange Rates

Currencies Are Quoted in Pairs and mostly in 4-decimal places.

EUR / USD = 1.35052


theFreedomTraderEuro.Copyright © MEI 2018
Base Quote Pip
Currency Currency Fractional Pip
The base currency always has a value of ‘1’. In this case, 1 Euro is equivalent to
1.3505 US dollars at that point in time.

If you want to buy 1 Euro, you would have to pay 1.3505 US dollars. If you
want to sell 1 Euro, you would receive 1.3505 US dollars.
If the EUR/USD moves from 1.3505 to 1.3510, the Euro is strengthening
against the US dollar and the US dollar is weakening against the Euro.
FreedomTrader Copyright © 2021
Currency Exchange Rates

While all other pairs are quoted to 4 decimal places (1 pip = 0.0001), The JPY
pairs are quoted to 2 decimal places (1 pip = 0.01).

USD / JPY = 98.734


Pip Fractional Pip
•This quote tells is that 1 US dollar is equivalent to 98.73 Japanese Yen.
PIP (Price Interest Point)
•Pip is the smallest change in value for any given forex quote.
•For all non-JPY forex pairs, 1 pip represents the 4th decimal place of the
quote. E.g. When EUR/USD moves from 1.3505 to 1.3506, it is a movement of
0.0001 or 1 ‘pip’.

•For JPY forex pairs, 1 pip represents the 2nd decimal place of the quote. E.g.
When USD/JPY moves from 80.55 to 80.87, it is a movement of 32 pips.
FreedomTrader Copyright © 2021
Contract Lot Sizes

Currency Pair 1 Standard Lot 1 pip
EUR/USD EUR 100,000 0.0001
USD/CHF USD 100,000 0.0001
GBP/USD GBP 100,000 0.0001
USD/JPY USD 100,000 0.01
GBP/JPY GBP 100,000 0.01
AUD/USD AUD 100,000 0.0001
1 standard lot = 100,000 of the base currency
FreedomTrader Copyright © 2021
Contract Lot Sizes

A standard lot is 100,000 units of the base currency.
E.g. When you buy one standard lot of EUR/USD, you are buying 100,000 Euros
with US dollars

Other Lot Sizes

Lot Size Units

Standard 100,000
Mini 10,000
Micro 1,000
Nano 100
FreedomTrader Copyright © 2021
Calculating Forex Profits

Profit/Loss =
No. of Pips
x No. of Lots
x $Value Per Pip Per Standard Lot

$Value per pip per standard lot is USD10 or about USD10 for most
of the actively traded pairs (i.e. EUR/USD, GBP/USD, AUD/USD)
Go to https://www.mtpredictor.com/Pip-Value-Table to find out
$value per pip per lot for all major currency pairs

FreedomTrader Copyright © 2021


For standard lot
(100,000), multiply
values by 10

FreedomTrader Copyright © 2021


Profit By Going Long

Going Long EUR/USD


1 Std Lot EUR100,000

Sell EUR/USD 1.3550

Profit =
40 pips x $10 x 1 Std Lot = $400

Buy EUR/USD 1.3510


$Value per pip per
std lot

FreedomTrader Copyright © 2021


How to Profit from Forex Moves

Going Long EUR/USD 1 standard contract at EUR/USD 1.3510

Buy EUR/USD at 1.3510


Sell EUR/USD at 1.3550 3550-3510 = 40 pips
Profits = Number of pips x $value per pip per std lot x number lots
= 40 pips x US$10 x 1 lot
= US$400 EUR USD
Another way of looking at it.... +100,000 -135,100
Buy EUR100,000 and pay USD135,100
Sell EUR 100,000 and receive USD135,500 -100,000 +135,500

Total profit earned = USD400 0 +400

Without leverage, you would have to invest USD 135,100 to earn USD 400 (0.29%
Return). Forex brokers allow you to leverage 1: 100 times.

If we employ leverage of 1: 20, we just need to invest a margin of US$6,755 (5%


of the position size). Our return becomes $400/$6,755 = 5.9% FreedomTrader Copyright © 2021
Profit By Going Short

Going Short EUR/USD


1 contract EUR100,000
Sell EUR/USD 1.3560

Profit =
40 pips x $10 x 1 Std Lot = $400

Buy EUR/USD 1.3520 $Value per pip per


std lot

FreedomTrader Copyright © 2021


How to Profit from Forex Moves

Going Short EUR/USD 1 standard contract at EUR/USD 1.3560

Sell EUR/USD at 1.3560


Buy EUR/USD at 1.3520 3560-3520 = 40 pips
Profits = Number of pips x $value per pip per std lot x number lots
= 40 pips x US$10 x 1 lot
= US$400 EUR USD
Another way of looking at it.... -100,000 +135,600
Sell EUR100,000 and Receive USD135,600
Buy EUR 100,000 and Pay USD135,200 +100,000 -135,200

Total profit earned = USD400 0 +400

Without leverage, you would have to utilise USD 135,600 to earn USD 400 (0.29%
Return) .

If we employ leverage of 1: 20, we just need to invest a margin of US$6,780 (5%


of the position size). Our return becomes $400/$6,780 = 5.9%.FreedomTrader Copyright © 2021
The Power of Leverage


In forex, brokers allow traders to leverage up to 1: 100


This means you can buy/sell USD 100,000 with just USD1,000 margin.

In most trading situations, we usually only leverage up to 1: 20. This


means with a USD 10,000 account, we buy/sell up to USD200,000 per
trade. This is all that is required to achieve exceptionally high returns.

Leverage Margin required

1:10 10%

1:20 5%

1:50 2%

1:100 1%

FreedomTrader Copyright © 2021


4 Kinds of Forex Traders


1) Scalpers 3) Swing Traders


Target: 5-10 pips per trade Target: 50-150 pips per trade
Trade duration: seconds-minutes Trade duration: Less than a week
Charts: M1 and M5 Charts: H1 and H4

2) Day Traders 4) Position Traders


Target: 20-40 pips per trade Target: 500-1000 pips per trade
Trade duration: Within a day Trade duration: weeks to months
Charts: M15 and H1, H4 Charts: D1 (Daily Candles), W1.

FreedomTrader Copyright © 2021

You might also like