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Everything You Need to Know about Forex .pdf



Original filename: Everything You Need to Know about Forex.pdf
Title: Everything You Need to Know about Forex™ √PDF √eBook ✔Download
Author: How Forex Trading Works

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Everything You Need to Know
about Forex
from How Forex Trading Works

1

Contents
Introduction.............................................................................................................................4
The Basics of Forex...............................................................................................................5
The Size of the Forex Market.................................................................................................7
Where Forex Market Currencies Are Traded.........................................................................9
How Forex Market Currencies Are Traded..........................................................................10
The Advantages of Forex Trading........................................................................................12
Currency Pairs Explained....................................................................................................13
Forex Spreads Explained.....................................................................................................15
The Costs of Forex Trading.................................................................................................16
Types of Forex Orders.........................................................................................................18
Forex Margin Trading Explained..........................................................................................20
Forex Micro Accounts and Lots Explained...........................................................................22
Comparing Forex Trading to Stock Trading.........................................................................23
Comparing Forex Trading to Futures Trading......................................................................25
Forex Trading Rollovers Explained......................................................................................27
When the Forex Market Is Most Active................................................................................28
Fundamental Analysis Explained.........................................................................................30
The Movers of the Forex Market..........................................................................................32
Nonfarm Payrolls Explained.................................................................................................34
Consumer Price Index Explained.........................................................................................35
Consumer Confidence Index Explained..............................................................................36
Gross Domestic Product Explained.....................................................................................38
Trade Balances Explained...................................................................................................39
Interest Rates and the US Dollar.........................................................................................40
Nonfarm Payrolls and the US Dollar....................................................................................41
Comparing Fundamental Analysis with Technical Analysis.................................................42
Types of Forex Charts..........................................................................................................44
The Best Types of Forex Charts..........................................................................................46
Time Frames in Forex Trading.............................................................................................48
Technical Charting Indicators in Forex Trading....................................................................50
Support and Resistance in Forex Trading...........................................................................52
Price Channels in Forex Trading..........................................................................................54
Fibonacci Retracements in Forex Trading...........................................................................56
Moving Averages in Forex Trading......................................................................................58
Bollinger Bands Explained...................................................................................................59
Candlestick Chart Information, History and Patterns...........................................................61
Using Candlesticks and Candlestick Patterns.....................................................................63
Important Forex Trading Charting Patterns.........................................................................65
Strong Bullish Reversal Candlestick Patterns.....................................................................67
Moderate Bullish Reversal Candlestick Patterns.................................................................68
Weak Bullish Reversal Candlestick Patterns.......................................................................70
Strong Bearish Reversal Candlestick Patterns....................................................................71
Moderate Bearish Reversal Candlestick Patterns...............................................................73
Weak Bearish Reversal Candlestick Patterns.....................................................................75
Continuation Candlestick Patterns.......................................................................................77
The Head and Shoulders Charting Pattern..........................................................................79
Copyright © 2012 How Forex Trading Works
Getting Started

2

Commodity Currencies Explained........................................................................................80
Trading Cross Currencies....................................................................................................81
Trading Synthetic Crosses...................................................................................................82
The Basics of Forex Options................................................................................................83
Money Management in Forex Trading.................................................................................85
Using a Risk/Reward Ratio..................................................................................................87
Using a Forex Trading Plan.................................................................................................88
Choosing a Forex Broker.....................................................................................................89
Trusting Your Forex Broker..................................................................................................91
Choosing a Money Manager................................................................................................92
Forex Trading and Taxes in the US......................................................................................94
Scalping the Forex Market...................................................................................................96
Trading with News Announcements.....................................................................................97
Using a News Trading Strategy...........................................................................................99
Using a Range Trading Strategy........................................................................................100
Using a Swing Trading Strategy.........................................................................................101
Using a Trend Trading Strategy.........................................................................................102
Using a Carry Trading Strategy..........................................................................................104
Creating Your Own Forex Trading System........................................................................106
Conclusion.........................................................................................................................107
Getting Started...................................................................................................................108

Copyright © 2012 How Forex Trading Works
Getting Started

3

Introduction
Anyone can get rich Forex trading, but if you really want to be successful at trading
currencies, you will need to work hard. If you are just starting out, you will have a lot to
learn. However, Forex trading can be extremely rewarding, so you should keep at it and
never give up.
You will need to have both knowledge and experience to succeed in the Forex market. In
order to gain knowledge, you will need to study and in order to gain experience, you will
need to practice by applying your knowledge to the actual markets.
This eBook should help to increase your knowledge of Forex trading. You should really
open a Forex trading account of your own as soon as possible though, preferably a demo
account to begin with so that you can trade risk-free, as this will allow you to practice as
you study. This way you will be able to gain some valuable experience early on. Click here
to get started.
Success can never be guaranteed, but by reading this eBook and practicing alongside it,
you will definitely be able to increase your chances of success in the Forex market.

