Basic Forex Trading Guide

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1 FinancialTradingMadeSimple BasicForexTradingGuide Aboutthisguide IfthisisyourfirsttimecomingacrosstheonlineForexmarket,thenyou vecometotheright place. Thisguidewillprovideyouwiththebasicknowledge,toolsandtechniquesanoviceForex tradershouldhaveasyoutakeyourfirststepsinthefascinatingworldofforex. Manyofthetradingconceptsintroducedhereareexplainedingreaterdetailinlater chaptersoftheguide. IfyouareunclearaboutanyForextermyoucomeacrosshere,besuretorefertothe glossaryofterms P u b l i s h e d b y w w w. e T o r o. c o m T r a d i n g P l a t f o r m

2 BASICFOREXTRADINGGUIDE 2 Index Usethefollowingindextonavigateyourwayaroundtheguide. Intro:WhyForex?... 3 Profitability... 4 CashinginonPriceMovements... 5 TheTrendisYourFriend... 7 TacticalusageofLeverage ASimpleTradeExample HedgingRisksandRewards TheQuestforVolatility MoneyManagement OpenfreePracticeeToroaccount!

3 BASICFOREXTRADINGGUIDE 3 Intro:WhyForex? Ifyouarereadingthisguide,youhavemostlikelytakensomesortofinterestin theforexmarket.butwhatdoestheforexmarkethavetoofferyou? Accessibility It snowonderthattheforexmarkethasthetrading volumeof3trillionaday allanyoneneedstotakepartintheactionisa computerwithaninternetconnection. 24HourMarket TheForexmarketisopen24hoursaday,sothatyoucan berighttheretradingwheneveryouhearafinancialscoop.noneedto biteyourfingernailswaitingfortheopeningbell. NarrowFocus Unlikethestockmarket,asmallermarketwithtensof thousandsofstockstochoosefrom,theforexmarketrevolvesaround moreorlesseightmajorcurrencies.anarrowchoicemeansnoroomsfor confusion,soeventhoughthemarketishuge,it squiteeasytogetaclear pictureofwhat shappening. Liquidity Theforeignexchangemarketisthelargestfinancialmarketin theworldwithadailyturnoverofjustover$3trillion!nowapartfrom beingareallycoolstatistic,thesheermassivescopeoftheforexmarketis alsooneofitsbiggestadvantages.theenormousvolumeofdailytrades makesitthemostliquidmarketintheworld,whichbasicallymeansthat undernormalmarketconditionsyoucanbuyandsellcurrencyasyou please.youcanneverbeinajamforcurrencytobuyorstuckwith currencythatyoucan tunload. TheMarketCan tbecornered ThecolossalsizeoftheForexmarketalso makessurethatnoonecancornerthemarket.evenbanksdon thave enoughpulltoreallycontrolthemarketforalongperiodoftime,which makesitagreatplaceforthelittleguytomakeamove. ClickheretoopenafreeeToroPracticeaccountandjointheForex markettoday!

4 BASICFOREXTRADINGGUIDE 4 Profitability Itdoesn ttakeafinancialgeniustofigureoutthatthebiggestattractionofany market,oranyfinancialventureforthatmatter,istheopportunityofprofit.inthe Forexmarket,profitabilityisexpressedinanumberofways. Firstofall,justtosettherecordstraight,youdon thavetobeamillionaireto tradeforex.unlikemostfinancialmarkets,theforexmarketallowsyoutostart tradingwithrelativelylowinitialcapital.atetoro,youcanstarttradingforexwith aslittleas$25! Rightaboutnowyou reprobablyaskingyourself: WhatchancedoIhaveof profitingwithsuchalowinitialinvestment? TheForexmarketdoesn trequire largeinitialinvestmentsbecauseitallowsyoutouseleveragedtrading.leveraged tradingletsyouopenpositionsfortensofthousandsofdollarswhileinvesting sumsassmallas$25.thismeansthatforextradinghastheprofit(andloss) potentialoftensandevenhundredsofpercentaday! WhatisalsouniqueabouttheForexmarketisthatanysortofmovementisan opportunitytotrade.whetheracurrencyiscrashingorsoaring,thereisalways roomforspeculation,sinceyoualwayshavetheoptionofbuyingorsellingthe currencyofyourchoice.unlikethestockmarket,youarenotlimitedto speculatingonrisingstocks,andafallingmarketisjustasgoodforbusinessasa risingmarket. Havingsaidallthat,itisimportanttorememberthatasprofitableastheForex marketis,itstillcarriesalltherisksinvolvedwithfinancialtrading.youshould alwaysbeawareoftherisk,andneverriskmoneythatyoucan taffordtolose. Havingsaidallthat,itisimportanttorememberthatasprofitableastheForex marketis,itstillcarriesalltherisksinvolvedwithfinancialtrading.youshould alwaysbeawareoftherisk,andneverriskmoneythatyoucan taffordtolose. ClickheretoopenafreeeToroPracticeaccountandjointheForex markettoday!

