Introduction of forex Market
What is Forex ?
The foreign exchange market (forex, FX, or Currency Market) is a global, worldwide decentralized financial market for trading currencies.
When it started ?You could not say it all started after a sole event. A series of events happened and in the end it resulted in the Forex market. As we know it today. It all started when the Breton Woods agreement was finally abandoned around 1971.
In this agreement, participating countries had their currency pegged to either the gold or the us dollar. By 1973 the most powerful countries around the global introduced a free exchange rate regime where they let their currencies fluctuate driven by the market or more precisely by the force of supply and demand. It was then when the forex market was available to speculate, hedge as well as other reasons.
It was not until 1997 when the forex market become available to individual investors and traders through online trading capabilities and leverage (margin trading), offering traders around the world grate opportunities to profit from the forex market.
Where do all trades take place ?
Unlike other financial markets, there is no physical location where all trades take place in the Forex market. All transactions are conducted via telecommunications ( phone, online platforms , etc.) between banks, large institutions, investors, trader, etc. There is called an over the counter market or OTC.
What is traded ?
From the name we got the idea in forex currencies are traded. In forex, Currencies are traded in pairs.
Major Currency Pairs
| Pair | Countries | FX Geek Speak |
| EUR/USD | Euro zone / | “euro dollar” |
| USD/JPY | | “dollar yen” |
| GBP/SD | United Kingdome/United State |  “pound dollar” |
USD/CHF United State/ Switzerland
USD/CAD United State/ Canada
AUD/USD Australia
NZD/USD New Zealand / United States
Major Cross-Currency Pairs or Minor Currency Pairs
Euro Crosses
| Pair | Countries | FX Geek Speak |
| EUR/CHF | Euro zone / | “euro swissy” |
| EUR/GBP | Euro zone / United Kingdome | “euro pound” |
| EUR/CAD | Euro zone / | “euro loonin” |
| EUR/AUD | Euro zone / | “euro aussie” |
| EUR/NZD | Euro zone / | “euro kiwi” |
Yen Crosses
| Pair GBP | Countries | FX Geek Speak |
| EUR/JPY | Euro zone / | “euro yen” /“yuppy” |
| GBP/JPY | United Kingdome / | “pound yen”/ guppy” |
| CHF/JPY | | “swissy yen” |
| CAD/JPY | | “loonie yen” |
| AUD/JPY | | “aussie yen” |
| NZD/JPY | | “kiwi yen” |
Pound crosses ::
| Pair | Countries | FX Geek Speak |
| GBP/ CHF | | “pound swissy” |
| GBP/AUD | | “pound aussie” |
| GBP/CAD | | “pound loonie” |
| GBP/NZD | | “pound kiwi” |
Other Crosses ::
| Pair/ GBP | Countries |  FX Geek Speak |
| AUD/CHF | | “aussie swissy” |
| AUD/CAD | Australia/Canada | “aussie loonie” |
| AUD/NZD | Australia/New | “aussie kiwi” |
| CAD/CHF | Canada/Switzerland | “loonie swissy” |
| NZD/CHF | New Zealand/Switzerland | “kiwi swissy” |
| NZD/CAD | New Zealand/Canada | “kiwi loonie” |
How is traded :
Forex insiders :
Centrial banks :
Ø FED - The Federal Reserve System of the USD;
Ø ECB - The European Central Bank;
Ø BoE - Bank of England, the oldest bank in the world.( “Old Lady”);
Ø BoJ - Bank of Japan
Ø BB - Deutsche Bundesbank of Germany
BB - Deutsche Bundesbank of Ø BoF - Bank of France
Ø BoC - Bank of Canada etc.
Commercial Banks :
Banks – market makers (banks, which “make” the market, the price setting is made up by reference to their quotations ) are actively engaged with the market not only concerning the clients’ request, also accomplishing its own strategies.
Banks – market user ( banks using market rates ) basically specialize in work on clients’ request.
