Trading Forex 101

An introductory course focussing on the foundations and macrofundamentalcomponents of Forex Markets.

The least you need to know to succeed

In this introductory course, we will provide you with the basics to get

started. There is a lot of free and valuable information freely

available on the net. Our goal is to introduce you to these sources

and show you what you need to know to become consistently

profitable. Successful students do this before committing capital in

an account.

Much of what we show you may surprise you.

To get in touch with our trading community, contact us

info@onlinefinanceacademy.com

Warnings!

Virtually all forex trading firms regard new clients as ‘punters’ who will

eventually lose all, or most of their money. They will tempt you by

offering incredibly high leverage, cash back for opening an account,

and trading alerts for short term trades.

None of these offers are for your benefit (which should be obvious)

You will need to ask yourself what makes you different from the

typical forex trader. Seriously…

You will need to do the opposite of what most (losing) traders are

doing. We will help you with that.

Why take a forex course?

Most people do it for 1 of 2 reasons...

1) They don’t have time to learn on their own so they hope someone will teach

them all they have to know, ideally, quickly. This is not a good reason.

2) They need the perspective of an experienced pro, a mentor, a community to

learn from, unique knowledge not available online or anywhere else.

If you are in this 2nd group, you have the right mind frame to succeed.

We will be able to help you in our advanced course which follows this introduction.

Golden Rules…

These are the key criteria that hedge funds and professional trading firms pay much

attention to…and which FX trading firms never talk about

The Spread and news event volatility:(what amounts to ‘commission’ for buying or selling.)

Not all firms charge the same and most new traders get rude surprises in volatile markets.

Optimal Leverage: (the amount of risk capital you should bet considering your account

size, market conditions, risk tolerance, and the specific FX pair.

Interest rate on debit balances: (you get charged for debit balances in the currency you are short, as well as for leverage.) This can add up.

Most people may consider this ‘boring’. They don’t really care what the professionals are doing. But you need to remember, this business functions like a casino. You need to be

smart and think about probabilities if you hope to be successful in the long run.

What you need to learn

The Macro-fundamentals: the health of the economy is what determines the value of any

currency. You absolutely need to understand this. We will show you how currencies are

correlated, when these correlations break down, how to understand Central Bank policy,

how to trade news events and profit from macro trends.

Technical Trade set-ups: You need to get good pricing in your trades as this improves your risk management - which also helps with the psychological side of trading. We will show you

what indicators work and which ones are complete garbage (this may surprise you.) You will

also learn some proprietary indicators which work really well.

Risk Management and Psychology: This is a bit of a science, but we have made it easy to

understand. Once you learn the mathematics of success, you will look at trading in a whole

new way. To get an idea of the approach we take, follow this link: https://www.penguinrandomhouse.com/books/178551/a-man-for-all-markets-by-edward-o-thorp/9781400067961/

Why do you want to trade?

Ultimately, it’s about the money.

Money buys freedom, personal liberty, the ability to do what one wants in life. The vast majority of human beings aspire to having security and excess capital so they may achieve personal fulfillment. It’s only natural.

However, this goal to have security or expensive toys (sports cars, yachts etc.) may actually be working against you!

Those who are motivated by greed or fear of loss, usually lose. We need to look at trading as a business of managing probabilities where our knowledge of the markets gives us a statistical advantage over others.

Thinking too much about the money may reduce your

chance of success.

The Psychological element is everything; people often act irrationally when real

money is at stake, and even more irrationally when they are losing. You should

not talk about the money you made on the demo, not to yourself, not to anyone. This is counter-productive and only feeds your ego junk food.

Detachment: To succeed in trading, you need to be a bit detached from the

money. Losing traders typically have too tight a stop-loss, or they marry a position and add to losers out of over-confidence (pride).

Managing probabilities: We have developed models of trading that have been profitable over the long term which rely exclusively on effective money

management, such as: 1) scaling in and out of positions, 2) following a trend,

and 3) using optimal amounts of leverage and capital.

How do you achieve your goals?

Motivation

to succeed in this competitive marketplace, you need lots of it; enough to

stick with it when things don’t go according to plan

Knowledge

The markets are always changing, market relationships are never black and

white; You need to study the markets almost everyday.

Independence

Many people attracted to money tend to follow market ‘gurus’; they usually

get burned. Don’t be attracted by hot tips and such nonsense. If you are

attracted to gurus or need to constantly seek someone’s advice, go see a

psychiatrist. They will prove to be far cheaper and you will learn more.

Warning about the “Forex Dream Job”

The marketplace is full of scams that make trading look easy.

It is easy to fake results or select only winning trades to show potential clients.

Some FX platforms, and especially Binary option platforms, are engineered like

slot machines. You have little or no chance over the long run. Most blindly trade with no true knowledge of the markets and simply take uncalculated

bets.

