There’s no doubt the FOREX trading is one of the ways to make money online, however before you “quickly go open an account and deposit money”, you need to learn how it works in order not to loose your hard earned money.
If you get a hang on the basics and practice well enough, you can earn anything between $100 – $2000 or more per day.
In this Forex trading tutorial, I’m going to break down everything you need to know about Forex in its simplest form such that even a 10 year old kid will understand.
It’s just about two months and a few weeks before 2018 comes to an end, if you follow this tutorial and practice what I’d teach you, it’s likely you’d make more money than you have ever made in the past few months.
If you want to get the best out of this, kindly turn off anything that would distract you and focus on it for just 30 minutes and I promise you, it will be the best tutorial you’ve ever stumbled on. Please note that this is a crash course that is designed to only give you the few needed info that will get you started.
This is just a skeletal knowledge and you won’t become a Pro today. However, when we get to the practical session, you will get a hang of it.
So let’s get started:
WHAT IS FOREX TRADING?
Forex stands for the FOReign EXchange market. It’s the world’s largest financial market, with transaction volume exceeding $5 trillion daily. Foreign exchange is the simultaneous selling of one country’s currency and the buying of another country’s currency. These currencies are traded through a broker (or a dealer) and are executed in currency pairs (ex: EUR/USD = the Euro and the US dollar).
Major and Minor Currencies
The seven currencies that are traded most often are also referred to as major currencies. They include the…
USD – US Dollar
EUR – Euro
JPY – Japanese Yen
GBP – Great Britain Pounds
AUD – Australian Dollar
CAD – Canadian Dollar and
CHF – Swiss Franc.
All other currencies are referred to as minor currencies. The most frequently traded minors are the
New Zealand Dollar (NZD),
the South African Rand (ZAR)
and the Singapore Dollar (SGD).
Base & Quote Currency In Forex Trading
In the Forex Market, currencies are traded in pairs. The base currency is the 1st currency (to the left) while the quote currency is the second currency (to the right) of a particular currency pair. Ex. EUR/USD – where EUR is the base currency and USD is the quote currency. It indicates how much the base currency is worth when measured against the quote currency.
For example, if the EUR/USD exchange rate is equal to 1.1302, it means 1 Euro is worth 1.1302 US dollars. In the forex market, the goal of a trader is to buy a particular currency pair when the exchange rate is expected to rise, and sell a pair when the exchange rate is expected to fall.
Or simply put, Buy Low, Sell High!
Bid Price & Ask Price
The ‘BID’ is the price the market is willing to buy a specific currency pair. At this price, a forex trader can sell the base currency. It appears on the left side of the quotation.
See example below…
If the EUR/USD is equal to 1.0992 / 1.0994, the bid price is 1.0992 meaning you can sell one Euro for 1.09921 US Dollars.
The ‘ASK’ is the price the market is prepared to sell a specific currency pair. At this price, traders can buy the base currency. It is displayed on the right side of the quotation. In the example above, the ask is 1.0994; this means that you can buy 1 EUR for 1.0994 USD. The ask price is also called the offer price.
The difference between the bid and ask price is the SPREAD the broker charges which is deducted as soon as you place your buy/sell order.
HINT: The spread is the reason why a trader always finds himself in a loss position at the beginning of a trade. Because the brokers take their spreads first.
Now let’s see how Profits or Losses are calculated in Forex…
Pips (or Points)
This is the smallest unit of a price change in any currency pair, representing the 4th digit after the decimal point (example: 0.0001).
Although some brokers quote using the 5th decimal but it really doesn’t affect the price as it changes very quickly.
Depending on the context, it’s usually one basis point (0.0001 or 1/10,000 for the EUR/USD, GBP/USD, USD/CHF currency pairs, and 0.01 for the JPY currency pairs). In forex, pips are used in measuring profit or loss in a given trade.
To calculate the pips from the above example of EUR/USD, simply subtract 1.0994 – 1.0992 = 0.0002 then move 4 decimal places or multiply by 10,000 which gives us 2pips. In Japanese Yen (JPY) currency pairs, pips are calculated as the second digit after the decimal point.
Your broker gives you the ability (loan) to trade larger positions with small amount of money. Leverage is the ratio of the amount used in trading to actual amount invested by the trader. It works as a multiplier that magnifies your little capital that you brought into the forex market.
Leverage varies with different brokers, ranging from 10:1 to 500:1
In order to open a $10,000 trade position, you can use a margin (investment) of $200 with a leverage of 1:50 i.e ($200 X 50 = $10,000)
The example above are two options of a $100 investment
*A) With leverage of 1:20
*B) With leverage of 1:200 *
Yes! Leverage helps you to make more money with little investment.
But as sweet as that sounds, always remember that leverage works in both direction. You could easily lose money if currency change goes in the opposite direction of your forecast.
Using the same example above, if the currency value drops by same 0.0003 (3pips), your account balance will suffer loss.
Forex is actually not something you can fully understand in one class, you will have to revisit this again and again at your spare time. However, these are just the few terminologies you will need to understand before you can start trading tomorrow. Sorry if I’m rushing this though, like I said, it’s a crash course 😀
So let’s move on…
Stop Loss & Take Profit:
In Forex trading, a stop loss is an easy protection mechanism that you add to your order (either when you place your order or soon afterwards).
