In this article, we will be discussing important key topics on Forex signal, these important topics includes Introduction to trading signal, How to trade Forex, Why signal, Type of orders, How to trade our signal, How to manage open trade (winning and losing), Risk exposure for Forex trading, Risk disclaimer for Forex trading. Let’s get along with the ride as it is going to be super interesting. Yahh!!
TABLE OF CONTENT
1.0 INTRODUCTION TO FOREX
2.0 HISTORY OF EXCHANGE AND MONEY
3.0 WHAT IS FOREX
4.0 WHAT IS TRADING
5.0 CURRENCY PAIRS
6.0 OPENING A TRADING ACCOUNT
8.0 INTRODUCTION TO INDICATORS
9.0 HOW TO TRADE FOREX
10.0 INTRODUCTION TO TRADING SIGNAL
11.0 WHY SIGNALS
12.0 TYPE OF ORDERS
13.0 HOW TO TRADE OUR SIGNAL
14.0 HOW TO MANAGE OPEN TRADE (WINNING AND LOSING)
15.0 RISK EXPOSURE FOR FOREX TRADING
16.0 RISK DISCLAIMER FOR FOREX TRADING
Let’s move on…..
1.0 INTRODUCTION TO TRADING SIGNAL
Money! Money has been one of the major measures of value and financial success, and is known to be generally accepted as a means of exchange of goods and service in the world today. Currency being its tool of exchange since the early days, following the post-barter age is very important and highly regarded by all countries. However, in the market of finances, some currencies are stronger and highly valued than others due to economics trend, political conditions and market psychology – this is one of the basis on which Forex is built. Then, what is Forex? Ever paid some worthy amount of money to an imported shoe seller in a shopping mart or an online market to get an Italian pair of shoes because you feel you would derive some comfort and confidence from it? Oh yes! That’s what Forex is like, and much more. Don’t worry, it’s not rocket science. However, unlike commodity buying, Forex does not thrive on ‘feelings’ – you have to keep your emotions in check while trading.’ Forex also known as Foreign Exchange Market is one of the most legit and largest financial market in the world which involves trading currencies on an online market with an eye on the value of currencies and trends of the world’s finances.
Until the late 90’s, Forex was a financial instrument wielded by banks, large institutions, and of course, the big boys with high net-worth and this is because you really need a rock- sized amount of money to get started. Forex wasn’t traded with peanuts. Who says technology has done more harm than good, hasn’t read of how individuals with few bucks can become retail traders. With the emergence of the internet and smart devices, Forex Trading just became easier and more accessible than ever! Individuals with small capital can bank on leverage provided by brokers and can conduct trades with a small amount of money. But! It’s not a sea you can navigate alone, and that’s why we are committed to educate, train and guide you through the essentials of Forex Trading. You sure don’t want to see your fingers get burnt. We too! You need a great deal of know- how and consistency of practice to become a seasoned trader and we’re super-ready to feed you with more knowledge on Forex trading.
2.0 HISTORY OF EXCHANGE AND MONEY
Since the inception of age, humans have had need for goods produced by people in their neighborhoods and other geographical areas which later developed into nations. Also, the need to trade out excess or surplus goods for the ones they lacked was identified.
In a bid to exchange these goods from one nation to another, the bartering system was adopted.
The bartering system was simply based on the premise of exchange of value. One, who wanted coal to keep his house warm, cook and drive activities, would be willing to give out a basket full of a bag full of wheat grains. Sounded funny right? The system worked for the ancient man until the system was faulted, as the commodities could not be divided into units of equal amounts and the exchange value depended on the quality of the commodities, which mostly depreciates over time. A good example is animals which decline with time to a state of loss.
Think of it as wanting a bowl of ice cream and giving out two large bunches of plantains, the value of the two goods aren’t the same; hence, commodity barter was not an even form of exchange. Another fault in the barter system was that you needed to find someone who’s in need of the commodity you have in excess or are willing to give out for the one you need.
Barter evolved from commodity exchange, in the late ‘BCs into money, coinages being the first official currency minted by King Alyattes of Lydia (Now Turkey).
In order to make trading easier, money was created, and as one would have thought, if money was made from papers or metals, as in the case of the olden days, then, why is money scarce?
This is because one of the characteristics of money is that it has to be valuable: unlike barter, money can serve as a better unit of exchange and as a store of value. If not, there would be no essence of business today and exchanging goods would have been more difficult in this new age.
In the ancient ages, a common form of money, usually precious metals such as gold, bronze or silver and cowrie shells, where used to transact businesses (buying and selling).
For ages, the currencies of the world were endorsed by gold, in which a piece of paper currency is given by any world government to represent a real amount of gold stored in an underground safe by that government. At this point, countries had issues with the value of gold and were affected by inflation at another time. This problem saw the beginning of what later metamorphosed to Foreign Exchange.
Thus, Foreign exchange can be seen as a stream of solutions which provides for each country to produce their own currency and to implement policies to guide their monetary decisions and activities. The beautiful view is that it avails countries with the room to participate in international trade by providing a system of exchanging one currency for another relative to their exchange rate.