Most importantly: Day traders are at a disadvantage.

Day trading forex is a not a smart idea due to the spreads. You will have a

greater chance if you swing trade and incorporate macro-fundamental ideas.

We teach this swing trading technique

Forex Basics and

Currency Pairs

What is the

Forex market?

FX, is a global decentralized and

deregulated market for currency exchange

Most liquid market: Approximately $2-4

trillion flows through the market each day.

A system of banks, brokerage firms, and dealers which brings

buyers and sellers together (Intra bank)

Modern technology has made the retail forex market much more

accessible to everyone in the world

Comparing Spot Forex and Currency Futures

Forex Futures – A contract that is traded through a regulated exchange

(ex: CME) The futures currency price will vary from the spot fx price due to

the expiry date of the futures contract. This difference (also known as the

cost of carry) is created by the value of the interest that will accrue

between now and expiration of the contract. Similarly, the charges for

being on the non-interest paying side of a transaction is less in the futures

market than with a spot forex dealer.

Spot Forex – An immediate transaction between you and your broker at

the currency spot price plus the spread. This market is also referred to as

the cash market or the spot market.

For further details…

Spot vs. FuturesCash Forex Future Forex

When 24/h 23/h

How Traded through a forex broker Exchanged traded

Costs Spreads Commission

Overnight Swap fees Roll over (expiration date)

Size Micro lots, Mini lots, full lots Mini lots, Full lots

Activity Unable to see true intraday

activity (currently trying)

Bid/Ask, order flow, volume,

open interest, outstanding

orders, etc

Regulation Loosely regulated Regulated by CFTC

Asset Replicates the price trading

now

Speculates the price of an

asset at the future date

* Cash forex occurs at the present and does not expire, whereas future forex contracts are

obligatory agreements to take hold of an asset when it expires.

Euro Futures (Dec. 2017) vs. EURUSD spot The futures price will be higher than the spot price, reflecting the cost

of carry.

Forex History : Gold Standard

In the past, trade was difficult amongst countries because there was

no standard value for money. The creation of a gold standard gave

the markets trust and confidence in the value of the exchange rates.

In 1944 at Bretton Woods, New Hampshire, a system of monetary order

was installed to govern monetary relations among independent

states. Each country had an obligation to adopt a monetary policy

that maintained the exchange rate at (± 1 %) by tying its currency to

gold. Also, there was a need to address the lack of cooperation

among other countries and to prevent competitive devaluation of

currencies.

The United States, which controlled two thirds of the world's gold,

insisted that the Bretton Woods system rest on both gold and the US

dollar. Countries would peg their exchange rate to USD (and the USD

would be pegged to gold)

Bretton Woods unravels In the 1960s, the US was losing global economic dominance. The EEC and Japan

had become international powers with higher levels of growth and trade, and per capita income approaching that of the U.S.,

The gold standard was no longer serving its original purpose as countries were

becoming more interdependent, doing more trade with each other rather than the

U.S. and . global monetary management was breaking down. Countries were

becoming more interdependent.

In 1971, the USA removed the gold peg which brought the gold standard system to

an end. This action created a situation in which the US dollar became, by default,

the global reserve currency used by many states. Without a gold standard, the US dollar, like many other currencies, became free floating fiat currencies.

For more about why Bretton Woods broke down, go here…

https://www.globalpolicy.org/component/content/article/209/42675.html.

Fixed and Floating Exchange Rates

Free Floating currency – A type of currency that has its value determined by the free market. (Virtually all major currencies are floating).

Fixed or ‘pegged’ Currency – A type of currency that has its value pegged to another currency or asset. An example of this would be the Hong Kong Dollar. These are not currencies we would want to trade

Some currencies are less ‘free floating’ than others. A country may at times speak in the press about how they will intervene if their currency appreciates too much and have a figurative ‘peg’. Traders will look at this peg as a definite support level and place a large position confident it will hold. The problem is when a Central Bank suddenly changes its mind. A classic case of this is Switzerland in January 2015. https://www.forbes.com/sites/steveschaefer/2015/01/16/swiss-bank-stunner-claims-victims-currency-broker-fxcm-bludgeoned/#6fee65c06de0

Gold’s influence on FX Markets Gold – is globally recognized as a store of value. It cannot be created out of ‘thin

air’, and thus is the antithesis of a ‘fiat’ currency. When benchmark currencies, such as the USD are weak, or offer no interest, gold will appreciate in the market. (*much more about this in our full Forex course). https://www.onlinefinanceacademy.com/classroom/trading-foreign-exchange/

Investors are attracted to Gold in a ‘risk-off’ environment. For example, in times of geopolitical crisis or economic crisis people like to buy gold because there is a perception that it will maintain its value when countries attempt to devalue their currency by raising debt and printing more money.

