Education Resources

Trading forex involves the buying of one currency and simultaneous selling of another. In forex, traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies are likely to take in the future.

The Forex market is one of the most exciting markets to trade amongst all the available financial markets. It’s the largest and most liquid, open 24 hours a day from 5 p.m. EST on Sunday until 4 p.m. EST on Friday, and you can take advantage of it from almost any country.

So, ready to jump into the world of Forex?

Great! Before you start, let’s review what Forex trading is and how it works. We’ll explain everything you need to know about currency trading. Throughout this guide you’ll become familiar with Forex concepts such as:

• -Currency pair quotation with base and quote/counter currency
• -Cross-rates, majors, minors, exotics
• -Exchange rates
• -Pip
• -Lot
• -Bid and ask price
• -Spread
• -Leverage
• -Margin, free margin, and margin call
• -Long vs. short positions
• -Risk/reward ratio
• -Stop-loss and take profit orders

Another major attraction of forex trading is the fact that there are continual opportunities to make trading profits. The currency markets trade 24 hours a day, five days a week, and the markets are actively traded throughout each day.

The average daily trading range for the major currency pairs – EUR/USD, GBP/USD, USD/JPY, and AUD/USD – is typically 80 to 100 pips. Depending on what lot sizes they’re trading, a forex trader can realise a substantial profit on as little as a 10 or 20 pip fluctuation in the exchange rate of a currency pair.

Forex traders can generate significant profits every trading day. The possibility of earning a good day-to-day living attracts many people to the forex market. The high volume of trading in the forex market makes for a very liquid market where bid-ask spreads are attractively low.

Combined with minimal commission charges, this means that forex trading offers very low transaction costs as compared to other investment instruments.

For investors new to forex trading, it takes some time to learn how to trade the forex markets – just like it takes time to learn how to invest in stocks, options, futures, or any other investment vehicle. But the immense popularity of forex trading has generated a wealth of educational resources.

There are a lot of factors that make people interested in trading the forex market. This includes low trading capital requirements that make it easy for even the smallest of small investors to get started; a 24-hour market that continually offers new trading opportunities; low transaction costs; ease of selling short; and readily available trading educational resources.

One more advantage forex trading offers is its relative simplicity as compared to other asset classes.

There are only a handful of major currency pairs that a trader needs to familiarise themselves with. Once they do, picking and choosing among currency pairs to invest in is a lot less complicated than, say, choosing investments from among thousands of stocks.

Forex trading offers investors a wealth of advantages and opportunities.

1)You like the idea of trading at any time you want:

The Forex market is open around the clock, which allows you to trade whenever you want. It provides great flexibility for traders who want to trade part-time and as there are no market opening or market closing times the opportunity for potential profits is 24 hours per day, 5 days per week!

Forex trading can also be used if you want to buy as well as short-sell currencies. If you believe that in the short-term the EUR/USD is going to go down, then you’re able to make money from this downward movement thanks to short selling.

2)You like technical or fundamental analysis:

Forex trading is often geared towards technical analysis, so if you have sound knowledge of price study, charting and technical patterns, Forex trading might be a good fit for you.

While using technical analysis, you may find it useful to use economic calendars, such as the U.S. Market Economic Calendar, or the Global Economic Calendar. The impact of news is also strong on the Forex market, as currencies quickly react to macroeconomic news, political events and economic data.

So, you should monitor the economic calendar for fundamentals to determine when currency pair prices might accelerate and break important levels thanks to higher volatility.

3)You can deal with a high risk environment

As the Forex market can be a volatile market, you’ll need to be able to tolerate a certain level of risk. To better protect your trading capital, it’s important to have a sound risk and money management system with rules to follow.

For instance, you should always determine your stop-loss and take-profit levels before entering the market. In this way, you’ll already know how much you’re willing to lose and how much you can expect to earn from your position. This is called your “risk/reward” ratio.

Another example would be to adapt the size of your positions depending on the current trading conditions and the evolution of your trading capital. All these rules should be part of your trading plan and to be profitable, you should always stick to your plan!

4)You are dedicated and patient enough to develop a trading plan and follow your investment method

Commitment, patience, and dedication are the most important ingredients in trading. Staying focused by continual learning and practice is important

Having a trading plan to follow when trading is vital if you want to be successful, but most importantly you need to be committed to follow it, and patient to open/close your positions according to your set-ups.

You need to develop your investment strategy first, or trading system, before investing real money on the FX market – if not, how do you know what you’re doing, and that what you’re doing is making money?

A trading plan is a description of your investment method: Trading style: scalping, day trading, position trading Currency pairs: majors, minors, exotics Timeframes: 5 min chart, 15 min chart, 4h chart Size of your positions Set-ups to follow to enter/exit the market Risk and money management rules: risk/reward ratio, stop-loss and take-profit orders. 5)You want to take advantage of a growing market with high liquidity, volatility and leverage

The Forex market has been a fast-growing market over the last 20 years.

According to the 2016 Triennial Central Bank Survey of FX and over-the-counter (OTC) Derivatives Markets from the BIS, trading in foreign exchange markets averaged $5.1 trillion per day in April 2016. This high trading volume increases the liquidity of the market, which means that it’s easy and fast for an investor to enter a trade and also reduces the risk of potential price manipulation from others.

Forex trading also uses leverage that can magnify your returns (as well as your losses) in a very short period of time. This leverage allows you to manage more money than you currently have in your trading account for potentially higher profits.

Forex is the largest, most liquid market on the planet. That size and scope creates unique challenges regarding market regulation.

