Welcome to FOREX e-book

(1)

(2)

1

1. About B

RAND

FX Global Markets (FXGM) Ltd. Incorporated in 2006, regulated by the Cyprus Securities and Exchange Commission (CySEC) under the license number 074/06. As such, FXGM adheres to the strict regulatory standards of the European financial authorities and follows precise due diligence procedures and trading practices.

The Company specializes in financial products (Forex and CFDs) but also has the capacity for liquidity provision and Technology Development.

 Regulated by CySEC (EU)

 MiFID Investor Compensation Fund member  Fixed spreads

 Commission Free  24/5 personal support

 Multi products; Forex, Shares*, Indexes* and Commodities* (*CFD)

 News, Updates and Trading Ideas by SMS, email and phone

 Secure online payment methods

 Fast withdrawals FXGM beats the industry standards

 Hedging capability  Online courses

(4)

3

2. Trading Platforms

(5)

4

3. What is Traded in the Forex Market?

The simple answer is money! It is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker and are always traded in pairs.

To explain it further, think of it as buying a share of a particular economy. When we decide to buy the USD, we essentially are buying a share in the US economy. The price for the USD is a reflection of what the markets thinks not only of the current health of the US economy but also of its future.

4. What is Forex?

The Foreign Exchange Market is also referred to as Forex, FX, Spot FX or plain Spot. It is one of the fastest growing financial markets globally. With over $4 trillion being traded daily it can be easily assumed that it is the biggest financial market. All stocks and futures markets combine only add up to one third of the daily Forex market.

The Forex market is not a place, unlike the stock exchanges around the globe. It is a system available online where people and institutions can access and benefit from global

decentralized trading of international currencies.

(6)

5

5. Advantages of the Forex Market

Forex can help you earn a lot

of money. But there are certain conditions to follow before trading in Forex. Firstly, one must have knowledge of the trends, the basics of trading and risk-taking ability. You will get all the help you need for

attaining these conditions

very easily. We offer you a dedicated team to support you during this process!

A good reason why Forex trading can be considered is the fact that there are frequent fluctuations in currencies. Fluctuations or volatility as we refer to it in the market is the movement of the value of the currency. This movement whether positive or negative can benefit the trader as long as the trader accurately predicts which of the two scenarios will be taking place at the time he or she wishes to trade. You gain if the fluctuation favors you and the reverse holds true as well.

Liquidity is another reason why Forex trading is so popular.

Now the most important part – in Forex, you can make huge sums of money even if your initial investment is on a lower side. This is because of the utilization of leverage (please refer to Glossary for details).

So remember that even with a nominal investment, the earning ability is undoubtedly very huge.

(7)

6

So, it is thus clear that Forex trading can be one of the best businesses to earn money. Though there is a level of risk attached to it, but it can be avoided with due diligence, an alert mind and the utilization of the tools provided on your trading platform.

Here is a list of all the reasons why Forex trading has become one of the most popular money making opportunities recently:

 Forex market trading hours are Sunday (US EST) evening to Friday afternoon, 24 hours trading.

 Forex market is well known for its high liquidity, which means that you can buy and sell currency pairs every second.

 Limit orders can be set in Forex markets such as Entry Orders to purchase a currency pair, Stop Loss and Take Profit orders.

 Leverage, which gives you the ability to trade with a minimal margin value and to open with a much larger face value.

 Generate profits from both rising and falling markets. As a trader, you can buy/sell a currency that you believe will get stronger / weaker.

 Because of its size and its participants, Forex market is very difficult to be controlled and manipulated.

(8)

7

6. How to read Currency Quotes

It is also good to understand the means by which the currency conversion is expressed, and how to read currency quotes. Remember currencies are always traded in pairs. An example of this is EUR/USD. The comparison is usually made in a ratio known as the cross-rate. In this configuration, the two currencies are listed in as EUR/USD, with the EUR position referred to as the base currency. The base currency is the first currency in the pair and it is usually expressed as 1.0000, and the USD, in this example representing the secondary currency is expressed as the decimal that most closely matches the based currency rate. Every time we perform an action by buying or selling a currency we do so by performing the action on the base currency. For example, in EUR/USD, if we expect the EURO to go higher we will buy it against the USD. This means that we are simultaneously are selling the USD.