Gold has traditionally been an inflation hedge but with global stagnation, gold has become more sensitive to interest rate changes. Because it doesn’t collect interest, investors will exchange their gold for fixed income investments when rates increase. Gold is highly negatively correlated with the USD(about -.90). Therefore, one should pay attention to the value of gold when trading currencies against the USD.

Fiat Currency Fiat Currency – All sovereign currencies today are fiat. This simply means it is

intrinsically worthless and that its value is derived by the goodwill and faith of acountry. All political states have incentive to maintain a fiat currency systembecause it allows them to issue debt. A country that maintains a standard, such asgold, would theoretically see the value of its currency increase, which in turn willraise the cost of exports from that country and have an immediate adverse effecton employment (though it will increase investment over the long run.)

Since the primary objectives of Central Banks are to: 1) to facilitate employmentgrowth / stability, and 2) preventing inflation, we have a situation where virtuallyevery nation is incentivized to maintain a devalued currency, but at the same timekeeping inflation in check to secure confidence in the economy and foreigninvestment. Most countries look at 2% inflation as their inflation objective.

For more about fiat currencies, go to…

Currency Market Participants It should be noted that the forex market is so big that no single participant can

really affect the value of a currency. Historically, even when nations attempted

to stem rapidly declining currency values by buying their currency in the open

market, they have failed. This dynamic means that forex markets can’t be

traded the same way one might trade stocks or futures intraday. For example:The advantages of understanding how to use the DOM are absent when trading

forex.

Retail traders should understand that their trading platform does not reflect thefull forex market, only a miniscule fraction of it. Most trading is transacted by large

financial institutions and governments over the counter (meaning these

transactions do not take place on an exchange, but generally over the phone

between dealers and clients.)

Market liquidity in times of crisis

As big and liquid as the forex market is, its price can experience great

volatility in times of crisis or during economic news events.

It is normal during an important economic event for spreads on a forex

platform to widen substantially. Many new retail traders are unaware of

this and often complain about bad fills when they hit market to get out of

a trade, or when their stop gets hit. It is best for new traders to stay out of

the forex market during such events. Scalping the market by hitting the

market price is generally a loser’s game.

During major news or geopolitical events - the Brexit vote for example –

even financial institutions may have difficulty exchanging large sums of

currency in the interbank forex market. When such events hit, dealers may

be reluctant to trade. The result is that traders may resort to futures

markets if they need to hedge.

Market Participants

UBS CITIBANK

HSBC BARCLAYS

Intra Bank

Corporations Institutional Hedge Funds

Central Banks FX Market Makers

Retail Brokers Individuals

Small/Mid Size Banks Airport Kiosk

Except weekends

Forex market closes

at 5pm on Friday

and reopens at

5pm on Sunday.

Futures market

closes 1h per day at

5pm and reopens at

6pm

Forex enables anyone to trade when it is

convenient for them.

Focussing on a few pairs. Successful forex traders typically focus on a few favourite pairs. They learn the

macro-fundamentals that affect that market and only trade things they know.

For example, the Aussie dollar has a unique relationship with the yen; theireconomies are quite divergent and yet do a lot of trade with each other. The Yen,

has in recent history, had zero interest rates, while the Aussie dollar has had thehighest rates among the major currency pairs. Australia is also a major commodities

exporter while Japan is a finished goods exporter.

For example, in the so-called ‘carry trade’, Japanese investors will buy the Aussie

dollar in order to collect the relatively higher interest. Of course, nothing is this easy.

This pair can exhibit some rapid price moves when a macro event influences the

pair, leading to Japanese investors bailing out of Aussie en masse.

Notice the following chart the extreme daily range that can occur in this pair.

11/19/2017Sample Footer Text 26

How to quote currencies?

PIP = Percentage in Points

Represents the 4th digit after the decimal (5th in the cash market)

The base pair is always the one that is quote

Futures market: 1 lot = $10/pips

Cash market: .01 micro = $0.01/pips

EUR/USD 1.1245

Base Pair Counter Pair Pip

5

Spreads

EUR/USD = 1.124

Spreads 1.125

Spreads 1.123

5

5

5

• Spreads are the rate at which a broker will charge you to take the trade • Example = fixed 10 point spread with bid price and ask price

• The farther out you go from the intermarket, the higher the spreads will be.

• Spreads will change during times of volatility

• (High volatility = higher spreads

Margin

The initial amount required to open a position.

Sufficient balance in relation to the size of your position is needed to take a trade.

Margin Call - If you have an open position and fall below margin requirements.

Margin varies depending on your broker.

Leverage

• Borrowed money that allows you to trade bigger size.

