The World s Elite Trading School. The Trusted Source for Online Investing and Day Trading Education Since What is a Forex?

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1 What is a Forex? Forex is the market where one currency is traded for another Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with Forex brokers, brokers with banks, and banks with banks. Forex brokers are not regulated dby the US U.S. Securities and Exchange Commission, since they do not sell securities and are not bound by the same margin limits as stock brokerages. Traders are attracted to Forex by the larger leverage the margin allows.

2 A simple example of using Forex would be, a U.S. tourist travels to London and needs Pounds to pay for hotels, food, entertainment, etc. The exchange rate is and changes 1000 U.S dollars for Pounds. They receive Pounds. Vacation is London is expensive for a U.S tourist. Conversely, a British investor wishes to buy a vacation home in the U.S. The price for the home is $500, U.S. Dollars. At the same exchange rate, the British investor will need Pounds to pay for that $500,000.0 home. A U.S manufacture of coat hangers cost of the hangers is.50 cents USD. The hangers are sold in the U.S for $1.50 each for a $1.00 profit. The price for hangers in Germany is 1.50 Euros each and the U.S company sells there as well. The exchange rates for EUR/USD is When the Euro is exchanged for dollars, the manufacture will received $1.943 dollars and make a $1.443 profit. Exchange rates fluctuate up and down and traders can make or lose money based on their speculation for the direction of those rates in the Forex market.

3 Forex is open 24 hours a day from Sunday at 5pm ET to Friday 5pm ET. However, the best time to trade is when the market is the most active. New York opens at 8:00 am to 5:00 pm EST (EDT) Tokyo opens at 7:00 pm to 4:00 am EST (EDT) Sydney opens at 5:00 pm to 2:00 am EST (EDT) London opens at 3:00 am to 12:00 noon EST (EDT) The Activity will be the greatest during session times that overlap New York and London: between 8:00 am 12:00 noon EST (EDT) Sydney and Tokyo: between 7:00 pm 2:00 am EST (EDT) London and Tokyo: between 3:00 am 4:00am EST (EDT Currencies like EUR/USD or GBP/USD will be most active between 8am and 12pm EST AUD/JPY will be active between 8pm and 1am EST during Australian and Japanese sessions

4 Are There Taxes in Forex? Forex is a global unregulated market and dealers as a general rule do not provide information to the tax authorities in the trader s country of residence. U.S dealers are regulated. Some traders think that t Forex is not taxable and don t pay taxes. They are wrong, if you are a US citizen and even if you choose a non- US broker (careful there) you are responsible for reporting the sum of your Forex gain or loss to the IRS. Cash Forex is not regulated and has been called the Wild West of trading and IRS reporting. Be sure to contact a tax professional and research the accounting documentation that a Forex dealer provides.

5 List of Major Currencies EURO (EUR) US Dollar (USD) British Pound (GBP Swiss Franc (CHF) Japanese Yen (JPY) Australian Dollar (AUD) Canadian Dollar (CAD) Forex Pairs EUR/USD Euro vs. the U.S. dollar (Fiber) GBP/USD British pound vs. the U.S. dollar (Sterling, Cable) AUD/USD Australia dollar vs. the U.S. dollar (Aussie) USD/JPY U.S. dollar vs. the Japanese yen (the Yen) USD/CHF U.S. dollar vs. the Swiss franc (Swissie) USD/CAD U.S. dollar vs. the Canadian dollar (Loonie) Currency Futures 6E 6B 6A 6J 6S 6C Month Codes H, M, U, Z Year 201? Example 6AZ3 There are other currencies. However, the majority of trading occurs in these currencies

6 What is a Currency Cross Pair? A "currency cross pair" or simply known as a "cross", is a pair of currencies that does not involve the U.S. dollar. Before crosses, a currency would first have to be converted into U.S. dollars, and then the dollars could be converted into the currency desired. With currency crosses, the process of converting a currency into US dollars first in not needed. The non-us currency can simply be converted to the desired currency. Some examples of crosses are: AUD/JPY GBP/JPY, EUR/JPY, and EUR/GBP.

7 What is a PIP? PIP stands for Percentage in Point. This is the smallest increment of trade movement in Forex. The change in the fourth decimal point is 1 PIP Major Currencies, except the Japanese Yen are priced to the forth decimal place. The Yen is priced to the second decimal. The fifth and last decimal place measures a fraction of a PIP Pip Fraction of a Pip Pip Fraction of a Pip Pip Fraction of a Pip

8 What is a PIP Worth? A standard lot is 100,000 of whatever currency is listed first in the pair. So if you are trading GBP/JPY a standard lot is 100,000 pounds, for USD/CAD it s 100,000 dollars. A mini lot is 10,000 and a micro lot is Assuming an account currency in USD and USD is the Quote currency 1 standard lot = $10 per Pip 1 mini lot = $1 per Pip 1 micro lot = $0.10 per Pip Depending on the currency pair and account currency, the Pip value may be more or less.