5 BASICFOREXTRADINGGUIDE 5 CashinginonPriceMovements TradingForexisexcitingbusiness.Themarketisalwaysonthemove,andevery tinyshiftincurrencyratescanmeanprofitsandlossesofhundredsandeven thousandsofdollars! Let sdemonstratehowthatcanhappen: Ingeneral,theeightmosttradedcurrenciesontheForexmarketare: USD U.S.Dollar EUR Euro GBP BritishPound JPY JapaneseYen CAD CanadianDollar CHF SwissFranc NZD NewZealandDollar AUD AustralianDollar Forextradingisalwaysdoneinpairs,sinceanytradeinvolvesthesimultaneous buyingofacurrencyandsellingofanothercurrency.thetradingrevolvesaround 18maincurrencypairs.Thesepairsare: USD/CAD EUR/JPY EUR/USD EUR/CHF USD/CHF EUR/GBP GBP/USD AUD/CAD NZD/USD GBP/CHF AUD/USD GBP/JPY USD/JPY CHF/JPY EUR/CAD AUD/JPY EUR/AUD AUD/NZD Whenbuyingorsellingacurrencypair,eachpairhasitsownBid/Askrate,for example: Pair Bid Ask EUR/USD

6 BASICFOREXTRADINGGUIDE 6 Thismeansyoucouldeither: BuythepairattheAskrate Whichmeans: Buy1EUR/Sell$ or SellthepairattheBidrate Whichmeans: Sell1EUR/Buy$ OK,butwhere stheopportunityforprofit? Thecurrencypairratesarevolatileandconstantlychanging. Onewaytoprofitisbybuyingapair,thensellingitatahigherrate. Thesecondwayisbysellingthepair,thenbuyingitatalowerrate. ClickheretoopenafreeeToroPracticeaccountandjointheForex markettoday!

7 BASICFOREXTRADINGGUIDE 7 TheTrendisYourFriend Trendanalysisisbasedontheideathatwhathashappenedinthepastgives tradersanideaofwhatwillhappeninthefuture. Althoughthismayseemprettybasic,beingabletoidentifywhenapairisina trendandwhenitisn'twillhelpyoutoincreaseyourchancestoprofit consistentlyintheforexmarket. Whenyoucanidentifyatrend,youcanestimatewhatdirectiontherateofa currencypairisgoingtogoin.youshouldexploitthedirectionofthetrendyou identifybyplacingatradeinthatdirection. Ifit sanuptrend,meaningthattherateisincreasing,buyingthecurrencypairwill giveyouabetterprobabilityforprofit.ifit sadowntrend,meaningthattherate isdecreasing,sellingthecurrencypairwillgiveyouabetterchanceofmaking money. HowdoIidentifyatrend?Whatarethecharacteristicsofatrend? Thesimplestwaytoidentifyatrendisthroughthedistinctpatternsthattheprice forms.thesecantellyouifthemarketismovinginanuptrendordowntrend. IdentifyingaForexTrend WhenatrendistakingplaceinaForexpair,thepricemovementsstarttoform peaksandvalleysinthechartofthatpair,whichareeasilyidentified. Inanuptrend,thepricemovementsformaseriesofhigherpeaksandhigher valleys. (HigherHighsandHigherLows.) Sinceapicture sworthathousandwords,letslookatthefollowingchart: Thischartsuggeststhatthetradershouldbuythecurrencypair(andclosethe tradebysellingatprofitaftertheraterises).

8 BASICFOREXTRADINGGUIDE 8 Inadowntrend,thepricemovementsformaseriesoflowerpeaksandlower valleys: (LowerHighsandLowerLows) Thischartsuggeststhatthetradershouldsellthecurrencypair(andclosethe tradebybuyingatprofitaftertheratedeclines) It simportanttonotethatduringsometradingdaysthetrendishardto spot,sometradingdaysshownotrend(thepricemovementsforma Range),andofcourseyou reboundtorunintotheoccasionalreversal,so thisisnotaperfectlyaccurateor100%reliableindicatorfortrading. HereiswhatatradingRangelookslike: Itiseasiertomakepredictionswithatrendthanwithatradingrange.Whileyou canstillprofitintradingranges,youhavetobemorenimbleonyourfeet,and readytojumpinandoutofthemarketsatalltimes.needlesstosay,thismakes thetrader slifealottougherandtheriskforlossgreater. Tradingrangescanbereallymessyandunpredictable,whichiswhyyoushould alwayslookfortradingtrends.it sagoodideatostayoutalltogetherduringa range,andgetbackinonlywhenthemarketsstarttotrendagain. Asageneralstrategy,itisbesttotradewiththetrendratherthanagainstit, meaningthatifthegeneraltrendofthemarketisheadedup,youshouldbevery cautiousabouttakinganypositionsthatrelyonthetrendgoingintheopposite direction.