Copyright © 2012 How Forex Trading Works
Getting Started

4

The Basics of Forex
Whilst you might not yet have heard of Forex, you will most likely have heard of the foreign
exchange. Forex and the foreign exchange however, are actually both the same thing. The
Forex market itself, can be referred to as the foreign exchange market, the currency
market or the FX market. The market first established itself in the 1970s and has been
lively ever since.
Currencies began fluctuating in the 1970s, due to President Nixon's policy of taking the US
off of the gold standard. The "gold standard" refers to the system in which values of
currencies are defined in terms of gold. With the gold standard system, currencies could
be bought and sold in exchange for gold. This system is of course nowadays very
outdated and old-fashioned. So we can say that US currency was in fact once backed by
gold, however now it is simply backed by the belief that people have in the US government
and its ability to back the currency itself.
The market, despite it being around for quite some time, has actually only been a publicly
accessible market since the 1990s. It is thought that many of the main market makers
didn't in fact establish themselves completely, until the 2000s. The market was originally
reserved, mostly to banks and larger institutions. The big traders were the only ones that
could play with the currency market and they tended to invest millions of dollars into it generally no less than $10 million.
The Forex market is unique for many reasons:
- It bears a huge trading volume, leading to high liquidity (due to the fact that the market
represents the largest asset class in the world)
- It is very geographically dispersed
- It is very continuous (the market operates 24 hours a day, excluding weekends)
- It can be affected by a wide variety of factors
- It provides low margins of relative profit (when compared to other markets of fixed
income)
- It, with respect to account size, can provide leverage that can be utilized to enhance both
profit and loss margins.
Although the market can experience currency intervention by central banks, the foreign
exchange market has been referred to as the closest market to the ideal of "perfect
competition". Perfect competition is an economic theory that describes markets whereby
no participants are large enough to have full (or the majority of) market power to set the
price of a homogeneous product. Although the FX market is in fact quite new and has only
been open to the public since the 1990s, it has since been opened up to the retail public
online due to the Internet, meaning that just about anyone can now open a currency
trading account in the currency market within a matter of seconds. It is also possible to
start an account with very little money nowadays, meaning that you can trade with almost
as little as you want, as online Forex brokers only require very small minimum deposits.

Copyright © 2012 How Forex Trading Works
Getting Started

5

In conclusion, the currency market is actually a relatively new market, though it is very
unique and has many advantages. The market is also accessible by both small-timers and
so-called big boys.

Copyright © 2012 How Forex Trading Works
Getting Started

6

The Size of the Forex
Market
The largest financial market in the entire world is in fact the Spot Forex market. The
market itself bears a daily trading volume of $4 trillion on average. The New York Stock
Exchange (NYSE) trades around $20 to $30 billion per day, putting this into true
perspective - the size of the Forex market is huge. The Forex market dwarfs the largest
stock exchange in America, however even if you totaled the volume of every single stock
market around the world, the Forex market's daily trading volume would still come out on
top.
The market is actually very simple though, in essence. The currency market merely
involves the trading (AKA exchanging) of money itself. Usually you would exchange money
for goods and services in the real world, but in the Forex world, you exchange money for
money. When you buy a good or a service, it will be valued and you will have to pay that
value in your chosen currency. This is similar in currency trading: a currency is valued in
terms of another currency, and you pay for the value of that currency with the other
currency!
What you will usually see quoted is the exchange rate. The exchange rate simply
determines how much currency another currency can buy. This can sometimes sound
quite complicated, but it is very simple and you will soon get your head around how the
Forex market works.
There are plenty of factors that affect exchange rates and these factors can cause an
exchange rate to go up or down. You could write a very long list, in fact the list would
probably be endless, of all the factors that determine an exchange rate. However
ultimately, an exchange rate is primarily determined by the belief that people have in a
particular currency, collectively. The Forex market is just like any other financial market in
the sense that it is all about mass psychology more than anything. People will collectively
look at how different economies are doing, the political stability of a country, consumer
sentiment, exchange rate trends etc - the list, of course, goes on!
Traders and investors in the FX market include both large and central banks,
governments, corporations, institutional investors, currency speculators, other financial
institutions and retail investors. The foreign exchange market's (and other related
markets') average daily turnover is consistently growing over time too as more and more
people are taking advantage of this unique financial market and the market is slowly
becoming more and more well-established. Currency trading has more than doubled since
2004, interestingly.
In conclusion, the Forex market is the largest financial market in the entire world, dwarfing
all other financial markets. It simply involves the exchange of currencies using exchange
rates - these exchange rates are determined by many factors, though primarily mass
psychology and the collective belief that people have in particular currencies. The Forex
market consists of very high volume traders and investors as well as very low volume

Copyright © 2012 How Forex Trading Works
Getting Started

7

ones. The market is consistently growing over time as it increases in popularity and
furthermore establishes itself.

Copyright © 2012 How Forex Trading Works
Getting Started

8


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