BASIC FOREX

What is forex?
The foreign exchange market, which is usually known as “forex” or “FX,”
is the largest financial market in the world.

Quite simply, it’s the global financial market that allows one to trade
currencies.

If you think one currency will be stronger than the other, and you end up
correct, then you can make a profit.

An exchange rate is the relative price of two currencies from two

different countries.

You’ve exchanged one currency for another.

The forex market is open 24 hours a day and 5 days a week, only closing
down during the weekend.

The day starts when traders wake up in Auckland/Wellington, then

moves to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and
finally, New York, before trading starts all over again in New Zealand!

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Forex Trading Sessions
Now that you know what forex is, why you should trade it, and who makes
up the forex market, it’s about time you learned when you can trade.

It’s time to learn about the different forex trading sessions.

Yes, it is true that the forex market is open 24 hours a day, but that
doesn’t mean it’s always active the entire day.

Forex Market Sessions

The uptight ones who probably got straight A’s and followed all the rules as
children only consider USD, EUR, JPY, GBP, and CHF as major currencies.

Then they label AUD, NZD, and CAD as "commodity currencies ".

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 Forex Market Size And Liquidity

Unlike other financial markets like the New York Stock Exchange
(NYSE) or London Stock Exchange (LSE), the forex market has neither a
physical location nor a central exchange.

The forex market is considered an over-the-counter (OTC) market due

to the fact that the entire market is run electronically, within a
network of banks and non-bank financial institutions (NBFIs),
continuously over a 24-hour period.

This means that the FX market is spread all over the globe with no
central location.

Trades can take place anywhere as long as you have an internet

connection!

The U.S. dollar is the most traded currency, making up 84.9% of all
transactions!

The euro’s share is second at 39.1%, while that of the yen is third at
19.0%.

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What is a Pip?

If EUR/USD moves from 1.1050 to 1.1051, that .0001 USD rise in value
is ONE PIP

For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.

0.0001= 1 pip

EUR/USD = 1.1051
pip

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What is a Lot in Forex?
A “lot” is a unit measuring a transaction amount.

Lot Size Units Volume $/pip

Standard Lot 100,000 1.00 $10.00 /pip

Mini Lot 10,000 0.10 $1.00 /pip

Micro Lot 1,000 0.01 $0.10 /pip

Nano lot 100 0.001 $0.01 /pip

Pip Value per:

Close
PAIR
Prcie
Standard
Unit mini lot micro lot Nano lot
lot

EUR/USD Any $0.0001 $10 $1 $0.1 $0.01

1 USD =
USD/JPY $0.000125 $12.5 $1.25 $0.125 @0.0125
80 JPY

1. USD/JPY at an exchange rate of 119.80: (.01 / 119.80) x 100,000 = $8.34 per

2. USD/CHF at an exchange rate of 1.4555: (.0001 / 1.4555) x 100,000 = $6.87 per

In cases where the U.S. dollar is not quoted first, the formula is slightly
different.

1. EUR/USD at an exchange rate of 1.1930: (.0001 / 1.1930) X 100,000 =

8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
2. GBP/USD at an exchange rate of 1.8040: (.0001 / 1.8040) x 100,000
= 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.

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What 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 that basically fronts you $100,000 to

buy currencies.

All the bank asks from you is that you give it $1,000 as a good-faith
deposit, which it will hold for you but not necessarily keep.

Sounds too good to be true? This is how forex trading using leverage
works.

For example, if the allowed leverage is 100:1 (or 1% of the position

required), and you want to trade a position worth $100,000, but you
only have $5,000 in your account.

For example, if the allowed leverage is 100:1 (or 1% of position

required), and you wanted to trade a position worth $100,000, but
you only have $5,000 in your account.

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What is a Spread in Forex Trading?
Forex brokers will quote you two different prices for a currency pair:
the bid and ask price.

The “bid” is the price at which you can SELL the base currency.

The “ask” is the price at which you can BUY the base currency.

The difference between these two prices is known as the spread.

Also known as the “bid/ask spread“

EUR/ USD
1.1051 /1.1053

SPREAD = 1.1053 - 1.1051 = 2 pips

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Order Types
There are some basic order types that all brokers provide and some
others that sound weird.

Orders fall into two buckets:

1. Market order: an order instantly executed against a price that your
broker has provided.
2. Pending order: an order to be executed at a later time at the price
you specify.

Here’s a quick “map” of the different types of orders within each bucket.

Buy Limit – if you plan on going long at a level lower than the market price

Sell Limit – if you plan on going short at a level higher than the market price

Buy Stop – if you plan on going long at a level higher than the market price

Sell Stop – if you plan on going short at a level lower than the market price

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Introduction to MetaTrader 4
Congratulations! If you’ve made your way to this lesson, it means that
you’re now ready to open a demo or live MetaTrader 4 (MT4) trading
account.

And because BabyPips.com is the bee’s knees, we’re here to guide you
through it.

First, you should know that MetaTrader 4 (MT4) is simply a trading

platform used by tons of traders and brokers.

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Traders use it to view real-time currency prices, open or adjust orders,
get technical and fundamental analysis. Meanwhile, brokers use the
MT4 platform to reach a broader audience.

What’s good about the MT4 platform is that it offers boatloads of

currency pairs and indicators that you can choose from.

Not only that, but its customizable charts are so newbie-friendly that
any six-year-old kid can spot breakout patterns from it.

Mechanical traders can also plug in their EAs in the MT4 platform. This
makes it easy for them to track trade opportunities.

The MT4 platform can’t be accessed through a website though. You

have to install the platform on your computer or your phone before
you can gain access to your trades and currency prices.

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MT4 Basics: How to Set Orders

Now that you’ve set up your MT4 account, it’s time to learn how to use
it!

We know, we know. With so many tabs, windows, and buttons, the MT4
platform can look a little bit intimidating if it’s your first time using it.

But don’t worry, it won’t bite! Besides, we’ll be holding your hand
through the entire process and go nice and slow.

We’ll start with the basics – setting orders.

By the time you’re done with this lesson, you’ll know how to:

1. Buy or sell via market execution

2. Buy or sell via pending order
3. Modify a trade after it has been entered

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What Is Risk Management?

Risk management is one of the most important topics you will ever
read about trading.

Why is it important? Well, we are in the business of making money, and

in order to make money, we have to learn how to manage risk
(potential losses).

Ironically, this is one of the most overlooked areas in trading.

Many forex traders are just anxious to get right into trading with no
regard for their total account size.

They simply determine how much they can stomach losing in a single
trade and hit the “trade” button.

There’s a term for this type of investing….it’s called…

GAMBLING! Never Risk More Than 2% Per

Trade
How much should you risk per trade?

Great question.
Try to limit your risk to 2% per trade.

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