Introduction to FX Trading

What is Forex Trading?

 What is Forex?
FOREIGN EXCHANGE = FOREX
Global marketplace where the world’s currencies exchange hands at a mutually agreed rate

This exchange rate change every second so the market is constantly fluctuating
Largest Financial Market
 24/7 ⏳
5 days a week (Mon to Fri) 🗓
Closed on weekends ❌
 Forex Trading
conversion of one currency into another

💷 ↔ 💵
How Forex Trading Works
 How Forex Trading Works
BUY EUR/USD ⬆

You expect the price of EUR to rise so you buy EUR (base currency) and you sell USD (quote currency)

📈 If the EUR strengthens against the USD, you make money

SELL EUR/USD ⬇

You expect the price of EUR to fall so you sell EUR (base currency) and you buy USD (quote currency)

📉 If the EUR weakens against the USD, you make money

 How Forex Trading Works

1. For one currency to go up, there will be another weakening against it.
2. All currencies cannot go up at the same time.
3. There is always going to be a winner and a loser.
4. Forex traders weigh up whether a currency looks likely to strengthen or
weaken against another, then trade that pair accordingly.
 Who Trades Forex?
Big Banks & Large Financial Institutions 🏦

Central Banks & Government 🏛

Large Commercial Companies 🏭

Retail Traders 󰱢
 How do you determine whether
a currency pair is going up or down?
You don’t.
 Trading is a probability game.

Every trade outcome is random, no matter how confident you are.

However, we can increase the probability of us winning by developing an edge.

An edge is what separates winning traders from losing traders.

Your Edge = Your Trading Strategy that helps
you make more profits than losses
Master these 3 Ms to develop your edge
Currency Pairs
 Currency Pairs
A price quote of the exchange rate for 2 different currencies traded in the FX markets.

All currency are identified by its own ISO currency code.

 Currency Pairs
Minor ✈ Exotics 🏝
Major 󰑔
Pairs that include any two of Pairs that include one major
Pairs that include USD
the major currencies except currency and one currency
- EUR/USD the USD from emerging markets
- GBP/USD - EUR/JPY - USD/SGD
- NZD/USD - EUR/CHF - USD/THB
- USD/JPY - GBP/AUD - EUR/HUG
- USD/CHF - GBP/JPY - AUD/MXN
- USD/CAD - AUD/CAD - CAD/SGD
- AUD/CHF - AUD/SEK
Which currency pairs to trade?
Stick to the major currency pairs.
EUR/USD
GBP/USD
NZD/USD
USD/JPY
USD/CHF
USD/CAD
Always stick to 1 to 4 currency pairs
Forex Language & Lingo
 Pips
Pip = Percentage in Point

Amount of change in the exchange rate for a currency pair

A pip is the 4th number after the decimal point.

1 pip = 0.0001
EUR/USD = 1.0926
EUR/USD = 1.2468 → 1.2470 = +2 pips

EUR/USD = 1.2576 → 1.2566 = -10 pips

EUR/USD = 1.2176 → 1.2276 = +100 pips

 Pips on Japanese Yen pairs
Japanese Yen pairs only go up to 2 decimal places

1 pip = 0.01

EUR/JPY= 170.67
 Pipette
Pipette = micro pips (1/10th of a pip)

1 pipette = 0.00001

+0.2 pips
EUR/USD = 1.0926 3
1.0926 5
 Lot Size
Forex is traded in lots (size of your position / how many units are you buying or selling)

Standard Lot Mini Lot Micro Lot

- 1 Lot - 0.1 Lot - 0.01 Lot
- 100,000 Units - 10,000 Units - 1,000 Units
- $10/pip - $1/pip - $0.10/pip
 Familiarize yourself with these terms
Bullish - Expect price to increase

Bearish - Expect price to fall

Long - Buy

Short - Sell

Stop Loss - Closes the trade at a pre-set price if the trade did not go as planned

Take Profit - Profit goal that closes the trade if it went as planned
How You Make Money in Forex Trading
 How You Make Money in Forex Trading

1. Correctly predicting a currency pair price movements

2. Opening a position that stands to profit.

E.g.

Bullish on EUR 📈 → BUY EUR/USD → EUR/USD ⬆ → Make Money 💰

Bearish on GBP 📉 → SELL GBP/USD → GBP/USD ⬇ → Make Money 💰

 How You Make Money in Forex Trading

Lot Size
Buy or Sell
However much does it go up or down (pips)
 Pips

Pip = Percentage in Point

Amount of change in the exchange rate for a currency pair

A pip is the 4th number after the decimal point.

EUR/USD = 1.0926
EUR/USD = 1.2468 → 1.2470 = +2 pips

EUR/USD = 1.2576 → 1.2566 = -10 pips

EUR/USD = 1.2176 → 1.2276 = +100 pips

 Lot Size
Size of your position / how many units are you buying or selling

Standard Lot Mini Lot Micro Lot

- 1 Lot - 0.1 Lot - 0.01 Lot
- 100,000 Units - 10,000 Units - 1,000 Units
- $10/pip - $1/pip - $0.10/pip
 BUY EUR/USD
EUR/USD 1.2500
⬇ (+10 pips)
EUR/USD 1.2510
Lot Size: 1.00 ($10/pip)
Profits: +10 pips x $10 = $100
 BUY EUR/USD
EUR/USD 1.2500
⬇ (+10 pips)
EUR/USD 1.2510
Lot Size: 0.5 ($5/pip)
Profits: +10 pips x $5 = $50
 SELL GBP/USD
GBP/USD 1.2828
⬇ (-20 pips)
GBP/USD 1.2808
Lot Size: 0.2 ($2/pip)
Loss: -20 pips x $2 = -$40
 How to Calculate Profit/Loss