If we expect the EURO to drop in value we will sell it against the USD, therefore simultaneously buying the USD.

You are only required to either buy or sell the base currency and the simultaneous transaction is implied.

(9)

8

7. Major Currency Pairs

There are a lot of different pairs you can trade in the Forex market; however most of the action is seeing in the major pairs. The major pairs tend to have the highest liquidity as well.  EUR/USD  USD/JPY  GBP/USD  USD/CHF  USD/CAD  AUD/USD

You can trade any other available pair through your broker, you can chose a pair that includes your local currency if you are more comfortable doing so. The majors tend to have more volatility and liquidity which add up to more reliable trading conditions for the average trader.

8. What is a Pip?

(10)

9

9. What is Leverage/Margin?

Leverage is a powerful tool for currency traders. It is one of the biggest advantages of the Forex market. It can be defined in many different ways. Leverage is the ability to situate your account into a position greater than you’re the mount you initially deposited. It can also be explained as the amount of money you are allowed to borrow from the broker when you open a position. Simply put a trader can open bigger positions with less money. In FXGM we offer leverage up to 1:400. That means that you can trade 400 hundred times your money.

However, higher leverage also exposes you to higher risks if the market fluctuation is on your disadvantage. To avoid such situations, traders should not trade more than 5% of their total account equity & take advantage of platform safety features such as “Stop Loss” and “Take Profit”.

Margin is the deposit or the collateral required to open or maintain a position, whereas free margin is the amount available to open new positions. Margin always is expressed as a percentage. The higher the leverage the less margin % is required to invest.

(11)

10

10. Risks Associated with Forex

Like most investments out there Forex carries a certain amount of risk. Besides, no risk usually equals no reward!

This risk can be managed quite well if the trader takes the time to develop a system.

Developing a system can be simple enough. One of the most important aspects of a healthy system is the control of two basic human emotions. Fear and greed! A trader should be disciplined enough to not allow fear from stopping them. The other side of this coin is greed. A trader needs to learn how to set exit points and stick to them. If you predetermine that 5% return is good enough for today then stick to it! Take your profits even if the market is looking like is going to continue in your direction. Please bear in mind that any profit or loss in any open position is not realized until the position is closed.

(12)

11

11. Four Main Types of Orders in Forex Market

There are many types of orders which traders can place to trade in the Forex market.

Market Order

The market order is the most simple and common type or order. Here, the trader buys and sells the currency at the rate prevailing in the market at the time of placing the order. Due to the huge size of the market and the high volatility, trends can reverse any instant, so people prefer placing orders at the market price to guard themselves against any adverse trend.

Limit order

In this case, the trader specifies a price at which he may wish to buy or sell the currency. Suppose a trader has bought GBP against the USD at 1.9710, then he can place a sell order at 1.9725, when the exchange will execute the order and he will profit from it. The order will get cancelled if the target price is not achieved during the day.

Stop loss order

Due to the volatility, stop losses are essential. They determine the maximum loss a trader is willing to suffer. Suppose in the above instance, the risk-taking ability of the trader is low, then he may place a stop loss at 1.9705, at which level the exchange will book losses for him, and he won’t be affected by any fall below 1.9705.

Entry order

Such an order is filled only when certain conditions are met in the market, which the order specifies. The entry order can be a limit entry order or even a stop entry order.

Limit entry order

(13)

12 Stop entry order

(14)

13

12. Introduction to Trading Platforms and

Execution

The PROfit trading system is downloadable and easy to use for traders of all levels and is now available on iPhone. Moreover there is also the web-trader version where the investor doesn’t need to download the platform and he can open it from any computer. So now you can trade on the go anywhere, anytime!

(15)

14

Using The Web Based Profit Platform

Login to webPROfit

1. Click the Login button.

(16)

15

3. Click Login; the list of your accounts is displayed.

(17)

16

Order Types

Market Orders: Opening positions in the Confirm Mode

The Confirm Mode enables you to confirm each position you open before its final execution. Market orders can be placed via the Quotes box button or Quotes list.

