🔹 What Is Forex Trading?
- Forex (Foreign Exchange) trading is the buying and selling of world currencies on a decentralized global market.
- Operates 24 hours a day, 5 days a week, across major financial centers (London, New York, Tokyo, Sydney).
- Daily turnover exceeds USD 6 trillion, making it the largest financial market in the world.
🔹 Why Trade Forex?
- Liquidity: Most liquid market, enabling easy entry and exit.
- Leverage: Ability to control large positions with relatively small capital.
- Flexibility: Profit potential in both rising and falling markets.
- Accessibility: Low minimum deposits; just an internet connection and a trading platform.
🔹 Key Forex Terminology
- Currency Pair: Quotation of two currencies (e.g., EUR/USD, USD/JPY).
- Base & Quote: In EUR/USD, EUR is the base (you buy/sell), USD is the quote (you pay/receive).
- Pip: Smallest price increment (usually 0.0001 for most pairs).
- Lot Size: Standard (100,000 units), mini (10,000), micro (1,000).
- Spread: Difference between bid (sell) and ask (buy) price.
- Leverage & Margin: Borrowing power (e.g., 50:1) requiring only 2% margin.
🔹 Major & Minor Pairs
- Majors: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD.
- Minors (Crosses): EUR/GBP, EUR/JPY, GBP/JPY, AUD/JPY, etc.
- Exotics: USD/TRY, USD/SEK, EUR/TRY—higher spreads, lower liquidity.
🔹 Market Participants
- Central Banks (e.g., Federal Reserve)—manage currency reserves, influence rates.
- Commercial Banks & Brokers—provide liquidity and access to retail traders.
- Hedge Funds & Institutions—large speculative positions, algorithmic trading.
- Retail Traders—individuals trading via online platforms seeking profit.
🔹 Types of Forex Analysis
- Technical Analysis
- Charts & Indicators: Moving averages, RSI, MACD, Bollinger Bands.
- Price Patterns: Head & shoulders, double tops, flags, triangles.
- Trend Analysis: Recognizing up, down, and sideways trends.
- Fundamental Analysis
- Economic Indicators: GDP, CPI (inflation), unemployment figures.
- Central Bank Policies: Interest-rate decisions, quantitative easing.
- Geopolitical Events: Elections, trade wars, natural disasters.
- Sentiment Analysis
- COT Reports: Commitments of Traders data.
- Broker Positioning: Retail trader net-long vs. net-short ratios.
🔹 Trading Strategies
- Scalping: Very short-term trades aiming for small pips (seconds to minutes).
- Day Trading: Opening and closing positions within the same trading day.
- Swing Trading: Holding positions for several days to capture medium-term moves.
- Position Trading: Long-term trades held for weeks or months based on fundamentals.
- Algorithmic/Automated: Using EAs (Expert Advisors) to execute pre-programmed rules.
🔹 Risk Management
- Position Sizing: Risking a fixed percentage (e.g., 1–2%) of account per trade.
- Stop-Loss Orders: Predefined exit to cap potential loss.
- Take-Profit Orders: Automatic exit at targeted profit level.
- Risk-Reward Ratio: Aim for at least 1:2 (risk $1 to make $2).
- Diversification: Avoid over-concentration in a single currency.
🔹 Trading Psychology
- Discipline: Follow your trading plan strictly.
- Emotional Control: Manage fear and greed; avoid revenge trading.
- Patience & Realism: Wait for high-probability setups; set achievable goals.
- Continuous Learning: Review your trades; adapt strategies over time.
🔹 Choosing a Broker & Platform
- Regulation: Prefer FCA, NFA, ASIC, CySEC regulated brokers.
- Spreads & Commissions: Compare costs; raw-spread vs. fixed-spread accounts.
- Execution Speed: Low latency for fast order fills.
- Platform Features: Charting tools, one-click trading, mobile apps, VPS support.
🔹 Getting Started
- Educate: Take courses, read books, and watch tutorials.
- Demo Account: Practice risk-free trading.
- Develop a Plan: Define goals, risk limits, preferred strategies.
- Start Small: Transition to a live account with modest capital, then scale up.
Forex Trading