View INTRODUCTION TO FOREX blogger.com from FINC MISC at Kirinyaga University College (JKUAT). INTRODUCTION TO FOREX TRADING SYLLABUS Part 1: Introduction Introduction to Forex Trading The Leader in Rule-Based Trading™ 1 Important Information and Disclaimer: TradeStation Securities, Inc. seeks to serve institutional and active traders. Please Introduction to Forex Trading - Free download as PDF File .pdf), Text File .txt) or read online for free Introduction to Forex Trading with TradeStation. Market Overview Forex or FX, is an abbreviation for Foreign Exchange. It is a way of trading exchange rates between two The purpose of this ebook is to introduce the forex market to you. As with many markets there are many derivative of the central market such as futures, options and forwards. In this book ... read more
What is Forex? Unlike other inancial markets that operate at a centralized location, the worldwide Forex market has no central marketplace. The Forex market is just a global electronic network of banks, inancial institutions, brokers and individual Forex traders, all involved in the buying and selling of currencies.
Trading activity occurs worldwide 24 hours a day, corresponding to the opening and closing of inancial centers around the world; and so at any time, ive days a week and in any location around the globe there are Forex buyers and sellers, making the Forex market the most active and liquid market in the world.
Traditionally, Forex was traded in large volumes by only the banking sectors for their own commercial and investment purposes. But since , when the exchange rates were allowed to be loated freely, trading volume has increased dramatically. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to speculate, pay for goods and services, transact in inancial assets or to reduce the risk of currency movements by hedging their exposure in other markets.
This exchange system was called the barter system. The irst coins to be used as a medium of exchange were made from gold and sil- ver. Later on, during the middle ages, people began to use paper money to exchange value as an I. however, the foreign exchange industry itself is the newest of the inancial markets.
during the last century, the foreign exchange market has undergone some dramatic transformations. Prior to WWI, central banks supported their currencies through convertibility to gold. Paper money could be converted into gold on request to the bank. Since it was not likely that all holders of paper money would request gold at the same time, banks only needed to keep a determined amount of gold on hand in order to handle normal exchange requests gold reserves. And so, the amount of money outstanding was increased relative to the amount of actual gold the bank has on hand.
In , foreign exchange controls were introduced in a bid to control the forces of supply and demand, with the intention of structuring the world economic system in a way that would stabilize the volatile foreign exchange markets. And so in July , towards the end of WWII, the Allied countries U. The Bretton Woods conference determined a system for pegging currencies and created the International Monetary Fund.
During the s, the volatility between different country economies became more extreme, making it dificult for some to maintain the pegging system. The Bretton Woods control system collapsed in , when President Nixon suspended 4 IntroductIon to the BasIcs of forex www. The dollar had lost its attraction as the sole international currency due to the impact of growing trade deicits and government budget deicits.
The European Joint Float was established by West Germany, France, Italy, the Netherlands, Belgium and Luxemburg and in , the free-loating system was oficially mandated. The Birth of the Euro The quest continued in Europe for currency stability with the signing of The Maastricht treaty.
This was to not only ix exchange rates but also actually replace many of them with the Euro in Floating Exchanges Systems Under a loating exchange system, currencies are not valued in terms of gold - they are valued in terms of other currencies.
In the early 20th century, two world wars brought about social upheavals, rapid inlation, and the destruction of the setting which made the gold standard operable. Between the wars, many countries elected to temporarily abandon the gold standard and opt for loating exchange systems until their economies returned to the point at which if a currency drifted too far outside its band and could not be contained by central bank intervention, the country was allowed to adjust its peg by setting a new exchange rate.
With the instability brought about by the Vietnam War, central banks inally began to convert their dollars to gold. In the Bretton Woods System of adjustable pegs was oficially abandoned, and the subsequent Jamaica Agreement basically allowed the presence of any exchange system a country chose to use. What is traded on the Foreign Exchange? forex trading is the simultaneous buying of one currency and the selling of another or the buying and selling of money from one country against the money from another country.
when you are buying a currency, think of it as if you are buying a share in a particular country. for example, when you buy us dollar, you are in effect buying a share in the us economy, as the price of the currency is a direct relection of what the market thinks about the current and future health of the us economy.
currency prices are determined by a number of factors. In some cases, governments may try to control the price of their currency by buying extensively in order to raise the price or looding the market in order to lower the price. Nonetheless, it is impossible for one force to control the market for any length of time due to the gigantic volume of the forex market, market forces will prevail in the long run, making currency the most open and fair investment opportunities available.
Unlike other inancial markets, the FX spot market has neither a physical location nor a central exchange. otc implies that you have to trade with a speciic bank or broker when you buy and sell a currency 6 IntroductIon to the BasIcs of forex www. for example: aud australian dollars , JPY Japanese yen , chf swiss francs and cad canadian dollars When trading currencies, the trade is always done in pairs and so when you buy one currency, another currency is simultaneously being sold.