Quote box button option:

Quote list option:

To place a Market Order

1. Click on Buy or Sell to execute the market order at the current price; the Open

Position window is displayed.

2. In the Amount list, select or type the size of your trade.

3. Click OK to confirm; the position opens and the Info window appears confirming your action.

(18)

17

Market Order: opening a position in One Click Trading mode

When you want to monitor market movement and make trades quickly, you can use the 1-Click Trade mode. The 1-1-Click Trade mode allows you to open a position without

confirmation, in one click. After you define your trading mode as the 1-Click trade mode the Quotes panel is modified as follows:

 In the List view, a new Amount column appears.

(19)

18

To open a position in 1-Click mode, follow one of the following methods: 1. Choose the amount

2. Click on Buy or Sell

(20)

19 Closing Positions

WebPROfit provides you with several ways to close your positions. You can close positions one by one, or several positions at once. You can also close all your positions in one action. To close a position: Method 1

1. In My Portfolio, click on Open Positions tab; all open positions will be visible in the window.

2. Tick the box next to the position/s you wish to close. 3. Click on Close Position button.

4. Click OK; the selected position is closed and the Info window appears confirming your action.

(21)

20 To close a position: Method 2

1. In the My Portfolio panel, under the Open Positions tab, double click on the position you want to modify. Alternatively, you can select the desired position and click the Details button: the Position Details window opens.

2. In this window, click the Close at “rate” button; the Confirm window is displayed.

3. Click OK; the selected position is closed and the Info window appears confirming your action.

4. Click OK or to close the Info window.

(22)

21 Stop Loss and Take Profit Orders

Stop Loss order

You can use the Stop Loss order to limit your losses by making your positions automatically close if the price moves in a direction different to what you expected. You can place a stop loss order to close your trade at a specified amount or at a specified rate which is different from the current market price. The Stop Loss order is below the current market price in a buy order and above the currency market price in a sell order.

For example, if you open a buy position of EUR/USD at $1.6560, you can set a stop order at $1.6450; this is 110 pips below the current market price. Therefore, if the market goes against you and the market price drops dramatically, then your position is automatically closed once the market rate reaches $1.6450. If you go short on the pair (sell the pair), then the stop-loss order would be placed at a price higher than the current market price.

To place a Stop Loss Order 1. Click the Buy or Sell button.

2. In the Open Position window select or type the size of your trade.

3. From the Limit Type drop down list, choose SL/ TP; the Open Position window is expanded as follows:

4. Check the Stop Loss checkbox; the rate range is displayed. 5. Select parameters.

(23)

22 Take Profit Order

You can use Limit Orders to protect your positions in the event of unexpected

circumstances. The Take Profit Order guarantees that your trade will be closed once the target price that you quoted is reached. The limit is placed above the current market price in a buy order and below the current market price in a sell order.

Let’s say that you open a buy position of GBP/USD at $1.4550. You place the limit order at $1.4600, which is 50 pips above the current market price. Thus, if the market rate goes up, your position is closed automatically. As a result, you will exit the market with the desired profits. On the other hand, if you go short on the pair, then the limit order would be placed below the current market price.

To place a take Profit order 1. Click the Buy or Sell button.

2. In the Open Position window select or type the size of your trade.

3. From the Limit Type drop down list, choose SL/ TP; the Open Position window is expanded as follows:

4. Check the Take Profit checkbox; the rate range is displayed. 5. Select Parameters.

(24)

23 Entry Stop Order

The Entry Stop order is used if you wish to enter the FX market at a worse price than the current one (or a continuation of the current trend). The price is higher than the current market price if you are buying, and lower if you are selling.

For example, the current market price of the EUR/USD currency pair is $1.5600. At a higher market price of $1.7900, you believe that the price will continue rising. On the other hand, if this price is not reached, then you believe that it will fall. As a result, you would only want to buy the EUR/USD position if the price hits $1.5900. Therefore, you place an Entry Stop Buy at $1.5900.

