In this article I will be taking you through the basics of Forex trading, the exact skills and strategies on how to consistently make profit and create another source of income for yourself as a beginner.
What is Forex?
The term forex simply means Foreign Exchange. The foreign exchange market is one in which a nation's currency is traded for that of another at a mutually agreed rate.
Forex market is run electronically and traded within a network of banks, 24 hours and 5 days in a week (Monday - Friday). Forex is the largest market in the world as over $3 trillions is traded per day and 500 billions for the stock market.
The Business of Forex Trading
Forex trading should be treated like every other business. The aim of every business is to make profit or money and at same time reduce losses.
The only difference between physical products and trading Forex is that, in Forex you are either buying or selling different currencies while in physical products, you are using money to buy the product or service, or you are selling the product for money.
Some Benefits of Trading Forex.
1. Minimal Investment Capital: Mini trading accounts start from $10-$200, though this depends on how much you are willing to invest or risk.
2. You are Boss of your own: You don't account for anybody, you're answerable to yourself. You keep the profits you make and also losses as well.
3. Minimal Time Commitment: At least 3-6 hours a day is more than enough to make money on forex market, though it depends on the type of trader you are.
4. No Employees, Office or Inventory.
5. Recession Proof.
To succeed in this sphere, you must be willing to work hard and master this professional skill. Forex trading is not as easy as some folks do say, if it was easy believe me everyone would have been a multimillionaire and no one will go to work.
The business of Forex is like any other business or career, which will require skills and knowledge. Anyone going into trading Forex without acquiring the necessary skills and knowledge is definitely gambling, eventually if the person wins, that's called luck.
Acquiring the skills will help you to be profitable at the long run. To master the profession of trading Forex, in most cases it will take you 3 - 6 months or even a year if you're committed and consistent.
Can I Master Forex Trading Without Taking A Course Or Having A Mentor?
The answer is YES but it will be a trial and error situation which will literally take you 5-10 years, even at that you might be profitable or not.
However, when you goes through a Forex trading course or mentorship, I can assure you that you will be profitable and secure a long term income for yourself.
Basic Tools Required To Trade Forex As A Beginner.
1. Laptop Computer or Smart Phone.
2. Internet Connection
3. Download Metatrader 4 (Mt4), Metatrader 5 (Mt5) or Dtrader, it depends on your broker..
4. Risk Calculator.
5. Forex News Calendar.
6. You will also need Tradingview for your analysis.
7. Brokerage Account: I normally use Exness Broker, you can give it a try. They have good customer service and works 24/7, low spread, with a minimum deposit of $10.
Note: As a Beginner, you have to start with Demo trading first, when you have mastered your strategy, you can now fund real money.
Forex Basics
Forex is quoted in currency pairs, each currency is given a 3-letter code.
Example of currency pairs: GBPUSD, EURUSD, GBPCAD, USDCAD, USDJPY, GBPNZD etc. One currency pair is always exchanged for another currency.
Eight (8) Most Common Currency Symbols
EUR => Euro
USD => US Dollar
GBP => British Pound
JPY => Japanese Yen
CHF => Swess Franc
AUD => Australian Dollar
CAD => Canadian Dollar
NZD => New Zealand Dollar
Other Currency Symbols
SEK => Swedish Krona
DKK => Danish Krone
NOK => Norwegian Krone
SGD => Singapore Dollar
ZAR => South African Rand.
Most successful forex traders only trade the most common and liquid seven (7) pairs, which are;
EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, and USD/CAD. These are the most traded forex pairs and they are highly volatile with a tight spread, though spread varies depending on broker.
Forex Trading Time Zones/Sessions
The Forex market has 3 major zones or sessions, they are:
1. Asian Session(Sydney and Tokyo)
2. London Session
3. New York/ USA Session.
Currency Exchange Rates
Forex currencies are always quoted in pairs and mostly in 4 - decimal places.
Example: EUR/USD => 1.35052
Where EUR => Base Currency
USD=> Quote Currency
Last 5 from the right is Pip
While 2 is referred to as Fractional Pip.
The base value always have a value of 1 dot, in this case 1 EURO is equivalent to 1.3505 US Dollars at that point in time.
If you want to buy 1 EURO, you will have to pay 1.3505 US Dollars, then if you want to sell 1 EURO, you will receive 1.3505 US Dollars.
While all other pairs are quoted to 4 decimal places (1 Pip = 0.0001). The JPY pairs are quoted to 2 decimal places (1 Pip = 0.01).
Example: USD/JPY => 95.543
USD is the base Currency
JPY is the quote Currency
4 is a Pip
3 is a Fractional Pip.
This quote tells us that 1 US Dollar is equivalent to 95.54 Japanese Yen.
What is a Pip In Forex Market?
The term pip stands for Price Interest Point. It is the smallest change in value for any given forex quote. For all the non-JPY pairs, 1 Pip represents the 4th decimal place of the quote.
Example: When EUR/USD moves from 1.3505 to 1.3506, it is a movement of 0.0001 or 1 Pip.
The JPY Forex Pairs, 1 Pip represents the 2nd decimal place of the quote.