The currency pair is used to represent how much Quote currency is required to exchange for the base currency. The Quote currency is the second currency quoted in a currency pair in forex.
In a direct quote, the quote currency is the foreign currency. as such the Base currency is always equal to 1 monetary unit of exchange. The dominant base currencies are, in order of frequency, the euR, GBP, and usd.
When a currency is quoted against the us dollar it is called a direct rate. any currency pair that does not trade against the us dollar is referred to as a cross rate. so what takes place once a trade is taking place? If the Pound rises relative to the dollar, you sell the position you Sell British Pound and have made a proit. Keep in mind that there are no standard cross-currency Quotes.
Some have the base currency on the top while others have it on the bottom. So how can you tell which is which? You need to know at least one pair of currencies and which one of the pair is the more valuable. In the Forex world, currencies are traded in fractions of a Cent, or euro, and so on. Nearly all currency pairs consist of ive signiicant digits and most pairs have the decimal point immediately after the irst digit, with four decimal points to follow.
In this example, a single pip equals the smallest change in the fourth decimal place - that is, 0. as mentioned earlier, the quote currency is translated into a certain num- ber of units of the base currency.
When the price of the quoted currency goes up, it indicates that the base currency is becoming stronger and so one unit of the base currency will buy more of the quote currency. on the other hand, if the price of the quote currency falls, the base currency is becoming weaker. This Forex Trading PDF is written in such a way that even complete beginners can understand it and learn from it. In other words, we have read tons of Forex books, opened and closed thousands of trades; have filtered out?
all the needed basics for beginner traders, and simplified them. So all you have to do is to take this FREE knowledge and start your online currency trading journey! TOP 3 Forex strategies that actually work? TOP 6 market movers, that create the most significant opportunities for profits? The best times for trading Currencies online? With this price chart, traders are able to establish who is controlling the market, whether it be sellers or buyers.
OHLC analysis was the starting block for the creation of the ever-popular candlestick charts please further down. It is a great tool for looking at the bigger picture when it comes to trends. The line chart arranges the close prices at the end of that time frame; so in this case, at the end of the day, the line will connect the closing price of that day. In this section of our forex trading PDF, we are going to talk about the different ways in which you can sell and buy a forex position as well as things to look out for.
When it comes to forex trading you can trade both short and long, but always make sure you have a good understanding of forex trading before embarking on trades.
After all, forex trading can be a bit complex to begin with, especially when mixing long and short trades. In a nutshell, going long is usually a term used for buying. So, when traders expect the price of an asset to rise, they will go long. When forex traders expect the price of an asset to fall, they will go short. This means benefiting from buying at a lesser value.
To achieve this, you simply need to place a sell order. The current exchange rate of a forex pair is always based on market forces. This will change on a second-by-second basis.
As we noted earlier, you also need to take the spread into account, so there will always be a slight variation in pricing. For instance, if you exchange 1 USD for 17 ZAR, the sale and purchase price offered by your forex broker will be either side of that figure. The currency pairs with the most notable supply and demand attached to them will be considered the most liquid in the forex market.
The supply and demand aspect is thanks to the investment of importers, exporters, banks and traders — to name a few. The most liquid currency pairs are therefore the ones in high demand.
When you feel you are ready to take the plunge and begin live trading, you need to select a forex trading system. There is a vast amount of trading strategies for you to pick from. This is because investors, speculators, corporations and banks have been trading for decades. In this part of the forex trading PDF, we are going to explain a few of the strategies available to you. If you want to buy and sell currency pairs from the comfort of your home or even via your mobile device , you will need to use a trading platform.
Otherwise referred to as a forex broker, there are literally hundreds of trading platforms active in the online space. This makes it extremely difficult to know which broker to sign up with. In the below sections of our forex trading PDF, we explain some of the considerations that you need to make. You should also look out for analysis tools available to you. In some cases, this might be embedded, while some offer tools such as technical analysis and fundamental analysis.
This is because it will save you a lot of leg work having to move between different sites and sources of information. Some of the fastest and easiest trading platforms are MetaTrader 5 MT5 and MetaTrader 4 MT4. Crucially, both MT4 and MT5 are fast and receptive trading platforms, both providing live market data and access to sophisticated charts.
It is essential before you begin trading seriously that you fully trust the trading platform you intend on using. This is especially the case if you intend on using a scalping strategy, for example.
However, if you like to trade, it is vital for your peace of mind and your finances that you are fully confident with the fast execution of data transfer. This is also the case with the precision of quoted prices, and the speed of order processing.