You want to buy EUR/USD at 1.3100, but want to make sure you don’t lose your money if the market goes against you, so you would place a “stop loss” at 1.3050 so that if the market falls, you only lose 50 pips.
The advantage is that it exits your order automatically, you don’t have to sit there monitoring the market (and you’ll be happy to have used a stop loss if your internet connection or computer experiences a malfunction!).
ALWAYS use a stop loss with all of your orders.
Take Profit works the same way to help you lock your profit automatically when price goes in your favor and reaches your set target for the particular pair.
Bull & Bear Market
The Bull describes a market that shows confidence and stability characterized by rising prices. The Bear on the other hand is a falling market or, more technically, a market that has declined 20% from its previous peak price.
Trends help you understand the overall direction a currency pair is going. The chart shows either upward or downward movement which helps you decide whether to buy or sell a particular pair.
The general rule is to buy when the trend is going upward and sell when the trend is going downward.
As a beginner, avoid the horizontal (or ranging trend)
See images below…
NOW PAY ATTENTION TO THIS FINAL PART!!!
It might be a bit confusing at first, but don’t worry, you will understand it better when we begin practical trading.
This part is crucial if you DO NOT want to lose money trading Forex.
An understanding of LOT size will help you in Risk management 😎
LOT! LOT!! LOT!!
Lot is the nephew of Father Abraham in the Bible… sebi you remember?
A lot is the standard transaction in the Forex market which equals 100,000 units of the base currency. Below are the most common lot sizes…
Standard lot = 1.00 = 100,000 base units = $10 per pip for the EUR/USD
Mini Lot = 0.10 = 10,000 base units = $1 per pip for the EUR/USD
Micro lot = 0.01 = 1,000 base units = $0.10$ per pip for the EUR/USD
Nano lot = 0.001 = 100 base units = $0.01 per pip for the EUR/USD
Example… Let’s say you have $5,000 investment and you can only afford to risk 1% per trade (which is $50).
So now we have the risk amount, the next step is to set the stop loss. Say you set your SL at 100pips and your risk amount is $50.
Dividing these two, we know that the value of 1pip will now be $0.50 because a movement in price by 100pips will equal $50.
This is a mini lot of 10,000 base units.
We then multiply 10,000 (mini lot) by the pip value ($0.50) which gives us 5,000 units which is the total number of lot that a trader can risk.
Therefore to stay in your comfort zone with a 1% risk, you should not trade more than 5,000 units of the currency.
While placing your order, ensure you choose a lot size (or volume) that best fits your risk appetite as shown in the image below…👇🏼👇🏼👇🏼👇🏼👇🏼👇🏼
I know I have succeeded in confusing you 😁. Even me I had to understand through practice in demo trade. So don’t worry, you will get better at it with time.
Finally, we have come to the end of the Theory & Introductory class. Now you have the basics that you can plug in and start trading when we return for tomorrows class same time 7pm.
Tomorrow, I will walk you through how to set up your trading app MetaTrader on your smartphone and also show you how to pick a trade and place your buy/sell order using the parameters that I have explained tonight.
Now let me open the group for questions.
But before, I do… let me share with you some few reasons why I chose to venture into this Forex Trading business…
Eccl 11:1 (GoodNews Translation) says…
Invest your money in Foreign Trade (FOREX 🤪) and one of these days you will make a profit
The wise king Solomon said it not me! 😂
A Few Good Reason To Trade Forex
1. Forex market can remain profitable even in the worst economic times because currencies are always traded in pairs. When one country’s economy and currency declines, there is always another currency with a rising value. In short, you’re able to make money whether the market is trending up or down.
The Forex market is not a respecter of Buhari’s economic policy. You can make money irrespective of who becomes the President in 2019 😂
2. Work anytime and anywhere
Trading Forex gives you the freedom to work at your own convenience. All you need is an internet enabled device. You can choose the work space and lifestyle that suits your trading goals and be your own boss.
I’ve been indoor all day with my laptop, playing in the EUR/USD market
3. Start with Low Capital
Unlike other financial markets, Forex has low entry cost due to the large number of participants. Currently, Forex is the most cost effective market for retail investor. In Forex, you can start with as low as $10 and invest more as you get better at the trade.
4. Sell at anytime
With a daily turnover of more than $5Trillion, forex is the most liquid financial market. There is always a buyer when you want to sell and always a seller when you want to buy. This is highly reassuring!
5. Leverage on the Pros *
With a new ground breaking innovation, Forex trading through social, you can follow and learn from professional traders, copy their signals or even mirror their trades automatically and make them work for you. Just monitor their success on the go with mobile app.
In Waawu Forex Academy, we have seasoned professionals and expert that will mentor and train you. We provide signals to our students that anybody without prior experience and simply copy and make money daily.
To be sincere with you…
I never liked hard work. I don’t like reading the charts or analysing the market. I just get signals from Waawu Forex Traders, I copy into my Metatrader app and BOOM!!!
And you too can get the same signals every day.To learn more and join the Waawu Forex Academy, simply visit this link >>> http://victoragina.com/student/
In my next post, we will go into the practical aspect of Forex trading.
Can’t wait to get the PART 2 link via email? CLICK HERE TO READ PART TWO
Article Credit: Femi Iyanda