Placing an Entry Stop

1. Click the Buy or Sell button the Open Position window is displayed. In this window, in the Type drop down list, choose Entry Order; the Open Position window is expanded to the Open Entry Order window.

2. From the Amount list, select or type the size of your trade.

3. In the Order Rate text box, type the execution rate of your entry order.

4. Specify the expiration date of your entry order by using the Good Till Value option. 5. Click OK; the entry order is placed and the Info window appears to confirm your

action.

(25)

24 One Cancels the Other (OCO) Orders

OCO orders are a combination of two orders. Thus, two orders are placed: one above and one below the current market price. When one trade is activated, the other one is canceled. For example, if the AUD/USD pair is trading at $0.9100. However, you are not sure which direction that the trade will go next. Therefore, an OCO order is placed to buy is placed at $0.9200 and an OCO order sell is placed at $.9000. By employing this strategy, as soon as one of these prices is triggered, the second trade is canceled whilst another one is

activated. As one order is executed, the other is canceled by the system.

Placing an OCO Order

1. Click on Buy/Sell Option

2. In the Open Position window choose the Limit type option and then select Entry Order.

3. Select OCO Parameters.

(26)

25

Removing an Entry Order

WebPROfit provides you with several ways to remove your Entry Orders that haven’t been executed yet. You can remove them one by one or several at once. You can also close all your entry orders in one action.

To remove a single Entry Order

1. In the My Portfolio panel, under the Entry Orders tab

2. Double click on the order you want to modify. Alternatively, you can select the desired position and click the Details button: the Entry Order Details window opens.

3. Click OK; the selected entry order is removed and the Info window appears confirming your action.

4. Click OK or to close the Info window.

To remove several entry orders

1. In My Portfolio panel, under the Entry Order tab, select the checkboxes next to all entry orders you want to remove.

2. Click the Remove Order button; the Confirm window is displayed.

3. Click OK; the selected order is removed and the Info window appears confirming your action.

(27)

26

13. Technical Analysis

In order to analyze the market and perform correct due diligence a trader needs to use Fundamental and Technical analysis.

Technical analysis focuses on the study of the price movements or price action though the use of charts for forecasting future price trends.

The philosophy behind technical analysis is that the market action takes into account all know and unknown information, price action has a tendency to move in trends and therefore we can make prediction of future trends because history repeats itself.

Chart Types

Line Chart

(28)

27

(29)

28

Chart Patterns

Chart patterns are created when prices are graphed on the charts. Chart patterns can be used to identify either a continuation or a reversal of current market trends. Being able to identify some of this patterns is an important part of the technical analysis.

(30)

(31)

(32)

31

(33)

(34)

33

Support & Resistance

Support and resistance is one of the most commonly used concepts in technical analysis. These should be examined as zones-areas and not as absolute numbers.

(35)

34

Major Indicators

Another method to perform technical analysis is the utilization of technical indicators. These are some of the most commonly used indicators:

RSI (Relative Strength Index): The Relative Strength Index or RSI determines overbought or oversold conditions in the market- whether a currency is considered expensive or cheap relative to historical price levels. It is measured in a scale from 0 to 100. Readings below 30 indicate that the security is oversold (cheap), while reading above 70 shows that the

security is overbought (expensive).

Bollinger Bands: Bollinger Bands are used to determine market volatility. Therefore, this tool can help us determine whether the market is active or fairly quiet. When the market is quiet and transaction volume is low, then the bands contract, and when the market is swift and trading volume is high then the bands expand.

MACD(Moving Average Convergence Divergence):MACD is an abbreviation for Moving Average Convergence Divergence. The tool is used to identify a new trend by using moving averages. Our main priority is to find a new trend at the beginning when moving averages cross each other. You will usually see 3 parameters regarding MACD settings.

 The first parameter indicates the number of periods that are used to calculate the fast moving average.

 The second parameter indicates the number of periods used to calculate the slow moving average.

(36)

35

14. Fundamental Analysis

Fundamental analysis in Forex is a type of market analysis which involves studying the economic situation of countries to trade currencies more effectively and to determine the factors affecting supply and demand for specific currencies. Fundamental analysis involves news, events, reports being released (an example if the US non-farm payroll)

Economic Calendar

(37)

36

15. Forex Glossary

Account: A record of all transactions. When you decide to trade you will open an account with a broker. When you log in your account you will be able to access the market and all history of all transactions ever executed in this account.