9 BASICFOREXTRADINGGUIDE 9 Thetrendspottingstrategyassumesthatthepresentdirectionofthepricerate willcontinueintothefuture.itcanbeusedinthreemaintime frames:short, intermediateandlong term,withthetrendsbeingdifferentforeach. Forexample,here sapossiblescenariointheforexmarket: Overthelast12monthsthetrendfortheEUR/USDisanuptrend,overthelast30 daysthetrendisadowntrend,andoverthelast24hours(intra day)trendisan uptrend. Regardlessofthechosentimeframe,traderswillremainintheirpositionuntil theybelievethetrendhasreversed. Sothegoalistospotatrendthatyoubelieveinandtradeaccordingtoit. Needlesstosay,youwillneedtomonitorthetrade,incaseyouweremistaken andthetrendvanishesorreverses.thenit'stimetocutyourlossesbyclosingthe losingtradeorbyreversing closingthetradeandopeningafollowing,opposite trade. Warning:SpeculatingonForexratesinvolvesgreatamountofrisk.Beadvisedthat eventhemostsophisticatedtraderscan'talwayspredictmarketmovements' directions. ClickheretoopenafreeeToroPracticeaccountandjointheForex markettoday!

10 BASICFOREXTRADINGGUIDE 10 TacticalusageofLeverage Ifyou vebeenatallexposedtotheworldofforexyou veprobablyheardthe word Leverage beingtossedaround.butwhatexactlyis Leverage? LeverageisaveryimportantpartofForextrading,andit scriticalthatyouknow exactlyhowitworksandhowtouseit.itisthetermforextradersusetoreferto theratioofinvestedamountrelatedtothetrade'sactualvalue. Forexbrokersusuallyprovidetheircustomerswiththeoptiontotradeon borrowedcapital,sothattradersdon thavetoinvesttensofthousandsofdollars forthechancetomakeanyrealprofit.whenyoutradeataleverageof1:100,or X100,itmeansthatforevery$1thatyouinvestinthemarket,thebrokerinvests $100.Asaresult,youcancontrolanamountof$10,000byinvesting$100.eToro providestraderswiththeopportunityoftradingatupto1:400leverage. Itprobablywon tsurpriseyouwhenwesaythatwithgreateropportunityfor profitcomesgreaterrisk.justlikeslightfluctuationsincurrencyratescanmake yousignificantamountsofmoney,itcanalsocauseyoutoloseyourmoneyvery quickly.thehighertheleverage,thelargertheprofitthatyoustandtomakeand thequickeryoumightloseyourinvestment.aleverageof1:400canmakeyou moremoneythanaleverageof1:100,butitalsoputsyourinitialinvestmentat morerisk. Ifyoutradewithaleverageof1:100themarketwouldhavetomove100pips againstyouforyourpositiontobewipedout.ontheotherhand,ifyoutradewith aleverageof1:400themarketwouldonlyhavetomove25pointsagainstyoufor yourpositiontobewipedout. Werecommendfirstopeningapositionwithalow1:100Leverage,andonlyonce youseethatyou vehitastrongtrend,consideropeningonewitha1:400 leverage. TheRatiobetweenMinimalLotSize,TradeSizeandLeverage Fundamentally,theminimallotsizeforatradeis$10,000,thustheleverage limitationsaresetaccordingtotheamountyouchoosetotrade: Trade Size Minimal Leverage Lot , , ,000 TheadvantageoftradingwithLeverageisthatwhileyourprofitspotentialis virtuallyinfinite,atetoroyourlossislimitedtotheamountofyourinitial

11 BASICFOREXTRADINGGUIDE 11 investment.oncetheratedropsbelowtheratecoveredbyyourinvestment,the tradeisautomaticallyclosed.thatisdonethroughanautomaticstoploss explainedinthenextchapter. Remember,Leveragecanbeatrader sbestfriendwhenusedcarefully, andhisworstenemywhenusedrecklessly.itisagreattoolforincreasing profits,infactprivatetradersrarelytradewithoutit,butyoushould alwayskeepinmindthatthehighertheleverageis thehighertherisk levelinvolved. Nowthatyou reequippedwithmostofthebasictools,youcanopenyourfirst trade! ClickheretoopenafreeeToroPracticeaccountandenjoyleverages rangingfromx10tox400today!