3.0 WHAT IS FOREX
I can almost hear your heart yearning to know more about Forex and delve into trading. Wait! Let’s take our first baby steps. What is Forex?
If you live in the United States, and you’re travelling to Japan to purchase electronic goods, or see a cousin who just gave birth, you’ll be surprised that the new shiny $1000 notes in your wallet will take you no farther than your country’s airport. What do you do in this case? Here comes forex! The green light is on, and you think of exchanging your dollars into the equivalent value of the local currency of Japan – YEN, so that you can buy your electronics and also perform transactions. What more? You won’t get stranded on the streets of Japan before the new mother comes pick you up.
The rate at which you exchange the currencies (USD to YEN) is known as the exchange rate, and all of this forms the basis of foreign exchange.
Forex commonly referred to as ‘FOREX,’ ‘Retail Forex,’ ‘FX,’ or ‘Spot FX’ is a blend of the words financial currency and exchange. It’s a financial instrument that exchanges money from one country’s currency to another country’s currency for example, exchanging US’ dollars for Britain’s pounds. This means forex is the simultaneous buying of one currency and selling of another. Unarguably the largest and most liquid market in the financial world, Forex trading volume exceeds $4 – $5 trillion USD per day. Comparing this to the trading volume of the New York Stock Exchange a day, about 28 USD billion, Forex exchange market is indeed large.
Foreign Exchange Market (Forex Market) is a decentralized global market unlike other commodity trading and other financial markets, which has a centralized market for transactions, and is run at specified time of the day. Forex market runs electronically (online), over-the-counter, and exchanges national currencies over a 24-hour period. Wow! It’s interesting to know that it doesn’t matter whether you’re a nighthawk or a day lark; Forex is just a market for all times.
FOREX TRADING: What it is and what it is not
- Forex Trading is not a Get-Rich-Quick Scheme!
Looking for a Ponzi scheme or money making pyramid that doubles your money in two weeks? If yes, sorry to disappoint you, as sweet and as profitable as Forex trading may be, it is pertinent to know that it’s not an investment for people looking for quick ways to get rich. It’s a trade that requires patience, skill and commitment to learning.
- Forex trading is not a trade for people who have an anti-loss skin.
In Forex, there’s no 100% win-win situation. Just like many other investment/trade, it has its own level of risk involved, even experienced traders still run into losses once in a while but with proper planning, adequate training and signals from seasoned brokers, the risk can be put to the barest minimum.
- Forex trading is not a trade for those who lack the discipline required for
If you can’t stick to a diet or your exercise routine, it might be a little difficult to trade. This simply means trading requires discipline. You need to be disciplined enough to allow your funds grow before you stop trade or take profit. You must be ready to really spare few bucks.
- Forex trading is not for lazy
It is a skill that takes time to learn and requires diligence. There’s no shortcut to Forex trading, you have to commit yourself to the required skills and strategy to make you a seasoned trader. Of course! It’s a profitable trade, but it’s a trade that opens you up to learning on a daily basis.
You can be a successful Forex trader, but just as life itself, it requires diligence, commitment, patience, discipline, a good analytical sense and a great sense of judgment.
4.0 WHAT IS TRADING
Forex market is driven by the exchange of currency pairs, and this activity is referred to as trading.
Just like many other financial markets, the foreign exchange market is subjected to demand and supply, and is a factor of the value of one of the currency pair against the other. It is important to know that the fact that one currency has fallen in value in relation to its other currency pair does not mean it has depreciated relative to the other currencies.
Taking a very simple example, quoting the currency pairs USD/JPY, a strong demand for the US Dollar from Japanese who possess Yen, would initiate an exchange activity of their Yens for Dollars. The value of the US Dollar will appreciate (rise) while the value of the Yen will (depreciate) fall. However, this transaction only affects the JPY/USD currency pair and will not for example, cause the USD to depreciate against the Euros.
One of the major objectives of trading Forex, is to exchange one currency for the other in a pair, with the prospection that the sold currency will lose value, become less demanded for and the bought currency will increase value, thereby causing a change in price and increase of demand with reference to the bought currency.
You remember our FX quote (Base currency/Quote currency); we would be referring to this currency pairs as we move on understanding what Forex trading is.
In Forex language, buying and selling the base currency is referred to as ‘going long and going short’. Going long also known as taking a ‘long position,’ is buying of the base currency and selling the quote currency, in expectancy that the base currency will appreciate while you sell it back at a higher price.
Going short also known as taking a ‘short position,’ is selling of the base currency and buying the quote currency in expectancy that the base currency will depreciate while you buy it back at a lower price.
How do you remember which is long and short position? Think of long as buying, and short as selling, all expressed in the base currency.
In understanding trading, it’s quite important to understand some terms commonly used. This includes:
Base Currency: This is the first currency in an FX quote (i.e. a currency pair). It is the measure of how much the base currency is worth in relation to the quote currency. E.g. If USD/JPY rate equals 106.64; this means that one unit of the base currency (1USD) worth 106.64 Japanese Yen.