Account Balance: The amount of money in the account. This includes any amount of money deposited in the account, plus all profits made, minus all losses.

Ask: The price at which the seller is prepared to sell at.

Bear: An investor who believes the price of the market will decline. Being “bearish” means that you expect the price of a currency/stock/commodity etc to go lower. In this situation if you wish to trade you would SELL TO OPEN a position.

Bid: The price at which the buyer is prepared to purchase at, the price offered for a currency.

Broker: An individual or firm that acts as an intermediary, putting together buyers and sellers usually for a fee or commission; In contrast, a `dealer` commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a

subsequent trade with another party.

Bull: An investor who believes the price of the market will rise. Being “bullish” means that you expect the price of a currency/stock/commodity etc to ho higher. In this situation if you wish to trade you would BUY TO OPEN a position.

Candlestick Chart: A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Closed Position: This is an exposure in FOREX that no longer exist. (The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position.) It is very straight forward most platforms have an option to simply CLOSE the position.

(38)

37

Cross Rate: An exchange rate between two currencies. (The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.)

Currency Pair: The two currencies that make up a foreign exchange rate (For Example, EUR/USD). Remember that currencies are always traded in pairs.

Fundamental Analysis: Analysis of economic and political information with the objective of determining future movements in a financial market.

Hedge: A position or combination of positions that reduces the risk of your primary position.Hedging usually involves the buying and the selling of the same currency pair. High/Low: Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day. The high is seeing as the resistance level. This means that there is a certain resistance and that the currency has not moved higher than the particular price. The opposite goes for the low. We usually refer to the lowest point as the support. The support appears to be the lowest point the price has been within a given amount of time.

Leading Indicators: Economic variables that are considered to predict future economic activity (i.e., Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).

Leverage: The ratio of the amount used in a transaction to the required security deposit (also referred to as margin). Leverage is one of the biggest advantages of Forex. The average person who opens an account will receive a leverage of 1:200. This means that if the person deposits $500 then with the utilization of leverage the account is at $100000. Limit Order: An order with restrictions on the maximum price to be paid or the minimum price to be received. This allows a trader to enter the required information on the platform and walk away! An account manager will show you how to access limit orders and how to use them.

Liquidation: The closing of an existing position through the execution of an offsetting transaction.

(39)

38

Long Position: A position that appreciates in value if market prices increase (when the base currency in the pair is bought, the position is said to be long). To go LONG is to BUY and to go SHORT is to SELL.

Lot: A unit to measure the amount of the deal (the value of the deal always corresponds to an integer number of lots). People can trade a full lot or half a lot etc.

Margin: The required equity that an investor must deposit to collateralize a position. Market Maker: A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.

Market Order: An order to buy/sell at the best price available when the order reaches the market.

Open Position: An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

Order: An order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.

Pips: The term used in currency market to represent the smallest incremental move an exchange rate can make. (Depending on context, normally one basis point, i.e., 0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY.)

Position: A position is a trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor.

Premium: In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.

Profit/Loss (P&L): The actual "realized" gain or loss resulting from trading activities on closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.

(40)

39

Resistance: A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line. \

Risk Management: To hedge one's risk one will employ financial analysis and trading techniques.

Short: To go `short` is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.

Short Position: An investment position that benefits from a decline in market price (when the base currency in the pair is sold, the position is said to be short).

Spread: The difference between the bid and offer (ask) prices; used to measure market liquidity (Narrower spreads usually signify high liquidity).

Stop Loss Order: An order to buy/sell at an agreed price (one could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed).

Support Levels: A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself (opposite of resistance).

Technical Analysis: An effort to forecast prices by analyzing market data, e.g., historical price trends and averages, volumes, open interest, etc. A trader can utilize charts to perform technical analysis.

Volatility: A statistical measure of a market or a security's price movements over time, calculated by using standard deviation (associated with high volatility is a high degree of risk).

(41)

40