The biggest among them are: Citi Group ( USA ), HSBC ( UK ), Deutsche Bank ( Germany ), CSFB ( Switzerland ), Bank of Tokyo-Mitsubishi ( Japan ), Barelays Capital ( UK ), ABN Amro Bank (Netherland), Bank of America ( USA ), RBC Dominion Securities(Canada),
Morgan Stanley ( USA
Bourses :
Ø NZX – New Zealand
Ø ASX – Australian Securities Exchange
Ø TSE – Tokyo
Ø HKE – Hong Kong stock Exchange.
Ø SES – Stock Exchange
Ø DBG – Frankfurt Bourse ( DEUTSCHE BöRSE GROUP)
Ø TLSE – The Luxembourg
Ø SWX – Swiss Stock Exchange
Ø PSE – Paris
Ø LSE – Londone Stock exchange
Ø NYSE – New York
Ø CHX – Chicago
Ø PCX – Pacific Exchange
Financial instructions :
Different consulting organizations, mutual funds and hedging companies.
Transnational companies : XEROX, IBM, Crow Cork etc.
Non-institutional investors : Charitable trusts and copartner ships
Brokerage / Dealing service – firms, carrying out the trading mediation at own costs and on its own behalf, the client base consists mostly of private investors.Volume Generated by Country
| Country | % of the overall volume |
| | 31% |
| | 19% |
| | 8 % |
| | 5 % |
| | 5 % |
| | 4 % |
| | 3 % |
| Others | 25% |
Source: bank of International Settlements (BIS) 2009 Survey
Benefit of Forex trading
There are many benefits and advantages of trading forex. Here are just a few reasins why so many people are choosing this market: peg
No commission
No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail brokers are compensated for their services through something called the “bid-ask spread”.
No middlemen
Spot currency trading climinates the middlemen and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
No fixed lot size
In forex market, there is no fixed lot size. You can fixed your lot size from 0.01 volume to whatever you wishes depending on your balance.
Low transaction costs The retail transaction cost ( the bit/ask spread ) is typically 3-4 pips
A 24-hour market
Its continuous operation: 24 hours a day except weekends. i.e. trading from 20: 15 GMT on Sunday until 22:00 GMT Friday ;
No individuate can control the market
The foreign exchange market is so huge and has so many participants that no single entity ( not even a central bank or the mighty Chuck Norris himself)
Can control the market price for an extended period of time.
Leverage
In forex trading, a small deposit can control a much large total contract value. leverage gives the trader the ability to market nice profits, and at the make nice profits, and at the same time keep risk capital to a minimum.
For example, a forex broker may offer 50 – to – 1 leverage, which means that a $ 500 dollars, one could trade with $ 25000 dollars and so on.
High liquidity
Became the forex market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantantaneously buy and sell at with as there will usually be someone in the market willing to take the other side of your trade.
Low Barriers to Enter
You would think that getting started as a currency trader would cost a ton of money. The fate is, when compared to trading stocks, options or futures, it doesn’t . Online forex brokers offer ‘mini’ and ‘micro’ trading accounts, some with a minimum account deposit of $ 25
We are not saying you should open an account with the bare minimum, but it does not have a lot of start-up trading capital.
Free Stuff Everywhere !
Most online forex brokers offer “demo” accounts to practice trading and build your skills, along with real-time forex news and changing services.
And guess what ? ! They are all free !
Forex Vs Stocks
The forign exchange market is the largest financial market in the world. Compared to the measly $ 74 billion a day volume of the New York Stock Exchange, the foreign exchange market looks absorutery ginormous with its $ 4 TRILLION a day trade volume. Forex rocks our socks!
