COMPLETE FOREX EDUCATION FOR BEGINNERS: STARTERS CORNER

 WHAT IS FOREX ?

Forex stands for ‘Foreign Exchange’, also known as FX Exchange, refers to the simultaneous buying and selling of currencies by investors and speculators at any given time when the markets are open. For instance, British pounds (GBP) are exchanged for Euros (EUR) = GBP/EUR; or United States Dollars (USD) are exchanged to Japanese Yens (JPY) =USD/JPY.
Interestingly enough, without even knowing it, we participate in the FX markets every time we exchange one currency for another; the same as travellers do when they want to sell their own currency to buy the currency of the country they are visiting. When we exchange currencies, we are charged with some inevitable ‘exchange rates’. These rates fluctuate daily, a fact that determines whether you earn or lose money from the given exchange rate.
Currently, the Forex market is the largest, most liquid financial market in the world with an average of 5 trillion dollars exchanged every day!


 WHO CAN TRADE FOREX?

Everyone can trade forex regardless of their level of experience and location. Since forex trading has no centralised market place, it operates 24 hours a day from Monday to Friday and all trading is carried out via online trading platforms.

 HOW TO TRADE FOREX

Trading on the Forex market is one of the most lucrative investments available.
The buying and selling of currencies is implemented in pairs of currencies. For example, you buy the EUR/USD currency at its lower price and you sell it at its highest price in order to earn money.
If, for instance, you bought 1000 USD (US dollars) last year and the equivalent at the time was 800 Euros, this year the value of the USD may be 900 or 700 Euros (EUR). In this way, if you decide to sell now you will lose or earn 100€ respectively.
A trader can only trade in the FX markets via an online trading platform and these are provided by FX brokers. The platforms offered by FX brokers are various, and the broker is responsible for providing brokerage services to the trader which will enable him to trade. The trader has the opportunity to select from a variety of different types of accounts, types of platforms and all trading conditions offered. In turn, the broker is responsible for assisting the client with his trading strategy and providing the best prices in the market to facilitate his trading.

HOW TO CHOOSE THE RIGHT FOREX BROKER

It goes without saying that a big part of successful trading is choosing the RIGHT FX Broker!
When it comes to trading, you need to find a Forex broker that will fulfil all your requirements and make your trading experience as smooth and easy as possible.
Below you will find essential criteria which you should consider when selecting the ideal broker:

• Regulation – a broker needs to be properly registered and licenced by local regulating authorities.
• Spreads – low spreads are always an attractive feature
• Leverage – a flexible leverage is preferred
• Fast Execution policy – the speed at which trades are executed is always a star attraction when choosing a broker.
• Account types – a range of trading accounts should be available to cater the needs of all traders, irrelevant of your experience and knowledge in the field.
• Demo Accounts – these constitute a substantial tool for novice traders to acquire the necessary knowledge and trading experience without the risk of losing their real money.
• Trading platforms – best to offer modern, technically advanced online trading platforms, all facilitating the art of trading
• 24 hour customer support – this is essential! You have the knowledge that you can always contact someone for support and assistance. This feature provides a feeling of security and assurance.
• ONLY ECN- Electronic Communication Network can guarantee all of the above.
•  
  

  Order Types

  As a trader about to indulge in FX trading, you should have a range of order types available to you. CommexFX is committed to offer all its clients the best trading conditions possible and our Order Types are no exception.
  
  
• A buy/sell order at the current market price. This type of order can be used to enter or exit a trade.
• Market orders should be used with care due to the unexpected volatility of some markets. For instance, there may be a difference between the price seen at the order time and the actual price of the transaction. This is due to slippage- the difference between the expected price of a trade, and the price the trade actually executes at. Slippage results in either losses or gain of several pips.

• An order to buy or sell at a certain limit. Limit orders can be used to buy a currency below the market price or sell a currency above the market price.
• When buying, your order is executed at a time when the market falls to your limit order price. When selling, your order is executed at a time when the market rises to your limit order price. There is no slippage with limit orders.

• An order by which you buy above the market price or sell below the market price. They are most commonly used as stop-loss orders to limit losses if the market moves contrary to what the trader had expected.
• A stop-loss order will sell the currency if the market falls below the point set by the trader.

• The One Cancels the Other (OCO) order is used when placing a limit order and a stop-loss order simultaneously. If one of the orders has been executed, the other is automatically cancelled, allowing the trader to perform a transaction without monitoring the market.
• If the market falls, the stop-loss order will be executed, but if the market rises to the level of the limit order, the currency will be sold at a profit

Example of an OCO Transaction:

Buy: 1 standard lot EUR/USD @ 1.3228 = $132,280
Pip Value: 1 pip = $10
Stop-Loss: 1.3203
Limit: 1.3328 This is an order to buy US dollars at 1.3328 and to sell them if they fall to 1.3203 (resulting in a loss of 25 pips or $250) or to sell them if they rise to 1.3328 (resulting in a profit of 100 pips or $1,000).
Here is another example:
The current bid/ask price for US dollars and Canadian dollars is USD/CDN 1.2152/57 meaning you can buy $1 US for 1.2152 CDN or sell 1.2157 CDN for $1 US.
If you thought that the US dollar (USD) was undervalued against the Canadian dollar (CDN) then you would buy USD (simultaneously selling CDN) and wait for the US dollar to rise.
This is the transaction:
Buy USD: 1 standard lot USD/CDN @ 1.2157 = $121,570 CDN
Pip Value: 1 pip = $10
Stop-Loss: 1.2147
Margin: $1,000 (1%)
You are buying US$100,000 and selling CDN $121,570. Your stop loss order will be executed if the dollar falls below 1.2147, in which case you will lose $100.
However, in our example the USD/CDN rises to 1.2192/87. You can now sell $1 US for 1.2192 CDN or sell 1.2187 CDN for $1 US.
Because you entered the transaction by buying US dollars (buying long), you should now sell US dollars and buy back CDN dollars to realize your profit.
You sell US$100,000 at the current USD/CDN rate of 1.2192, and receive $CDN 121,920 for which you originally paid CDN $121,570. Your profit is $350 Canadian dollars or US$ 287.19 (350 divided by the current exchange rate of 1.2187)

Forex Glossary

To enhance your forex learning, we have created a comprehensive forex glossary with all the necessary terminology of the forex market needed to help you perfect your FX knowledge. We provide you the knowledge so you can only worry about your trading.

• Ask price:  The quoted price at which the trader can buy a particular currency pair. The term can also be referred to as ‘offer’ or ‘ask rate’.
• Account Balance: The total sum of funds (deposits/withdrawals and transactions) in your individual trading account.
• Base Currency:  It is the first currency quoted in a currency pair. For example, in the currency pair EUR/USD the Euro currency is the base currency.
• Bear Market: A market condition in which the market prices are declining, causing wide pessimism and negative sentiment in the market.
• Bid price: The quoted price by which the trader can sell a particular currency pair.
• Broker: An individual or a company that is regulated and licenced to act as a mediator and offer an online forex trading environment to traders.
• Bull market:  A market condition in which the market prices arise or are expected to arise, resulting in investor confidence and a trading environment of confidence and positivity.
• Currency pair: The currency pair is the quotation of the value of one currency unit against the unit of another currency.
• ECN (Electronic Communication Network): An ECN broker provides its clients a direct access to live-stream prices provided by other participants in the market place (global banks, liquidity providers). Because an ECN broker consolidates price quotations from these market participants, it generally offers its clients tighter bid/ask spreads than would be otherwise available to them.
• Equity: Equity is your account balance plus the floating profit/loss of your open positions.  When you have no open positions, hence no floating profit/loss, then your account equity and balance are the same.
• Expert Advisor (EA): A software programme commonly known as ‘Robots’ which are configured to do the trading for you. This can be referred to as ‘automated trading’.
• Free Margin: The difference of your account equity and the open positions’ margin.
• Hedging: In the forex market hedging constitutes a strategy used by traders to mitigate risk which may occur from the transactions in foreign currencies.
• KYC (Know Your Client): The procedure for the verification of client documentation.
• Leverage: The ratio used to mirror the transaction size and the actual investment used for margin. Leverage enables clients to trade more money than they actually deposit into their account. A client that deposits $100 and chooses a 200:1 leverage will have the possibility of placing orders of $20, 000.
• Lot: A standard trading size referring to an order of 100,000 currency units. The traders can select their preferred size as long as it is formed in increments of 1000 units. At CommexFX the smallest trade size available is the mini-lot (1,000 units of any given currency).
• Margin: The necessary deposit required to keep the client’s trades on the market. For example, if your leverage is 200:1 and you execute an order worth of $20 000 then the margin would be the $100 you are required to deposit. If the funds in the account are less than $100, no trades can be executed.
• Margin Level: It is the ratio of equity to margin [(Equity/Margin) x 100]. A very important aspect as brokers use it to determine whether the traders can take any new positions or not.
• Margin Call Level: The initial warning that the amount of Equity equals or falls below the Used Margin in the Client’s Account.
• Offer: The quoted price by which the trader can buy a particular currency pair. Also referred to as the ‘Ask price’.
• Pip: The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point, that is the fourth digit after the decimal point.
• Quoted Currency: The second currency of a currency pair that follows the base currency.
• Rollover: The process by which a trader can extend the settlement date of an open position. It is simply moving a Forex position to the next delivery / settlement date usually done at night.
• Scalping: A trading strategy implemented by forex traders in their attempt to make profit out of small price changes of currency pairs.  What they actually do is to Buy a currency pair and then hold it for a certain period of time.
• Spread: The difference between the ‘bid’ and the ‘ask’ price of a Financial Instrument at any given moment.
• Stop-out Level: The forced closing, at current prices, by the Company of Client’s open positions when equity falls below the minimum required margin.
• Stop-Loss Order: An order placed with a broker to close a position when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a trading position. Also known as a “stop order” or “stop-market order”.
• Straight-Through Processing (STP) broker: A Forex Broker that acts as a mediator between the trader and liquidity providers. Brokers with STP systems transmit the traders’ orders directly to the liquidity providers and charge on commission basis.
• Swap: The simultaneous purchase and sale of a particular amount of one currency to the same amount of another currency. Swaps are commonly charged with interest rates namely ‘swap rates’. At CommexFX we offer our clients Swap-free accounts upon request.
• Take Profit Order (T/P): An order used by traders to specify the exact rate of pips from the current price point where to close out their current position for a profit. The rate deemed to be the level where the trader wants to take a profit is sometimes referred to as the “take-profit point”.