With the exceptions of certain currencies (The British pounds, the Euro, and the Australian and New Zealand dollar) in Forex markets, the United States Dollars (USD) is regarded as the base currency in FX quotes.
Quote Currency: This is the second currency in an FX quote. Also known as counter currency or pip currency, and it’s the currency which profit or loss not realized is expressed in.
Pips: Every human being is made up of that tiny bits of life called cell, and every growth or degradation it experiences is experienced in the person’s overall health. Hope you didn’t get bored with that jargon. Let’s hope you didn’t. A pip (price interest point) just like cells is the smallest unit of price for any currency. It is important to know, that pip is the smallest price movement (or increment) for any currencies, and is how profit or loss is measured.
A pip is the last decimal place of the exchange rate of a quotation. In the example below, If the USD/JPY rate increases from 106.60 to 106.64, this means 4 pips have been moved. 1 pip would be 0.01; hence, 4 pips would be 0.04.
Bid Price: is the price set, at which the market is willing to buy a currency pair in the Forex market. At this price, the trader can sell the base currency. It is shown on the left side of the quotation.
Ask Price: is also called the offer price, and is the price at which the market is willing to sell a currency pair in the Forex market. At this price, you can buy the base currency. Bid/Ask Spread: The spread is the difference between the bid and ask price.
Leverage: Forex is best traded with a tangible amount of capital, say at least $1000. Are you worried that you don’t have that much? Worry not! Leverage is one of the tools of Forex trading that gives access to individuals with low capital to enter the market, riding on the wings of seasoned brokers who offer varying leverage. It allows you to trade with only a fraction of the required capital value (margin) needed to trade. Leverage is the ability to trade larger positions with a small amount of capital, and is the ratio of the capital used in a transaction to the margin. Leverage can be 1:100 or 1:200, depending on brokers. This means with a margin trading ratio (leverage) of 1:100, you as a trader with an invested capital of $100 can trade with USD $10,000.
Margin is that particular amount of capital required to trade, and is the difference between the full worth of your trading position and the amount you borrowed to trade with from your broker.
Margin is expressed in lots, where a lot is the minimum amount of currency you possess to buy. Imagine going to a mart to buy a single ear ring for the left ear alone. I’m pretty sure the mart attendant wouldn’t sell to you. It’s wise and understandable to buy at least two of the ear rings to make a pair. thus, we can say, that the earrings comes in pairs or ‘lots of 2.’ consider your currencies as you would your earrings, it’s also an unwise trading action to just buy or sell 1 USD. Hence, they come in lots of $10, 000 or $1000, 000.
Let’s see a typical example of a trading action and how profit is made.
Let’s assume the current bid/ask price for USD/ YEN is 106.64/106.68
Meaning: You can take the long position (buy) for 1 US dollars with 106.64 or
Take the short position (sell) 1 US dollars for 106.68.
Evaluating the economy and political stability of a country, you can speculate the rise or fall of its currency. Taking it that US dollar will be undervalued against the YEN, you would buy US dollar (simultaneously selling YEN), and then wait for an increase in the exchange rate.
So you make the trade:
If $1 = 106.64, then, to buy $10,000 will be
$10, 000 X 106.64¥
To buy 10, 000 US dollars you pay ¥ 1066400
As projected, US dollar strengthens to 116.64/116.68
Now, to realize profits, you sell 10, 000 US dollar at the current rate of 116.64, and receive ¥ 1166400.
10, 000 US dollar X 116.64, = ¥ 1166400.
You bought 10, 000 US dollar at 106.64, paying 1066400 YEN.
You sold 10, 000 US dollar at 116.64 receiving $1166400 YEN.
Total profit = ¥ 10, 0000.
You can now see for yourself how trading is being done. However, it’s also involves some analysis that helps you make well-calculated and profitable decisions.
Are you still thinking of more reasons why you should trade Forex? Let’s take a look at few more reasons:
1. Low transaction costs:
Compared to other financial markets such as equity, Forex trading is cost-effective and does not involve any commission or governmental fees. Traders make profit on spread especially, when the trade market is entered and exited before night, in which negative prices may apply.
2. High Liquidity:
It’s a very liquid market. Currency pairs can be easily bought and sold, and you can also enter and exit market easily.
The market allows you to enter the market on a basis of leveraging, where you can borrow the larger fraction of the required full capital value to make up your small capital. With leverage, profits and losses are amplified, and you can initiate a large trading action with a relatively small capital.
Forex trading allows traders to analyse, monitor and project increase in value of currencies (appreciating) and decrease in value of currencies (depreciating). Also, there are different profitable Forex pairs for trading.
5. Demo Accounts:
As a beginner, Forex trading allows you to trade in a demo account, and understand the system, before you put in real money. This way, you won’t quickly get your finger burnt.
Click the button below to download the full Phidcon Forex Guide.