All of these things are going to help you to have a successful forex trading experience. To enable you to make the most of new opportunities, the ideal forex broker will be available to you 24 hours a day and 7 days a week, in line with the forex market opening hours.
To save you from having to request that your broker takes action for you, your forex broker should enable you to manage your account and your trades separately. By doing this, you will be in a much better position to quickly react to any shifts in the market, and hopefully, make the most of potential opportunities.
This will enable you to gain better control over any open positions as and when they arise. It is important to ensure that your forex broker of choice is a reputable company, who will ensure that your personal information and trading funds are fully protected and backed up. Segregation is frequently used amongst forex brokers as a way to separate your funds from the funds of the company i.
their daily costs, debts and running costs. So, no matter what happens to the forex broker, your money is safe and segregated.
If you find that a forex broker is unable to do this, we would suggest you find a better broker as it is standard practice these days. All of the brokers listed towards the end of this forex trading PDF are regulated by at least one reputable licensing body. In terms of getting set up as an online forex trader, the steps remain constant regardless of which broker you decide to join. Below we list some of the steps that you will need to take.
In order to open an account, you will need to enter some personal information. Standard details requested by the broker will be things like your name, residential address, and contact details. Some brokers will also require your tax status and will ask you to provide more financial details such as employment status, net worth and any regular income. In this instance, you will usually need to answer some multiple-choice questions based on your experience.
This is usually a fairly simple process. Known as KYC in the industry Know Your Customer , this simply means that the forex broker is going to need you to prove who you are. Some brokers will verify this using scanned copies of documentation. Now you need to select your payment method of choice usually from a drop-down list. Bear in mind that how long this takes to go into your trading account will largely depend on the payment method — so always check this before parting with your cash.
Some brokers even support e-wallets like PayPal and Skrill. After reading our forex trading PDF you should now be feeling confident enough to begin trading. However, we do recommend that you always try out a free forex trading demo first. This will allow you to test out your newly formed trading strategies before risking your own capital.
In the next section of our forex trading PDF, we explore some of the more important technical indicators and market insights used by seasoned traders. First invented by Richard Donchian, the donchian channels can be adapted as you like, in terms of parameters. Should you choose to view a day breakdown, for example, the indicator will be created by taking the lowest low, and the highest high of that period so in this example 30 periods.
When observing the moving average on a donchian channel you can look at averages stretching from 25 days to the last days. The direction which is permitted is determined by the direction of the short-term moving average. With this in mind, you should think about opening one of the following two positions:.
You will need to sell your pair in order to exit your trade if you open a long position and visa-versa. This is another commonly used forex indicator. The simple moving average aka SMA operates at a slower rate than the present market price known as a lagging indicator. Furthermore, it uses a lot of historical price data. In fact, more so than most other strategies.
A good indication that the latest price is higher than the older price is when the long-term moving average is below the short-term moving average.
edu no longer supports Internet Explorer. To browse Academia. edu and the wider internet faster and more securely, please take a few seconds to upgrade your browser. The purpose of this ebook is to introduce the forex market to you.
As with many markets there are many derivatives of the central market such as futures, options and forwards. In this book we will only be discussing the main market, sometimes referred to as the Spot or Cash market.
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The word FOREX is derived from the term Foreign Exchange and is the largest financial market in the world. This tremendous turnover is more than the combined turnover of the main worlds' stock markets on any given day. This tends to create a very liquid market and thus a very desirable market to trade. Unlike many other securities, any financial instrument that can be traded the FX market does not have a fixed exchange. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals.
Trades are executed through telephonic communications and now increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large deposits that were required precluded the smaller investors but with the advent of the Internet and growing competition, it is now easily within reach of most investors.
INTERBANK You will often hear the term INTERBANK discussed in FX terminology. This originally, as the name implies, was simply banks and large institutions exchanging information about the current rate at which their clients or themselves were prepared to buy or sell a currency. The market has moved on to such a degree that now the term interbank means anybody who is prepared to buy or sell a currency.
It could be just two individuals changing currencies or your local travel agent offering to exchange Euros for US Dollars. You will however find that most of the brokers and banks use centralized feeds to insure reliability of quote. The quotes for Bid buy and Offer sell will all be from reliable sources. These quotes are normally made up of the top or so large institutions. This ensures that if they place an order on your behalf, the institutions they have placed the order with will be capable of fulfilling the order.
In other words the person or institution that bought or sold the currency has no intention of actually taking delivery of the currency. Instead they were solely speculating on the movement of that particular currency.
org Extract From The Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity. Currency US Dollar 90 The four next most traded currencies are the Euro EUR , Japanese Yen JPY , Pound Sterling GBP and Swiss Franc CHF.
These four currencies traded against the US Dollar make up the majority of the market and are called major currencies or the majors. Market Mechanics So now we know that the FX market is the largest in the world. So how are these quotes made up? Well, as we previously mentioned, currencies are traded in pairs and are each assigned a symbol.
For the Japanese Yen it is JPY, for the Pounds Sterling it is GBP, for Euro it is EUR and for the Swiss Frank it is CHF. You will always see the USD quoted first aside for a few exceptions such as Pounds Sterling, Euro Dollar, Australia Dollar and New Zealand Dollar.
The first currency quoted is called the base currency. Have a look below for some examples. The first number is called the bid and the second number is called the offer sometimes called the ASK. The first number 0. The second number 0. These quotes are sometimes abbreviated to the last two digits of the currency e. Each broker has their own convention and some will quote the full number and others will show only the last two. You will also notice that there is a difference between the bid and the offer price which is called the spread.
The most common increment of currencies is the PIP. A pip is the last decimal place of a quotation. The pip or POINT as it is sometimes referred to, depending on context, is how we will measure our profit or loss. As each currency has its own value, it is necessary to calculate the value of a pip for that particular currency.
We also want a constant, so we will assume that we want to convert everything to US Dollars. In currencies where the US Dollar is quoted first the calculation would be as follows. It looks like a big number but later we will discuss lot contract size later.
In the next section we will be discussing how these seemingly insignificant amounts can add up. More On Market Mechanics Spot Forex is traditionally traded in lots, also referred to as contracts. As we mentioned on the previous page, currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments it is desirable to trade large amounts of a particular currency in order to see any significant profit.
We will now recalculate some examples to see how it affects the pip value. As we said earlier your broker might have a different convention for calculating pip value relative to lot size, but however they do it they will be able to tell you what the pip value for the currency you are trading is at that particular time. Remember that as the market moves so will the pip value depending on what currency you trade.
So now that we know how to calculate pip value lets have a look at how you work out your profit or loss. Let's assume you want to buy US Dollars and Sell Japanese Yen. The rate you are quoted is A few hours later the price moves to You ask for a new quote and are quoted As you are now closing your trade and you initially bought to enter the trade, you now sell in order to close the trade and you take The difference between Using our formula from before, we now have.
Now don't get confused here. Remember you are now selling and you need a buyer. The buyer is biding 0. A few hours later the EUR moves to 0. You are quoted 0. You originally sold EUR to open the trade and now to close the trade you must buy back your position. In order to buy back your position you take the price traders are prepared to sell at which is 0.
Using the formula from before, we now have. As a rule of thumb, 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 pay no spread when you enter but only when you exit.
Leverage Leverage is financed with credit, such as that purchased on a margin account which is very common in Forex. A margined account is a leverageable account in which Forex can be purchased for a combination of cash or collateral, depending what your brokers will accept. The loan leverage in the margined account is collateralized by your initial margin deposit. If the value of the trade position drops sufficiently, the broker will ask you to either put in more cash or sell a portion of your position or even close your position.
Up until this point you were probably wondering how a small investor can trade such large amounts of money positions. The amount of leverage you use will depend on your broker and what you feel comfortable with.
Introduction to Forex Trading The Leader in Rule-Based Trading™ 1 Important Information and Disclaimer: TradeStation Securities, Inc. seeks to serve institutional and active traders. Please Introduction to Forex Trading with TradeStation. Market Overview Forex or FX, is an abbreviation for Foreign Exchange. It is a way of trading exchange rates between two The purpose of this ebook is to introduce the forex market to you. As with many markets there are many derivative of the central market such as futures, options and forwards. In this book Introduction to Forex Trading - Free download as PDF File .pdf), Text File .txt) or read online for free View INTRODUCTION TO FOREX blogger.com from FINC MISC at Kirinyaga University College (JKUAT). INTRODUCTION TO FOREX TRADING SYLLABUS Part 1: Introduction ... read more
They may decide that the Euro will appreciate against the US Dollar and take what is called a long position in Euro. CAD Canadian dollars 7. To browse Academia. This exchange system was called the barter system. Keep in mind that there are no standard cross-currency Quotes. their daily costs, debts and running costs. These quotes are normally made up of the top or so large institutions.This liquidity factor also means that orders are illed relatively quickly, introductino to forex trading pdf, allowing for orders to be executed at the order price. This was to not only ix exchange rates but also actually replace many of them with the Euro in The act of rolling the currency pair over is known as tom. So how are these quotes made up? Between the wars, many countries elected to temporarily abandon the gold standard and opt for loating exchange systems until their economies returned to the point at which if introductino to forex trading pdf currency drifted too far outside its band and could not be contained by central bank intervention, the country was allowed to adjust its peg by setting a new exchange rate.