12 BASICFOREXTRADINGGUIDE 12 ASimpleTradeExample Areyouready?It'stimetotrade! Hereisato dolistofactionstobetakenasyouopenatrade: Identifythepairtobuy/sell Decideontheinitialinvestmentamount Choosetheappropriateleverage Considerapplyingtradelimits(coveredinthenextchapter) Opentrade Let ssaythatafterspendingsomequalitytimeongazingatthechartsofseveral currencies,you veconcludedthat: 1) TheEURistrendingup 2) TheUSDistrendingdown Now,whatisthereasonabledecisionbasedonthisconclusion? ClearlyyoucanprofitbyfirstsellingUSDandbuyingEUR,andthenbuying cheaperusdandsellexpensiveeur. WecoulddothisbybuyingandthensellingtheEUR/USDcurrencypair. Areminder buyingisdoneat'ask'price,whilesellingisdoneatthe Bid price. Imaginethatyoubought$100worthofEUR/USDwithaleverageof1:100atthe exchangerateof thedetailsofyourtradeare: Investment $100 Leverage 1:100 Unitssold 10,000 EUR/USD(Ask) InplainEnglish,whatyou vejustdoneisbought(100x100=)10,000unitsofeur /USD,whichatthatspecificraterepresents1.5461USDper1EUR. Now,let sassumethatattheendoftheday,orpossiblyevenafewminuteslater, theeur/usdratehasrisento yousellthose10,000euro/usdunitsat thenewrateof1.5538andget$177back.

13 BASICFOREXTRADINGGUIDE 13 Thismeansthatthisseeminglyinsignificantfluctuationintherateallowsyouto cashin$77fromaninitialinvestmentof$100. Inotherwordsyoujustmade77%profitonyourinvestment,thankstothe movementinthepair'squote. Ontheexampletradethatwe vejustseen,yourriskandrewardwasunlimited, andtheriskwaslimitedwhichisgoodifyouareverycertainregardingyour decisions. However,asabeginneryoushouldn'ttrustyourselftoomuch,asyouarebound tomakemistakes.bylearningaboutspecialtradeorderfeatures,youwillbeable tohedgeyourrisks.rephrase ClickheretogetafreeeToroaccountandopenyourfirsttrade today!

14 BASICFOREXTRADINGGUIDE 14 HedgingRisksandRewards Forextradingisariskybusiness.ThischapterwillexplaintheusageofStopLoss (SL)andTakeProfit(TP)orders.Theseareusedforhedgingyourrisksand rewards,realizingyourprofitsandminimizingyourlosses. etoroplacesanautomaticstoplossorderonallyourtradestopreventyoufrom losingmorethanyou veinvested.iftherateofyouropentradedropsbelow what scoveredbyyourinvestment,thetradeisclosedbytheautomaticstop Loss.Thismeansthemaximumamountyoucanloseonatradeisalmostalways limitedtotheinitialinvestmentofthetrade. Still,thereisnoreasonwhyyoushouldwaituntilyouloseyourentireinvestment toclosethetrade.bysettingastoplossorderyoumakesurethatthevalueof yourtradedoesn tdropbelowacertainlevel.thiswayyoucontrolthemaximum amountthatyouarewillingtoloseonatrade,withouthavingtomonitoreach tradearoundtheclock. TakeProfitordersaresimilartostoplossorders,onlyreferringtoprofits.Take Profitordersmakesurethatonceyourtradereachesacertainlevelofprofititwill beclosed. Forinstance,imaginethatyou veopenedalongeur/usdtradeforattherateof Afterafewhourstheraterisesto1.5500,butanhourlaterdropsto WithoutaTakeProfitorder,youmightmisstheriseintherate,andend upwithalossonyourhands. IfyouhadsetaTakeProfitorder,thepotentialprofitofthetradewouldhave beenrealized,withoutyouhavingtomonitorthetradearoundtheclock. Remember,StopLossandTakeProfitordersareverysimpletoolsthatcan makethedifferencebetweenasuccessfultradingcareerandabigholein yourpocket.considerusingtheseorderswitheverytradethatyoumake. ClickheretoopenafreeeToroaccountandpracticehedgingyour riskstoday!

