Foreign Exchange / Forex / FX – whatever you call it, trading two currencies without the basic knowledge is equal to gambling, where you rely on pure luck. Master the ABC’s and you’ll already be better than majority of beginner traders!
Forex Market Size
As we have mentioned in other forex school lessons, weekly turnover of the forex market is over $25 trillion. That means on any given trading day, an average of $5 trillion of currency changes hands. In Donald Trump’s words: HUUGE!
Forex trading by retail investors makes up just 5% of trading volumes. This means you must understand and accept you are a little fish in a giant ocean but that doesn’t mean you can’t chase the big sharks and make money!
Don’t forget to check out the best Forex apps for trading!
Buying (Going Long) and Selling (Going Short)
- If you think the price of a currency will increase, you will want to buy it (go long/up).
- If you think a currency’s value will decrease, then you will want to sell the currency (go short/down).
Going long is easy, you buy the asset and sell it when it’s price rise. Going short is a little more complex, but it’s taken care of without you lifting a finger. Basically, the broker or trading simulator will lend you the currency you want to sell. When the price falls, you pay the broker back at the lower price. The difference between the price that you borrowed at and the price that you pay back is your profit.
As a Forex trader, you will be going simultaneously long and short as you trade a pair. For example, long EUR/USD means you buy Euros and sell Dollars. You will make money if the chart rises, and lose money if it falls. It’s best to try out how it works in the forex game with real-time market data.
Currency Pairs Being Traded
The price of a currency pair is, essentially, a reflection of what the global market thinks the future of its economy will be, compared to another country. For example, if you are buying British Pounds against U.S. Dollar (GBP/USD), you are basically betting for the British economy. In other words, you think the British economy will grow more rapidly compared to United States. Afterwards you just have to know how to read currency pairs.
Bulls versus Bears
While bulls are known for throwing an opponent in the air, bears tend to smash them down to the ground. This is a iconic analogy in the Forex as it represents rising and falling markets. A bull market is a market that is rising in value. A bullish trader is one who believes the market will rise, thus goes long.
Pips and Pipettes
A pip is the abbreviation of the phrase “Price Interest Point”. This is the basic and most important unit of measurement in forex.
Pips are used to measure gains and losses. The cash figure that a pip actually represents will vary depending on the pip value. The pip value varies depending on the pair being traded. Luckily, all best forex brokers will calculate the pips automatically for you.
Spread
The spread is the fee that you incur when trading currency. The broker executes your trade at a slightly higher (Buy) or lower (Sell) price than the market rate, and takes the difference between the two as its fee.
Lots
The concept of a lot is the same as any grocery item that is sold in a multiple pack (like a six-pack for beer). Currencies are bought and sold in minimum size packs that are called lots. This is so that tiny amounts cannot be traded, because this would be inefficient and unprofitable for market participants.
- Standard lot – 100,000 units of the base currency
- Mini lot – 10,000 units of the base currency
- Micro lot – 1,000 units of the base currency
- Nano lot – 100 units of the base currency
Leverage
Leverage allows you to earn large profits without having to raise huge amounts of cash. U.S. maximum leverage is 1:50. In Europe, normally it is up to 1:30 due to ESMA restrictions. Without any leverage, you would need $100,000 in your account in order to trade a standard lot. With leverage of 1:100 you need just 1/100 of the amount, or $1,000 as you are lent your account size X100 by your broker. Remember, that leverage works on both sides of the trade – when you’re winning, and also when the market goes against your prediction.
If you think a currency will rise, you would buy it. This is also known as going what?
Which of these is the largest social trading community?
Selling short means that you think a currency will…?
FAQs
The ABCD pattern is a visual, geometric chart pattern comprised of three consecutive price swings. It looks like a diagonal lightning bolt and can indicate an upcoming trading opportunity. This is a valuable pattern to know, as it reflects the rhythmic style in which the markets often move.
What is 90% rule in forex? ›
The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.
What is the 5-3-1 rule in forex? ›
Clear guidelines: The 5-3-1 strategy provides clear and straightforward guidelines for traders. The principles of choosing five currency pairs, developing three trading strategies, and selecting one specific time of day offer a structured approach, reducing ambiguity and enhancing decision-making.