Basic Concept of currency Trading
Top 10 currency traders percentages (%) of overall volume, May, 2011
Rank Name Market share
1. Deutsche Bank 15.64%
2. Barclays Capital 10.75%
3. UBS AG 10.59%
4. Citi 8.88%
5. JP Morgan 6.43%
6. HSBC 6.26%
7. Royal Bank of Scotland
8. Credit Suisse 4.80%
9. Goldman Sachs 4.13%
10. Morgan Stanley 3.64%
When Can You Trade Forex
Trading Sessions : Before looking at the best times to trade, we must look at what a 24- hour day in the forex world looks like . The forex market can be broken up into four major trading sessions : the Sydney session, the Tokyo New York
Summer
| Time Zone | EDT |  GMT |
| | 6:00 PM | 10:00PM |
| Sydney Close | 3:00AM | 7:00AM |
| | 7: 00PM | 11:00 PM |
| | 4:00AM | 8:00AM |
| | 3:00AM | 7:00AM |
| | 12:00 PM | 4:00 PM |
| | 8;00AM | 12:00 PM |
| | 5;00 PM | 9:00 PM |
Winter
| Time Zone | EDT | GMT |
| | 4:00 PM | 9:00PM |
| Sydney Close | 1:00AM | 6:00AM |
| | 6: 00PM | 11:00 PM |
| | 3:00AM | 8:00AM |
| | 3:00AM | 8:00AM |
| | 12:00 PM | 5:00 PM |
| | 8;00AM | 1:00 PM |
| | 5;00 PM | 10:00 PM |
Basic Forex Terms :
Sell quote // Bit price :
The sell quote is displayed on the right and is the price at which you can buy the base currency. It also referred to as the market maker’s bit price.
For Example : If the EUR/USD quotes 1.3200/03, you can sell 1 Euro at the bid price of US$ 1.3200 .
Buy Quote / Offer Price:
The buy quote is displayed on the right and is the price at which you can buy the base currency. It is also referred to as the market maker’s ask or offer price. For Example : If the EUR/USD quotes 1.3200/03. You can buy 1 Euro at the offer price of US$1.3203
Pip :
The smallest price agreement a currency can make . Also known as points. For Example, 1 Pip = 0.0001 for EUR/USD or 0.01 for USD/JPY.
Spread :
The difference between the sell quote and the buy quote or the bit and offer price.
For Example : If EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 Pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal is spread .
The standard unit size of a transaction. Typically, one standard lot is equal to 100,000 unites of the base currency , 10.000 unites if it’s a mini, or 1,000 unites if its micro . Some dealers offer the ability to trade in any unit size, down to as little as 1 unit.
Leverage
Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in has account and he opens a $100,000 position ,he leverages his account by 100 times, or 100:1.if he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1.increasing your leverage magnifies both gains and losses.
Margin:
The deposit require to open or maintain a position. Margin can be either “free” or “used”. Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount and able to open new positions.Long Position:
A position in which the trader attempts to profit from an increase in price,
Foe Example : Buy low, Sell high.
Short Position:
A position in which the trader attempts to profit from an decrease in price. i.e. Sell high , buy low.
Live Trading and Trading system development
Trading System Development Rules:
Ø Have to have a proper trading plan
Ø Risk management strategy
Ø Protective Stop loss orders
Ø Avoid Overstaying
Ø Not increasing risk with success
Ø Do not change your trade plan in mid- trade
Ø Have a good patience
Ø Trade with discipline
Trading plan and risk management.Plan for a successful trading:
Step: 1 >> Set a goal how many pips you want to make.
Step: 2 >> Confirm your quote.
Step: 3 >> Set trading time and completion of trading.
Step: 4 >> Set the strategy.
Step: 5 >> Timeframes.
Tips: Do not trade during speeches of governors of central Banks, e.g. the Bank of England
Risk Management:
What are the risks?
Ø Broker Risk.
Ø Tech Risk
Ø Market Risk
Ø Economic and Political Risk
Ø Specific country Risk
How to manage risk:
Ø Avoid overleveraging.
Ø Diversification.
Ø Limit Order.
Ø Stop loss/ take profit orders
Ø Risk reward ratio.