Example: If USD/JPY moves 90.55 to 90.88, it is a movement of 33 pips.
Contract Lot Sizes
Note: 1 Standard lot is equal to 100,000 of the base currency. When you buy one standard lot of EUR/USD, you are buying 100,000 Euro with US Dollar.
Examples of other lot sizes
How To Calculate Profits And Loss In Forex
Below is the formula to calculate profit and loss in forex.
Profit/Loss = Number of Pips x Number of Lots x $Value Per Pip Per Standard Lot.
Example: Lets say one bought EUR/USD at 1.2550 using one standard lot and the price moved 60 pips (1.2610) in the buyers favor. What is the expected profit ? and if the stop loss (SL) is 20 pips, what is the loss if trade goes against the buyer.
Solution
60 Pips x $10 x 1 Standard Lot = > ...
Profit = 60 Pips x $10 x 1 => $600
Loss = 20 Pips x $10 x 1 => $200.
The standard $Value per Pip per Standard Lot is 10 USD or about 10 USD for most of the actively traded pairs. Example EUR/USD, GBP/USD, AUD/USD.
To find the dollar value ($value) per Pip per lot for all major currency pairs, kindly visit https://www.mtpredictor.com/pip-value-table.
How To Make Money From Forex Market Movement
Going Long on EUR/USD 1 Standard contract at 1.3510.
Note: Going "Long" in forex simply means to "Buy"
While going "Short" means to "Sell"
Buy EUR/USD at 1.3510
Sell EUR/USD at 1.3550.
To know the actual total pips movement or the difference, subtract 3510 from 3550 => 3550 - 3510 = 40 pips.
To get your profit,
Profits = Number of Pips x $Value per pip per standard lot x number of lots.
= 40 pips x $10 x 1 lot = $400.
Another example, let's assume one went Long (Buy) on GBP/USD pair, 0.5 lot at 1.2500, and take profit (TP) is set at 1.3750 and a stop loss (SL) of 20 pips. Lets find out the profit target and the exact point to place the stop loss (SL).
To get the profit target, we will subtract 1.2500 from 1.3750
375 - 250 = 125 Pips.
Profit = 125 pips x 10 x 0.5 lot = $625,
If the trade goes against the buyer
Stop Loss = 20 pips x 10 x 0.5 lot = $100.
As you can see from the above illustration, if the trade goes in the favor of the Buyer he/she makes $625 profit, but if it goes against, he/she loses $100.
Stop loss placement: we will subtract 20 pips from the entry point which is 1.2500.
2500 - 20 pips = 2480
Stop loss placement is at 1.2480.
Lets assume we are trading with 0.01 lot size, our profit will be calculated as follows;
= 125 pips x 10 x 0.01 lot = $12.5
Our profit is $12.5.
To get the stop loss, we multiply the following;
20 pips x 10 x 0.01 lot = $2
Our Stop loss $2.
Note: When calculating stop loss and take profit in forex pairs, always consider the 4 digits after the decimal point.
Four (4) Types Of Forex Traders
There are so many ways to trade forex and there is no right or way. It all depends on what really works for you.
You can really be successful and profitable in many different ways, it all depends on choosing a style of trading that you're comfortable with, the one that suits your personality and fits in with your work schedule or time schedule.
There are basically four kinds or types of Forex Traders.
1. Scalpers: They are usually the shortest form or way of trading Forex, they sculp the market. Scalpers normally enters the market and exit within few seconds.
They buy immediately and sell it off within the shortest period of time. They target anywhere from 5 - 10 pips or even 20 pips and they are out of the trade. Scalpers normally look at the 1 minute and 5 minutes candles or timeframes.
2. Day Traders: Day trader as the name implies, they buy and sell within the day, their trade rarely enters over the next day. The day traders closes their positions at the end of the day.
A day trader normally do a couple of trades a day, like 2 to 3 trades daily, targeting at least 30 to 70 pips. They looks at charts and analyze based on 15 minutes candles, 1 hour candles or 4 hour candles or timeframe.
3. Swing Traders: This traders typically targets anywhere from 100 to 300 pips per trade. Whenever the swing traders enters a trade, they hit anywhere from 100 to 300 pips and they are out of the trade .
The trade duration usually lasts for less than a week or couple of days, they look at charts like 1 hour, 4 hour or daily candles or timeframe. Swing traders takes about a couple of days to close a trade. The swing traders don't take much trades like the day traders.
4. Position Traders: Position traders are also called long-term traders. They will enter the forex market and hold their position for a couple of months or even years.
The position traders have a long-term view of the forex market and normally these people will tend to trade based on looking at fundamentals, which is the underlying health of the economy, like what's happening, interest rate, GDP (Gross Domestic Product).
They look at the overall big trend. When position traders enters the market, they targets 500 to 1000 pips per trade or even more. To capture 500 to 1000 pips you have to stay in the trade for a few weeks, months or even years.
Position traders tends to look at charts like the Daily candles or timeframe, which each represents one day or they look at the weekly candles or timeframe. The position traders takes less trade because one trade lasts for weeks, months or even years.
In this four categories of traders, their are lot of successful traders.
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