What is the ABCD pattern of trade? ›
ABCD trading pattern is a trend that stocks take in the market, observable on price charts. The sequence of events follows a particular harmonic pattern in market movement that can be helpful to traders in predicting future price swings.
What is ABC trading technique? ›
The ABC trading strategy is a simple but effective pattern-based strategy that can be used to trade a variety of markets and timeframes. It is a reversal strategy that aims to trade the change in a trend direction. The strategy is based on identifying the “ABC” pattern that forms when the price trend changes direction.
What is ABC strategy? ›
Abstinence, be faithful, use a condom, also known as the ABC strategy, abstinence-plus sex education or abstinence-based sex education, is a sex education policy based on a combination of "risk avoidance" and harm reduction which modifies the approach of abstinence-only sex education by including education about the ...
Is $1000 enough for forex? ›
How much money do I need to open an account? The minimum initial deposit required is at least 100 of your selected base currency. However, we recommend you deposit at least 1,000 to allow you more flexibility and better risk management when trading your account.
What is the golden rule in forex? ›
The golden rule of Stop Losses is that they should never be moved away from the market once the trade is opened. If a trader feels that their stop loss is incorrectly placed, they are recognising that the foundations of their trade are incorrect and therefore they should close out.
What is the 4 week rule in forex? ›
The weekly rule system is a trend-following trading system. One example of the system is the four-week rule (4WR). Traders will buy when prices reach a new four-week high or sell when prices reach a new four-week low. The weekly rule trading system was established by Richard Donchian.
Can I trade forex with $5? ›
Minimum Deposit
FBS has trading accounts with initial deposits as low as $5, making it an easily accessible platform for a wide range of traders, from beginners to experienced ones.
Rule 1: Always Use a Trading Plan
You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade.
What is the first rule of forex? ›
Winning Forex Trading Step #1 – Pay Attention to Daily Pivot Points. Paying attention to daily pivot points is especially important if you're a day trader, but it's also important even if you're more of a position trader, swing trader, or only trade long-term time frames.
Is ABCD a reversal pattern? ›
The ABCD pattern is a harmonic formation found on trading charts It is an essential tool in technical analysis. It comprises four reversal points, conveniently labeled A, B, C, and D. Visually, it resembles a lightning bolt, making it easy to identify.
What is the ABCD method of trading? ›
The ABCD pattern is an easy-to-identify chart pattern that consists of two equivalent price legs. It is a harmonic pattern that helps traders predict when the price of a stock is about to change direction. The pattern can be used to predict either a bullish or bearish reversal depending on the orientation.
What is an ABC pattern? ›
An ABC pattern can be three different shapes, colors, etc that repeats over and over again. Look below for an example of an ABC Pattern. An AABB pattern is two colors, shapes, etc that are the same followed by two more that are the same and then repeat over and over again.
How does the ABC pattern work? ›
Finding the ABCD pattern
To find the ABCD pattern, traders look for the legs or the moves between points. AB and CD denote the moves in the direction of the overall trend, while BC is the retracement. Each leg typically lasts between three and 13 bars.
What is ABC exchange? ›
ABC Exchange is a blockchain application and software solutions company. In addition, ABC Exchange has its own crypto exchange that can be traded for Bitcoin and others.
What is the ABC selling strategy? ›
In simple terms, ABC means that everything a salesperson does should be with the goal of moving a lead through the sales funnel. Additionally, it means that difficult, slow-moving, or stalled leads should be abandoned, so that salespeople can focus all of their energies on better prospective customers.
What is ABC stock method? ›
It is also known as selective inventory control or SIC. ABC analysis is a method in which inventory is divided into three categories, i.e. A, B, and C in descending value. The items in the A category have the highest value, B category items are of lower value than A, and C category items have the lowest value.
Foreign Exchange / Forex / FX – whatever you call it, trading two currencies without the basic knowledge is equal to gambling, where you rely on pure luck. Master the ABC’s and you’ll already be better than majority of beginner traders!