• Can drastically increase gains or losses

• 1 lot represents a control of a position worth $100,000.

• Leverage varies depending on your broker.

• Example of cash market leverage on forex pairings (50:1, 500:1 or 2000:1)

Major Pairings

Major forex pairings are paired against the US dollar

As it’s the global reserve currency and central banks hold a

portion of their reserves in USD. Also, major transactions are done

in USD (oil and gold are priced in USD)

These pairings offer the most volume and liquidity and can be

traded 24 hours per day with exception of the weekend.

Due to large volume and liquidity, they have better spreads, are

more predictable to trade, and have less chance of erratic price

action.

Major Pairings (futures contracts)

Currency Symbol Nickname Significances Average daily

volume

European Dollar EUR Fiber Most liquid

currency

216K

Japanese Yen JPY Yen Safe Haven

currency

192K

Great Britain

Pound

GBP Cable First Central Bank 78K

Australian Dollar AUD Aussie Commodity

currency / metals

75K

Canadian Dollar CAD Loonie Commodity

currency / crude

oil

50K

Swiss Franc CHF Swissy Safe Haven

currency

17K

New Zealand

Dollar

NZD Kiwi Commodity

currency / dairy

17K

Cross Pairings

Any pairing that does not involve the USD is considered a cross pair.

Can be used as an indicator to trading the major pairings.

Can be traded on the cash market and with some futures broker.

The spread on these parings are higher than commonly traded pairs.

Good volume and liquidity in some pairings makes them less difficult to trade.

EURO CROSSES POUND CROSSES YEN CROSSES

EUR/JPY GBP/AUD AUD/JPY

EUR/GBP GBP/CAD CAD/JPY

EUR/CHF GBP/NZD NZD/JPY

Cross pairings offer opportunities that are not associated with USD

data.

Try pairing one major economy (not US) versus another major

economy i.e. GBP/AUD

Look at how one economy is performing versus a broad range of

major economies i.e. EUR vs GBP, CHF, JPY, etc.

Some popular cross pairings are: EUR/GBP, EUR/CHF, AUD/JPY,

AUD/NZD

Cross Pairing Tips

Minor Pairings

Minor pairings typically involve one major economy and one

emerging market economy.

They are more volatile, less liquid, less volume, have choppy trading

ranges, whipsaws, slippage.

The spreads on minor pairings tend to be higher.

Riskier and more difficult to trade (little information on macro data

and central banks).

Primarily traded on the spot market. (No corresponding futures

contracts on the CME - the main currency futures exchange).

Minor Pairing Tips

Emerging markets currencies tend to have

higher interest rates. So if you are short the

minor currency, you will pay carrying costs

- margin may become a factor.

Understand the macro picture: major trading partners, commodities, and geo

politics that affect these economies.

Do not try to trade these in the shorter time

frame as the spreads may make it impractical.

SYMBOL NAME

USD/TRY Turkish Lira

EUR/RUB Russian Ruble

GBP/ZAR South African Rand

USD/MEX Mexican Peso

USD/BRL Brazilian Real

USD/SGD Singapore Dollar

What’s Next?

Many trading students become overwhelmed by all there is to learn. And we have just touched the surface here. Ultimately, your success will come down to following some basic risk management rules and not trading too much.

In our complete course, which includes several hours of training in a semi-private online classroom, and admittance to our exclusive trader chat room, you will learn a method that works for you.

Your goal as a new trader should be to follow your trading plan (which we will help develop with you) and focus on markets that suit you (we will assist you here as well.)

Additionally, you will be taught by the very best in the business, traders who have been successfully trading and analyzing the markets for over a quarter century. To register for the full course, follow us here….

Free Resources: Brokers

There are many forex brokers, many of whom advertise aggressively to win your

business. We suggest you avoid those who make special offers and advertise

relentlessly. That advertising cost needs to be borne by the client in the end. A

broker needs to be : Reliable, Reputable, Regulated and Experienced

Recommended Forex Brokers :

Oanda

FxPro

Interactive Brokers

Recommended Futures Brokers :

Wedbush

Interactive Brokers

Free Resources

Website:

ForexLive.com

Used for opinions on the market

TradingView

Web based Charting software

Investing.com

Used for Economic Calendar

Bloomberg.com

Very reliable, not timely

Forex Peace Army

Consumer reports on brokers

Mobile Apps

• MetaTrader 4

• Trading, charting, demo accounts

• NewsImpact

• Realtime economic data

• Investing.com

• Economic data

• Bloomberg-Business

• News

Lots more to learn… We expect this short course will give you a solid base to begin

your forex trading education

To access the syllabus for our complete forex trading course, to find out about other courses, or to be put on our mail list to receive other learning materials, reach us at the link below. Be sure to register with us in order to receive future research reports and promotional items: