Author Topic: Beginners Guide To Forex  (Read 15720 times)

Caesar

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Beginners Guide To Forex
« on: September 16, 2019, 04:54:25 PM »
Hi newbies, here is our beginners guide to forex trading.  We will be posting this in bite-size chunks, updated regularly,  so you can print it off  and save it for reference later. I would like to thank one of our members, who wishes to remain anonymous,  for his contributions to this guide



What is Forex?

Forex, or Foreign Exchange is a  decentralized global market where all the world's currencies trade. A forex market exists wherever the trade of two foreign currencies are taking place. It is open 24 hours a day, five days a week. This forex market exists to ease investment and trade. The primary trading centers are London, Paris, New York, Tokyo, Zurich, Frankfurt, Sydney, and Singapore.

The forex market forms the essential infrastructure for international trade and global investing, since countries, businesses, and even individuals need to exchange their own currency in order to buy  products and services that are sold in different currencies. It is crucial for supporting a country's imports and exports, which also grants it access to resources and creates additional demand for goods and services.

The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion
« Last Edit: September 13, 2020, 07:27:10 PM by Caesar »
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Re: Beginners Guide To Forex
« Reply #1 on: October 12, 2019, 02:47:14 PM »
Popular terms used in forex

Base currency: This is the first currency that appears when quoting a currency pair. Looking at EUR/USD, the Euro is the base currency. See the chart below for an example,  under "How to Read a Brokers Quote"

Variable/quote currency: This is the second currency in the quoted currency pair and is the US Dollar in the EUR/USD example.

Bid: The bid price is the highest price that a buyer (bidder) is prepared to pay. When you are looking to sell a forex pair this is the price you will see, usually to the left of the quote and is often in red.

Ask: This is the opposite of the bid and represents the lowest price a seller is willing to accept. When you are looking to buy a currency pair, this is the price you will see and is usually to the right and in blue.

Spread: This is the difference between the bid and the ask price which represents the actual spread in the underlying forex market plus the additional spread added by the broker.

Pips/points: A pip or point refers to a one digit move in the 4th decimal place. This is often how traders refer to movements in a currency pair, i.e. GBP/USD rallied 100 points today.

Leverage: Leverage allows traders to trade positions while only putting up a fraction of the full value of the trade. This allows traders to control larger positions with a small amount of capital. Leverage amplifies gains AND losses.

Margin: This is the amount of money needed to open a leveraged position and is the difference between the full value of your position and the funds being lent to you by the broker.

Margin call:When the total capital deposited, plus or minus any profits or losses, dips below a specified level (margin requirement).

Liquidity: A currency pair is considered to be liquid if it can easily be bought and sold due to there being many participants trading the currency pair.
« Last Edit: October 24, 2019, 01:57:14 PM by Caeser »
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Re: Beginners Guide To Forex
« Reply #2 on: October 15, 2019, 03:19:17 PM »
How Much Money Do I Need?

A frequently asked question, with a myriad of different answers. The reasons for this include;
Where do you live?
Different countries have different income levels, and consequently people are likely to have different savings levels. What I will say is, regardless of where in the world you live, or what your income is, NEVER trade with money that you cannot afford to lose, and certainly not with borrowed money or credit cards.
What are your expectations?
If you expect to live solely off your profits from Forex you will need substantially more money in your account than if you are just looking for some extra cash, or just trying something new. As it’s highly likely that you will lose a large chunk, if not all, of your first trading account then it’s probably prudent not to overstretch yourself.
« Last Edit: October 24, 2019, 01:57:23 PM by Caeser »
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Re: Beginners Guide To Forex
« Reply #3 on: October 18, 2019, 04:55:22 PM »
What age to start trading?

In most countries there are minimum age requirements for working, holding bank (not savings) accounts, having credit cards, etc, so it is not straightforward opening a forex account.

However, it is possible for an underage person to have a trading account with his or her own name attached to it, but in order for this to happen, a parent or guardian must also be involved with the account.

There are a few different ways this can happen. These may vary across countries so it’s best to check locally.

1. The parent or guardian can open a guardian account for the child. This is an account in the parent’s name, with legal title to the assets in the account and all capital gains and tax liabilities produced from the account belonging to the parent. The parent has total ownership, responsibility, and control of the account, but the named child can trade live on it…
2.   A child can have a custodial account. In this account, the child owns the assets contained within the account, but the parent has control of the investment decisions and any withdrawals which might be made. With this type of account, withdrawals or capital gain tax liabilities are taxed in the child’s name - not the parent’s. Of course, this can be an advantage over the guardian account (in which taxes fall under the parent’s name, at their marginal tax rate), since children often pay little to no tax.
3.   If a child has already been earning an annual income and filed their taxes for at least one year, then they would be eligible to open an IRA account with their parent’s help.

Having said all of the above, your preferred broker does not have to offer any of the above. This is understandable when you think of the instances where children have incurred large mobile phone bills yet the courts have found the parents not liable for these and the children too young for the contract to be enforced. The last thing a broker wants is to get dragged into problems on tax liability, negative balance responsibility, family disputes, etc.

« Last Edit: October 24, 2019, 01:57:27 PM by Caeser »
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Re: Beginners Guide To Forex
« Reply #4 on: October 18, 2019, 05:02:38 PM »
Choosing A Broker, Part 1

Check if the broker you are considering is regulated. If they aren’t, that should be a big red flag against using them. The main regulatory bodies are;
United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
United Kingdom: Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)
Australia: Australian Securities and Investment Commission (ASIC)
Switzerland: Swiss Federal Banking Commission (SFBC)
Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
France: Autorité des Marchés Financiers (AMF)
Canada: Autorité des Marchés Financiers (AMF)
Avoid anyone regulated in Cyprus*, Vanuatu, St Vincent, or anywhere else where the “regulation” is not worth the paper it’s written on.
*Cyprus is improving, but I personally would still be wary.

If possible, try to use someone regulated in your home country. At the very least, if something goes wrong you can take it up with a local regulatory body, law enforcement, fraud helpline, politician, or even get your local Watchdog-type TV programme involved. Difficult to do this if you’re thousands of miles away and don’t know anyone.

Don’t choose a broker based on who gives the biggest account bonus or cash back. If they need gimmicks like that to attract custom, they probably aren’t worth trusting your hard earned cash to.

Well worth noting is that the Financial Services Compensation Scheme (FSCS) in the UK have confirmed that non-UK residents who have forex accounts with FCA -regulated brokers get the same level of protection as UK residents
I don’t know if other regulatory bodies with compensation schemes follow suit, but this should be good news for anyone living in a country which has poor or zero regulations as they can enjoy a decent level of protection by signing up to a UK regulated broker

« Last Edit: November 05, 2019, 04:56:03 PM by Caesar »
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Re: Beginners Guide To Forex
« Reply #5 on: October 24, 2019, 01:53:38 PM »
How To Read A Brokers Quote

When you look at a price quote on your brokers screen, you will see something like the image below.
This is a typical quote for Eur/Usd, and as Eur is named first this is the base currency.
As highlighted in red, the first set of numbers is the price that you would sell at. The second set is the price which you would buy at.
Most forex quotes will show 5 digits after the decimel. The fourth digit after the decimal is known as a pip and the fifth is a pipette
The difference between these prices is the brokers spread, in this case 0.6 pips (or 6 pipettes, but most people work in pips)
« Last Edit: October 24, 2019, 01:57:46 PM by Caeser »
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Re: Beginners Guide To Forex
« Reply #6 on: October 24, 2019, 01:56:54 PM »
Demo Or Live Account?

Not everyone will agree with this, but I recommend you start with either 1 or 2 demo accounts.
My reasoning is that you can use this to find your way around different brokers trading platforms before you commit any money- you may be less inclined to leave if you’ve already transferred money to them. Also, its quite likely that you will make mistakes when you start, I clicked “buy” instead of “sell” on my very first trade! You can also practice different trading strategies without risking real money.

As soon as you feel confident and ready to trade, open a live account. Only deposit the minimum amount the broker allows, and trade micro lots (you probably traded full lots on demo with the $100k play money you had).
You will find live trading very different to demo trading, purely because every penny you lose is coming out of your pocket! Try not to let this affect you, just as you shouldn’t get over-excited when you gain. Stick to your trading plan and money management rules regardless.

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Re: Beginners Guide To Forex
« Reply #7 on: October 26, 2019, 05:23:35 PM »
Types of Currency Pairs

Their are numerous currency pairs available to traders and the 7 most popular of these are known as the majors. These are the most frequently traded pairs, accounting for about 80% of forex trading volume, and have the greatest liquidity, meaning getting in and out of trades with fairly small spreads is easier.

The 7 major pairs are;
Eur/Usd also known as 'fibre'
Usd/Jpy a.k.a. 'gopher'
Gbp/Usd a.k.a.'cable'
Usd/Chf a.k.a. 'swissie'
Aud/Usd a.k.a. 'aussie'
Usd/Cad a.k.a. 'loonie'
Nzd/Usd a.k.a.'kiwi'

They are associated with stable, well managed economies, and are less susceptible to manipulation  than other pairs.

The next most commonly traded pairs are the minors which include;
Eur/Gbp 'chunnel'
Eur/Jpy 'yuppy'
Gbp/Jpy 'guppy'
Nzd/Jpy 'kiwi yen'
Cad/Chf 'loonie swissie'
Aud/Jpy

The minors are typically less liquid and more volatile than Major currency pairs.

Then we move on to exotics which are currencies from emerging or smaller economies, paired with a Major.

Compared to Crosses and Majors, Exotics are much riskier to trade because they are less liquid, more volatile, and more susceptible to manipulation.

They also contain wider spreads, and are more sensitive to sudden shifts in political and financial developments. These would include pairs such as those below
Usd/Try
Usd/Mxn
Gbp/Nok
Eur/Try
to name but a few
« Last Edit: November 02, 2019, 10:42:17 AM by Caesar »
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Re: Beginners Guide To Forex
« Reply #8 on: October 26, 2019, 05:31:44 PM »
Reading Forex Charts

Your broker will allow you to choose how you want to view your charts. You can change the background colours, what indicators you want to see, and what types of patterns you want to look at. Below we show some of the options you will have, which you choose is entirely down to personal preference.

Candlestick charts

Also known as a Japanese Candlestick Chart, a candlestick chart is favoured by traders due to the wide range of information they portray. The chart displays the high, low, opening and closing prices for the time period you are looking at- so in a 1 hour chart, a candlestick represents price movement within one hour.


The main part of the candlestick is the body which shows us the opening price level and the closing price level. The 2 lines sticking out of the body are the wicks and these show the high and low points that price reached within the time.
« Last Edit: November 10, 2019, 09:10:44 AM by Caesar »
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Re: Beginners Guide To Forex
« Reply #9 on: October 26, 2019, 05:42:20 PM »
Continued from above...

Bar Charts

Next we look at bar charts, which show the same information as a candlestick chart but in the form of a bar.
The actual bar represents the currency pairs overall trading range and the horizontal lines on the sides represent the opening (left) and the closing prices (right).
« Last Edit: November 10, 2019, 09:11:12 AM by Caesar »
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Re: Beginners Guide To Forex
« Reply #10 on: October 26, 2019, 05:45:37 PM »
Continued from above...

Line Charts

And finally we have line charts. These are fairly easy to understand, it is simply a line joining one time periods closing price to another, so identifying price direction is clearer than with candlesticks or bars, although you do lose the information these 2 show you.

« Last Edit: October 31, 2019, 07:22:00 PM by Caesar »
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Re: Beginners Guide To Forex
« Reply #11 on: October 28, 2019, 05:42:54 PM »
Types of Trading Strategies

Whatever trading strategy you choose to use, you should choose one that suits YOU as an individual - your goals, your lifestyle, your commitments, your financial status, your personality. Just because a particular strategy works for one person does not mean it will work for another, we are all different in many ways.

Below we show you the general types of strategies available, when you decide which type suits you best you can then start planning your trading around this.

Day Trading
Day traders open and close trades over the course of the day, usually holding positions for only a few hours. Day trading removes the risk that occurs when you leave a position open overnight.
To succeed at day trading you need to capitalise on the volatility of an asset, placing several short-term trades in the expectation of making a relatively small gain per transaction. This can be a high-intensity and high-stress trading style so you need to be able to fully concentrate on the market and be in a position to react quickly to positive or negative developments.

Scalping
The brokers friend. Scalp traders target intraday price movements and aim to make very small, very frequent profits. They typically only hold positions for a few seconds or minutes.
Scalping suits traders who are willing to monitor data all day long. You need to be comfortable making quick decisions and have a high appetite for risk – a couple of large losses could wipe out your profits for the day. Brokers love this because their spread is the same whether you make 1 trade a day or 100 - but if you make 100 then they get 100 spreads off you.

Position Trading
Position traders take a longer-term view of the market than day or scalping traders so this suits traders who don’t want to have to constantly monitor the markets. Position traders have to be resilient enough to ride out potential dips in the market, so patience is a virtue here.
Position traders may use fundamental analysis to identify the asset they want to invest in, and then use technical analysis tools to spot the most effective entry and exit points.

Swing Trading
Swing trading follows the same basic premise as position trading, but looks to the intermediate term (unlike day trading which looks to the short term). Useful in volatile markets where there is no clear trend, swing trading is somewhere between position trading and day trading, looking for medium-term price movements from which to profit.



« Last Edit: October 31, 2019, 07:22:05 PM by Caesar »
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Re: Beginners Guide To Forex
« Reply #12 on: October 31, 2019, 03:39:04 PM »
Indicators

There are a whole bunch of indicators out there, but what do each of them do? Below is a list of some of the most popular, the ones you are most likely to consider at some point or other. We are not recommending any of these, this is just an explanation of what they are.

MACD Moving Average Convergence Divergence.
This assesses the strength and direction of an underlying trend and helps flag a potential change in price ahead.
MACD takes the difference between two exponential moving averages (using closing prices) – the 12-day EMA and the 26-day are the most commonly used. Then the “signal line” (a 9-day SMA of the MACD itself) is placed over the MACD. It’s called the ‘signal line’ because when the MACD line crosses it, it’s a signal to either buy or sell.
When the MACD crosses over the signal line, this may signal an upward trend and could be a sign to buy. If it crosses below, thats a downward trend and a time to sell.
Divergence is when the lines go in opposite directions, pointing to a possible reversal.

Parabolic SAR
A trend-following indicator, this is displayed as a series of dots either below or above the price bars (depending on the direction of the trend) and is calculated using the most recent highest and lowest prices and an acceleration factor.
Signals are generated when the dots swap from above to below the price. It’s best for gauging momentum in the short term only and therefore likely to be most helpful for day traders.

RSI Relative strength index
Most useful in ranging markets, this helps show possible overbought or oversold scenarios.
If the RSI goes above 70, it is considered overbought. If it goes under 30, it is considered oversold. The 50 mark is also generally used to confirm a trend

Stochastic Oscillator
Like the RSI, this is useful in ranging conditions. 2 lines (called %K and %D) measure an asset’s closing price against the high and low ranges of its price over an adjustable period of time. The typical period of time is usually 14 periods, but you can alter this to reduce or increase the indicator’s sensitivity to the market.
This is used now to alert traders to overbought or oversold conditions. When the lines are above 80, an asset is thought to be overbought (and the trend likely to reverse so traders should sell) and when they are below 20, an asset is thought to be oversold (so traders should buy).

Bollinger Bands
Helpful for forecasting market movements. In a steady market, the upper and lower bands tend to act as support and resistance levels, encouraging prices back towards the middle in a phenomenon known as the ‘Bollinger Bounce’.

Ichimoku Kinko Hyo
Designed to give traders all the information they need using just one indicator, it can be hard for novice traders to read at first. It measures momentum as well as forecasting zones of support and resistance.
The five lines (tenkan-sen, kijun-sen, senkou span A, senkou span B and chikou span) are calculated using the highest high prices and the lowest low prices of different lookback periods. The lines show different key levels of support and resistance, as well as signals for reversals and tactical places to plot your stop loss points. Despite all this, most experts recommend using other forms of technical analysis with it.
« Last Edit: October 31, 2019, 07:22:10 PM by Caesar »
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Re: Beginners Guide To Forex
« Reply #13 on: October 31, 2019, 03:40:32 PM »
Using Indicators

Whether or not to use indicators, and which to use, can be a very emotive subject. Some traders swear by them, others swear at them.
Before choosing which indicators to use, or not use, study this subject and practice on demo so you understand what purpose each has and what its limitations are.
What I would STRONGLY recommend is that, particularly for new traders, you start with the bare minimum number, perhaps only 1 or 2. Putting loads of indicators in your charts may look good and might impress friends who have zero forex knowledge, but they are only likely to complicate your analysis and make decision-making harder. You can always change them or add more as you gain experience and fine tune your trading plan.
« Last Edit: October 31, 2019, 07:22:14 PM by Caesar »
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Re: Beginners Guide To Forex
« Reply #14 on: November 01, 2019, 12:22:08 PM »
Types of Orders

True to form, forex gives you a choice of types of orders you can place and you really need to understand the differences between them. So, here goes!

Market orders
A market order is a buy or sell order in which the broker is to execute the order at the best available current price. Note, the price you see when you click is NOT guaranteed.
Entry orders
A request from you for your broker to buy or sell a specified amount of a particular currency pair at a specific price. The order will be filled if/when the requested price is hit.
Stop Loss orders
An instruction from you to close a position when it reaches a specified price. It is designed to limit a trader’s loss on a position, however in most cases the broker cannot 100% guarantee being able to achieve this, so will close at the best possible price obtainable. Traders are strongly recommended to use stop loss orders to limit their losses.
Take Profit Orders
An instruction from you to close a position when it reaches a predetermined profit exit price. It is designed to lock in a position’s profit (not to be confused with Trailing Stops). Once the price surpasses the predefined profit-taking price, the take profit order becomes market order and closes the position.
Good Until Cancelled (GTC)
In forex, most of the orders default as GTC, meaning an order will be valid until it is cancelled, regardless of the trading session. The trader must specify that if they wish a GTC order to be cancelled before it expires, usually by entering a closing date/time or by manually closing the order. Generally, the entry orders, stop loss orders and take profit orders in online forex trading are all GTC orders.

The above are the basic orders types available in most of them trading systems. Some trading systems may offer more sophisticated orders.
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