There is no centralized body governing the currency trading market; instead, several governmental and independent bodies supervise forex trading around the world. Some of these include, but are not limited to:

The global supervisory bodies regulate forex by setting standards which all brokers under their jurisdiction must comply with. These standards include being registered and licensed with the regulatory body, undergoing regular audits, communicating certain changes of service to their clients, and more. This helps ensure that currency trading is ethical and fair for all involved.

Faith Fx Market is proud to be financially transparent and secure and adheres to the standards of its regulatory bodies. We are regulated in two jurisdictions worldwide, supporting over 200,000 traders in over 80 countries. Our parent company, Faith Capital Holdings, is a publicly traded company meeting the highest standards of corporate governance, financial reporting and disclosure.

Forex is the most widely traded market in the world, with more than $5.3 trillion* being bought and sold every single day. Traders will speculate on the future direction of currencies by taking either a long or short position, depending on whether you think the currency’s value will go up or down. Typically referred to as “The Majors”, these seven currency pairs make up almost 80% of total daily trading volume*. As you’ll see in the table below, the major currency pairs all include the U.S. Dollar (USD).

When trading the FX market, you’re investing in currency pairs:

The currency exchange rate represents the changes in value of one currency compared to another one, such as the USD compared to the EUR.

The exchange rate can either be floating – meaning changing from one day to another, or pegged to another currency, or a basket of currencies – meaning that the value of the exchange rate is at a fixed rate, such as the Saudi Riyal to the U.S. Dollar at 3.75.

It’s always quoted in PAIRS

Let’s look at the EUR/USD – the Euro and the U.S. Dollar (you’re always investing in currency pairs, not just a single currency).

In this example, the first currency listed (in this case the Euro) is called the base currency, while the second currency is called the quote/counter currency (in this case the U.S Dollar).

For example, in the forex pair GBP/EUR, GBP is the base currency and EUR is the quote/counter currency. If GBP/EUR is trading at 1.12156, then one pound is worth 1.12156 euros. If you think that the pound is going to increase against the euro, you would buy the pair. If you think that the pound will decrease in value against the euro, you would sell the pair. Your profit or loss will depend on the extent to which you get your prediction right, meaning it is possible to profit whichever way the market moves.

The 2016 Triennial Central Bank Survey from the Bank For International Settlements (BIS) shows that the USD is the dominant currency, as “it was on one side of 88% of all trades in April 2016” since April 2013.

The EUR, the JPY, and emerging market currencies such as the Renminbi or the Mexican peso are also counted amongst the most traded currencies, while the EUR/USD and the USD/JPY are among the most traded currency pairs.

-Major pairs: Seven currencies that make up 80% of global forex trading. Includes

EUR/USD	Euro/U.S. Dollar
USD/JPY	U.S. Dollar/Japanese Yen
GBP/USD	Sterling/U.S. Dollar
USD/CHF	U.S. Dollar/Swiss Franc
USD/CAD	U.S. Dollar/Canadian Dollar
AUD/USD	Australian Dollar/U.S. Dollar
NZD/USD	New Zealand Dollar/ U.S. Dollar

-Minor pairs: Also called crosses, represent currency pairs that are less traded – usually without the U.S. Dollar – but they do contain a major currency. Includes

EUR/GBP	Euro/British pound
EUR/AUD	Euro/Australian dollar
GBP/JPY	British pound/Japanese yen
CHF/JPY	Swiss franc/Japanese yen

-Exotics: Finally, an exotic currency pair usually consists of one major currency against a currency from a smaller or emerging economy. Includes: USD/PLN, GBP/MXN, EUR/CZK

-Regional pairs: Pairs classified by region – such as Scandinavia or Australasia. Includes

EUR/NOK, AUD/NZD, AUD/SGD

CURRENCY QUOTE, SPREAD, & PIP

Bid vs. Ask prices (The example below represents the quotation of the EUR/USD)

As you can see, there are 2 prices displayed: a selling price at $1.16331, also called bid price, and a buying price at $1.16333, also called ask price. The Bid price is the price to pay to open a short position when you think that the currency pair is going downward. The ask price is the price to pay to open a long position if you think that the currency pair is going up.

Spread

You may also notice that the buying price is always higher than the selling price (Ask price > Bid price). The difference between these 2 prices is called the spread, which we charge as the commission.

Pip/Points

Usually, currency pairs are displayed with 4 decimal points. When a currency pair increases or decreases, this change in value is measured in units that are called Pips, which is a one-digit movement in the 4th decimal. So, if EUR/USD moves from $1.1700 to $1.1701, then it has moved one Pip.

LOT NAME	NUMBER OF UNITS	MT5 NOTATION	Per PIP VALUE $
Standard	100,000	1 Lot	$10
Mini	10,000	0.1 Lot	$1
Micro	1,000	0.01 Lot	$0.1

TYPE OF CONTRACT	CONTRACT SIZE (NO. OF UNITS OF THE BASE CURRENCY)
Standard Lot	100 000
Mini Lot	10 000

The value of one pip for the EUR/USD standard contract is calculated as follows:

Pip Value = Contract Size x One Pip
Pip Value = 100 000 x 0.0001

Pip Value = $10

When trading the Forex market, you’ll actually have access to a much larger amount of money than what you deposited into your account. This is because your broker/we will “lend” you a certain percentage of a given position’s value, with your own funds being used as a kind of “good faith deposit”. This is known as “leverage” or “gearing”.

For example: With a leverage ratio of 30:1, you can control of position of $30,000 with only $1,000 in your Forex trading account.

By granting you higher market exposure, leverage in Forex implies that a single pip movement can be amplified. For this reason, many Forex traders find leverage very appealing. Remember, however, that leverage trading is also risky, as it can produce substantial losses as well as profits.