9 EUR/USD 59 Pips or $590 dollars in a standard lot. $59 dollars in a mini lot and $.59 cents in a micro lot

10 Are there really no commissions to trade Forex? The advertising while true, it is misleading. There are no commissions, but there is a cost. FX firms that open trading accounts are not brokers, they are dealers. Brokers charge a commission for having your trade executed. Dealers maintain a Bid Ask Spread and make that spread like a market marker does in stocks. However, unlike in stocks and futures, the FX trader cannot buy on the bid (lower price) or sell at the ask (higher price). In other words, the FX trader cannot compete with the dealers like stock and futures traders and must pay the spread. The FX trader must buy at the ask and sell at the bid. The dealer takes the other side of your trade to profit. This is your cost to trade, but it s not a commission. Be aware that different dealers often have different bid-ask spreads and spreads can and do change on a real-time basis. If the spread is 2 pips, p,your cost to buy is $20 dollars with a standard lot. The major currency pairs can be trader through exchanged-based futures.

11 What is the Base Currency? The first currency quoted in a Forex currency pair EUR/USD Base currency The Euro dollar is the first currency listed, so it is base currency The base currency is always the currency being bought or sold.

12 What is the Quote Currency? The second currency quoted in a Forex currency pair EUR/USD Quote currency The U.S. dollar is the second currency listed, so it is quote currency. It is called the Quote currency because it is the one being traded in exchange for the Base currency, so it s Quoted.

13 What is an Exchange Rate? The rate at which one currency will be exchanged for another. In other words, it s the value of one country s currency in terms of another country s currency. EUR/USD = Base / Quoted This means that 1 unit of the base currency (1 Euro) is equal to US Dollars. If buying, the exchange rate specifies how much you have to pay in units of the quote currency to buy one unit of the base currency. In the above example, you have to pay US Dollars to buy 1 Euro. If selling, the exchange rate specifies how much units of the quote currency you can get for selling one unit of the base currency. In the above example, you will receive US Dollars when you sell 1 Euro.

14 Exchange Rate Explanation Equals the # of $ to buy 1 Pound Equals the # of $ to buy 1 EURO Equals the # of $t to buy 1A Aussie Equals the# of Cad to buy 1 $ Equals the # of Swissy to buy 1$ Equals the # of Cad to buy 1 Euro Equals the # of Yen to buy 1 $ The Base currency is what you buy or sell. The Exchange Rate is what will be paid in Quote currency when buying the Base currency, and what will be received in the Quote currency when selling the Base currency.

15 When a currency pair goes from a low price to a higher price, the Base Currency has gotten stronger and the Quoted weaker. Higher price to a lower, the Base has gotten weaker and the Quoted stronger. Weak Strong Strong Weak EUR/USD Forex Base/Quote

16 GBP/USD The Dollar has been strong against the Yen The Pound has been weak against the Dollar

17 What is a Carry Trade? A Carry trade consists of borrowing one currency that has a low interest rate in order to purchase another with a higher interest rate, taking advantage of the interest rate differential. This strategy can be highly profitable, especially if high leverage is used. An example of Carry Trade is borrowing Japanese Yen (usually a lowyielding currency) to invest on Australian Dollars (a high-yielder). One of the most direct influences on exchange rates is the interest rate differentials between different countries.

18 Forex and Fundamentals Interest rates Traditionally, if a country raises its interest rates, its currency will strengthen because investors will shift their assets to that country to gain higher returns. Employment situation Decreases in the payroll employment are considered as signs of a weak economic activity that could eventually lead to lower interest rates, which has negative impact on the currency. Trade balance, budget and treasury budget A country that has a significant Trade Balance deficit will generally have a weak currency as there will be continuous commercial selling of its currency. Gross Domestic Product (GDP) GDP is reported quarterly and is followed very closely as it is a primary indicator of the strength of economic activity. A high GDP figure is usually followed by expectations of higher interest rates, which is mostly positive for the currency.

19 Forexfactory.com com is a good site for economic reports and details

20 Fundamentals have an influence on all markets. It s a good practice not to trade at the time of reports as volatility and spread can increase. Forex dealers may widen spreads or slow quotes and fills. Technical analysis is universal of to all market including Forex. While more esoteric types of analysis like Elliot Wave and Fibonacci analysis is more popular for Forex traders, there is no proof that it is can be more accurate than any other types of technical analysis. We hope this information has helped you understand the Forex market and if it s a market you want to trade. Realize that no market is the best to trade. All have pluses and minuses. That being said, the market that is in play at the moment and trending will be relatively easier for the educated trader to trade. Pristine has been training traders since 1994; many trade Forex. Many post their trades at the Pristine Facebook Group, which all are welcome to join. Please join our Free Workshops or counselor@pristine.com.