Forex Training in the Fundamentals of a Trade
A currency exchange rate is simply the ratio of one currency valued against another, therefore currencies are always traded in pairs . When you buy one currency, in effect you are selling another.
Why Do We Recommend These Pairs ?
• We recommend trading the major currencies as they represent the world’s largest and most stable economic regions. These currencies include the Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, Australian Dollar, and of course the US Dollar, considered the international benchmark.
• Approximately 70%-80% of the 1.9 trillion dollars that change hands every day occurs in these major currencies with the US Dollar, Euro, and Yen accounting for most of the volume.
How Does It Work ?
• The Forex market works with terms called “pips” and “lots”.
• A pip, sometimes referred to as a point, is short for Price Interest Percentage.
• A pip measures the smallest increment of movement in currencies down to 1/100 of a cent.
• Trades are measured in lots.
• A $50 USD trade can actually controls $10,000 USD since the broker offers 200:1 leverage.
• Depending on the currency pair involved, a pip may vary in value, however the average is $1.00 US.
• Therefore in a typical trade, each pip in movement can represent $1.00 in profit or loss.
Applying a Stop Loss
• Our forex training stresses that traders should always control and mitigate their exposure to risk by setting a “Stop Loss” immediately after entering their trade.
• This precaution enables the position to automatically be closed by the broker in case the trend moves against the trader.
• A Stop Loss is placed above the entry point of a Selling position as the trader expects the market to move down. The Stop Loss will close the position if the trend reverses and moves up.
• A Stop Loss is a very effective strategy for keeping trading risk to a predictable and acceptable level.
• Once the Stop Loss is set, traders may go on about their business while the trade continues to unfold.
Following an Upward Trend
• In this case, a Buy trade is taken in anticipation of an upward trend.
• A Stop Loss is applied below the entry point to protect against a downward reversal.
Following an Upward Trend
• Based on the entry and exit point of a trade being a difference of 60 pips.
Profit = 60 Pips
• In this example, we assume a pip to be worth $1USD.
• For every $50.00 that the trader takes from their trading account, the broker puts up $10,000.
• The more lots traded, the more gross profit earned. The percentage of profit however remains the same in each case at 120%.
• At the end of the trade, the profit and original trading capital are returned to the trader’s account.
Following a Downward Trend
• Now let’s look at a Sell trade taken in anticipation of a downward trend.
• A Stop Loss is applied above the entry point to protect against an upward reversal.
Following a Downward Trend
• In this example, there is a 100 pip movement in favor of the trader.
• Traders can “trail” their Stop Loss position enabling them to lock profits in as the trade unfolds.
Profit = 100 Pips
• Once again, we see that for every $50.00 that the trader takes from their trading account, the broker puts up $10,000.
• In this case, 100 pips were gained on the trade.
• Gross profits increase in direct proportion to the number of lots traded, however the profit percentage remains the same in each case at 200%.
Trading Styles – Momentum Traders
• Flexibility is an important feature when it comes to trading. With forex training in the different trading styles, which appeal to different traders, everyone can choose the approach that suits their lifestyle and disposition.
• Each style requires forex training in the application of slightly different trading strategies while referring to charts displaying different timeframes.
• Momentum traders move in and out of the market quickly, sometimes in just a matter of minutes.
• Forex training in this style of trading enables traders to take profits in upward, downward, and even sideways trending markets.
Trading Styles – Day Traders
• Day traders may keep a position open for minutes or hours, but generally close their trades by the end of their day.
• Like momentum trading, this is an active, more hands-on style.
Trading Styles – Swing Traders
• Swing traders may take a trade and keep it open for 1 to 3 days.
• The trader may monitor their position for just a few minutes at a time, adjusting their stop loss, scaling up their position by adding lots to a profitable trade and sometimes taking profits off the table by closing some lots and leaving others open.
Trading Styles – Position Traders
• Position trading is a favorite style for busy people.
• This is a long-term style of trading that enables traders to keep positions open for weeks at a time.
• With proper forex training, minimal daily monitoring is generally all that’s required as the trade continues.
• Ultimately, forex training will allow traders to choose the style of trading that suits their overall objectives. All styles of trading offer significant potential for profit and some traders employ more than one approach in their ongoing trading activities.