15 BASICFOREXTRADINGGUIDE 15 TheQuestforVolatility TheForexmarketisopen24hoursaday,butwhatarethebesttimestomakea profit? EventhoughtheForexmarketisopen24hoursadaywiththeexceptionof weekends,notallhoursareasequallygoodfortrading.thereasonthattheforex marketisopen24hoursadayisthatitismadeupofdifferentsessionsaround theglobethatbetweenthemcover24hours. Themoremarketsareactiveatthesametime,themoretradesarebeing executed,andthemoreactionforyoutocashinon. TradingSessions(GMT): London NewYork Sydney Tokyo SincetheLondonsessionisthebusiestoutofthefour,thebesttimesfortrading are8am 9am(GMT)and13pm 17pm(GMT),becausethat swhenthelondon sessionoverlapswithothersessions. Abusethenews. Asfornewsreports,thesearetimestobecareful.Manyprofitabletradesare mademomentspriortoorshortlyaftermajoreconomicalannouncements.you cangainafortuneaswellasloseoneifyou renotsureofwhatyou redoing.this iswhyit simportanttostayontopofwhat shappeningintheinternational financearena.marketsentimentbecomescrucialatthesetimes,sincetraders basicallystampedetothemarketaroundthetimeofthereport.etoromakessure togiveyouaheadsupwheneveranythingmajorisgoingdown. Remember,eventhoughyou reabletotrade24hoursaday,it sbettertoplan yourtradingactivityinordertocatchthebestactionforachancetomaximize yourprofitsandminimizeyourlosses ClickheretoopenafreeeToroPracticeaccountandjoin theforexmarkettoday!

16 BASICFOREXTRADINGGUIDE 16 MoneyManagement Isthereasecrettobecomingasuccessfultrader? Thereisamethodthatallsuccessfultradersuse,andit snosecret.it scalled moneymanagement. Moneymanagementisnotsomevagueindustrylingo itsimplymeansthe knowledgeandskillofmanagingyourforextradingaccount.assimpleasthat mayseem,it sthekeytoalongandsuccessfultradingcareer.andyetitisoften forgottenorneglectedinthethrillofthetrade.we dliketotakethisopportunity tolayoutsomegroundrulesbywhichyoucaneffectivelymanageyouraccount. Don tgolookingforthebigwin;itwillmostlikelyresultinabigloss.successful tradingmeansconsistenttrading,wheresmallwinsamounttolargelongterm profits.neverassumethatallyourtradeswillbeprofitable,andplanonlosses. Youshouldonlyriskasmallpercentageofyourtotalaccountbalanceoneach trade.thissimplyminimizesyourrisk,sothatevenifyouenduplosingyour entireinvestmentonatrade,itdoesn thaveacriticaleffectonyouraccount balance.therecommendedamountis2%ofyouraccountbalancepertrade. Moreaggressivetradersgoashighas5%,butneverhigherthanthat.Itisavery importantruletokeep,sincetheloweryouraccountbalancedrops,theharderit istorebuildit. UsingLimitOrders LearntousetheStopLossandTakeProfitorderseffectively.Theseordersprotect yourinvestmentandrealizeyourprofits.theyareverysimpletoolsthatcanmake allthedifferencetoyouraccountbalance. SizeofTrades Youaresuggestedtoopensmalltrades,becauseinthecaseofalosingtrade,you canthenopentheoppositetradewithabiggerinvestmentorhigherleverage, thuscompensatingforlosses. PracticewithVirtualMoney Usevirtualmoneymodeforpractice.OneoftheuniquefeaturesofeToroisthat ourplatformprovidesyouwithapracticeenvironment.virtualmoneymode worksexactlythesameasrealtradingmodeandusesthesamerealtimerates, withthesmalldifferenceofnoriskinvolved.werecommendusingthepractice modetogettoknowtheplatformandgainforextradingexperience. Andevenafteryou vebeguntradingwithrealmoney,itistheperfectplacetotry outyourtradingstrategies.thereisnopointinriskingyourmoneytotestouta possibletheory,whenyoucandosowiththesamesuccessminustherisk.after

17 BASICFOREXTRADINGGUIDE 17 seeingthatyourstrategyisconsistentlysuccessfulwithvirtualmoney,youcantry itoutforreal. Remember,moneymanagementisverysimpletomaster,butnotassimpleto keepup.onceyou vedevelopedthemoneymanagementsystemthatworksfor you,makesuretostickwithitanddon tletyouremotionsgetinthewayoflong termprofit,evenifitmeansabsorbingshorttermlosses. Nowthatyou reequippedfortrading,takeyourtimeandstartpracticingyour tradingskills. ClickheretoopenafreeeToroPracticeaccountandjoin theforexmarkettoday!

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