Pip Movement (pips) x Position Size ($/pip) = Profit/Loss ($)

Types of Analysis
How to Analyse Forex?
 Types of Analysis

1. Technical Analysis 📈
2. Fundamental Analysis 📰
3. Sentiment Analysis 󰤅
 Technical Analysis
● Study of past price and volume data
● Analyzing charts to identify trends or patterns
● Technical traders analyze historical price data on the charts to identify trends
or patterns which will help them predict future market behavior.
 Fundamental Analysis
● Study of underlying economic and financial news and announcements that
might impact the market
 Fundamental Analysis
Monetary Policy/Interest Rates
Inflation
Gross Domestic Product (GDP)
Non-Farm payroll (NFP)
Federal Open Market Committee (FOMC)
Any comments from Feds/ Central Banks
Economic chaos/prosperity
 Sentiment Analysis
● Gauging how the general public feel about something.
● Analyses people’s emotions, opinions, and attitudes
● Social media, reviews, articles etc
Trade based on the type of analysis you are
most comfortable and profitable with.
Why we focus on technicals?
Trading Styles
 Trading Styles
1. Scalping 3. Swing
Trade Duration: Seconds to Minutes Trade Duration: Days to Weeks

Target: 5 to 30 pips Target: 50 to 300 pips

Entry: 1min/5min Entry: 15 min/1H/4H

2. Intraday 4. Position
Trade Duration: Less than 24 Hours Trade Duration: Weeks to Months

Target: 10 to 100 pips Target: More than 300 pips

Entry: 5min/15min Entry: 4H/D/W

 Which one to choose?

⏳ Fits into your schedule

💰 Aligns with your goals
🫀Suits your personality
Experiment → Define → Iterate
High RRR Trades Require a Hybrid Approach
Japanese Candlesticks
 Golden Rules of Japanese Candlesticks
1. Candlesticks tell you everything about price action (who is in control of the
market?)
2. Doji candlesticks = indecision (neither buyer nor seller can gain control)
3. The larger the candlestick body, the more momentum/pressure there is
4. Compare the size of the candlestick body to the wick
5. Candlesticks on the HTF matter more than LTF
6. Don’t rely on candlestick patterns without context. (Market Structure + POI)
Choosing a Broker
 Choosing a Broker
Broker = firm that helps you execute your trades
Look for the following criteria:
- Licensed and Regulated
- Location
- Ease of withdrawal
- Quality Customer Support
- Low trading costs
- Minimum deposit
- Leverage
- Platform (MT4 or App/Site)
 DO NOT use a broker because your
favourite trading guru ask you to do so.

Always do your own due diligence.

Your money. Your responsibility.
When in doubt, stick to the safest ones:
 My Trade Execution Process
1. Connect broker to MetaTrader 4
2. Analyze Charts on TradingView
3. Execute traders on MetaTrader 4

Don’t connect your broker to TradingView:

- You might rush into trades without thinking through properly

- You might enter into buy/sell orders or manage your open trades accidentally
- You’ll get emotional when watching your profit/loss fluctuating as you analyze charts
Trading Costs
Your broker makes money based on your trading volume.

They want you to take as many trades as possible,

and take them as often as possible.
 Trading Costs
Bid/Ask Spreads

Commissions

Swap/Carry (Rollover)
 Bid/Ask Spread

For every buy order, there must be an equivalent sell order

for a trade to take place.
Bid → Price that you sell to the market
Ask → Price that you buy from the market
Spread → Difference between the bid and ask price

If you enter for a buy, you will immediately be in a drawdown of 1.5 pips (spread)
because if you want to get out of the position, you have to sell at the bid price.
 Commission
Usually fixed amount per trade by the broker

E.g.

$7 per lot on each trade

Round trip = 2 trades (buy AND sell or vice versa)

BUY 1 lot of EUR/USD -> Pay $7 commission

SELL 1 lot of EUR/USD -> Pay $7 commission

Total commission costs for trading 1 lot of EUR/USD = $7 + $7 = $14

 Transaction Costs
Transaction Cost = Commission + (Spread x Pip Value)

BUY AUD/USD

Lots: 10

Pip Value: $100/pip

Commission: $7 round trip

Spread: 1.5 pips

Transaction Cost = $7 + (1.5 x $100) = $157

 Swap

Rollover → Moving open position from one trading day to another

Swap → Fee that you have to pay if you hold your trades overnight
Only applies for swing/position traders
 Swap

Calculated by adjusting the closing level of your open position with the
interest rate of the currencies involved
Rates can change daily as they are based on the underlying market price.
Buy currency with higher interest rate → Receive interest
Buy currency with lower interest rate → Pay interest
This payment is known as carry.
Buy 1 Lot of EUR/USD

Current price: 1.1378/1.1379

After 24 hours

New Price: 1.13795/1.13805

To roll your position, you would be selling at 1.1378 and then buying back at
1.13805 (paying 2.5 points)

Swap = $10 x 2.5 = $25

Don’t worry too much about transaction costs.