Forex Trading Made Easy

By Ahmed Abdelsalam

Master the world of forex trading with this comprehensive and informative guide, designed to provide you with detailed knowledge and practical strategies for success. From understanding the basics to implementing advanced trading techniques, this book covers it all.

 

Chapter 1: Introduces you to forex, its opportunities, and challenges, setting the foundation for your trading journey.

Chapter 2: Dives into key concepts and terminology, such as pips, lot sizes, leverage, margin, currency pairs, bid and ask prices, and more. Gain a thorough understanding of these essential terms to navigate the forex market with confidence.

Chapter 3: Explores the history of forex trading, providing context for the development of the global market.

Chapter 4: Examines the three primary forex markets: spot, forward, and futures markets. Comparing their features, market size, trading strategies, regulatory environments, and more.

Chapter 5: Offers guidance on getting started with forex trading, covering elements of a trading plan, continual education, choosing a broker and trading platform, account types, trading goals and strategies, risk management, money management, and trading timeframes.

Chapter 6: Discusses forex market hours, including the Sydney, Tokyo, London, and New York sessions, and how to determine the best time to trade.

Chapter 7: Identifies key forex market participants, such as central banks, commercial banks, investment banks, hedge funds, and retail traders.

Chapter 8: Delves into understanding currency pairs, their types, factors to consider when choosing a pair to trade, and currency correlation.

Chapter 9: Provides an overview of order types in forex trading, including market execution orders and pending orders.

Chapter 10: Helps you understand forex brokers, their types, regulation, fees, and how to choose the right one.

Chapter 11: Focuses on trading platforms, their features, customizability, charting tools, technical tools, and how to choose the right platform.

Chapter 12: Emphasizes the importance of managing risk in forex trading, exploring various strategies and best practices to minimize losses.

Chapter 13: Discusses trading psychology and mindset, offering strategies to overcome negative emotions and maintain a positive mindset.

Chapter 14: Delves deep into the essential aspects of fundamental analysis. This approach helps traders determine whether a currency is overvalued or undervalued, presenting potential trading opportunities. You will learn how to read economic indicators and their impact on your trading.

Chapter 15: Provides a comprehensive overview of technical analysis, a methodology that uses historical price data and chart patterns to predict future market moves. You will also learn about candlestick patterns and the most important technical indicators.

Chapter 16: Covers volume and inter-market analysis, including multiple time frame analysis and volume indicators.

Chapter 17: Introduces automated trading systems, such as expert advisors, algorithmic trading, and social trading, and how to implement them in your strategy.

Chapter 18: Presents advanced forex trading strategies, including breakout, news, swing, scalping, trend following, position trading, price action trading, and more.

Chapter 19: Helps you evaluate your trading performance, improve your process, and understand performance metrics like win rate, profit factor, risk-reward ratio, and drawdown.

With thorough explanations and insights in every chapter, this book is an invaluable resource for anyone looking to excel in the forex market, regardless of their experience level. Enhance your trading skills and knowledge with this essential guide to forex trading.

• Language: English
• Publisher: Books to Hook Publishing, LLC.
• Release date: Jun 8, 2023
• ISBN: 9781960207937

Book preview

DISCLAIMER

Forex trading involves a high level of risk and may not be suitable for all investors. The information provided in any materials or resources, including this book, is for educational purposes only and should not be considered investment advice. Doing your own research and seeking professional advice before making any investment decisions is essential.

Past performance does not indicate future results, and there is no guarantee of success in trading. In addition, trading foreign currencies carries a high level of risk and may result in the loss of some or all of your investment. Therefore, only risk capital should be used for trading, and only those with sufficient risk capital should consider trading.

Using leverage can magnify gains and losses, and traders should know the potential for significant losses, especially when using high leverage levels.

Trading may not be suitable for all investors, and traders should carefully consider their financial situation, investment objectives, and risk tolerance before entering the forex market. It is recommended to seek professional advice from a financial advisor or tax professional before entering any trades.

By using any materials or resources related to forex trading, including this book, you acknowledge and agree that you are solely responsible for any trades you make and that you accept full responsibility for any losses that may result.

PREFACE

Welcome to this comprehensive guide on Forex trading. The foreign exchange market, or Forex for short, is an exciting and potentially lucrative market for traders looking to explore opportunities beyond traditional stocks and bonds. This book aims to provide you with a solid foundation of knowledge, strategies, and practical tips to help you navigate the world of Forex trading with confidence.

Whether you are a beginner looking for a complete introduction to the world of Forex, an intermediate trader seeking to deepen your understanding of key concepts and develop your trading strategies, or even an experienced trader looking to optimize your trading performance, this book offers valuable insights and guidance.

The book is organized into 19 chapters, covering topics from the basics of Forex and its history, to advanced trading strategies and performance evaluation. Each chapter is designed to provide you with a clear understanding of the subject matter, accompanied by practical examples and tips that you can apply in your own trading endeavors.

As you progress through the book, you will learn about key concepts and terminology, the different types of Forex markets, and the various trading platforms and tools available. You will also gain insights into the unique characteristics of the Forex market, such as market hours, participants, and currency pairs, as well as essential trading techniques, such as order types, risk management, and trading psychology. Moreover, you will be introduced to various forms of analysis, including fundamental and technical analysis, volume analysis, and inter-market analysis, which will aid you in making informed trading decisions.

Finally, this book also delves into advanced trading strategies and the use of automated trading systems, empowering you to develop a well-rounded and adaptable trading approach. Throughout the book, emphasis is placed on building a solid trading foundation, continually improving your skills, and maintaining a disciplined mindset, which are crucial components for achieving success in Forex trading.

By the end of this book, you will have gained the knowledge and tools necessary to embark on your Forex trading journey with confidence. It is my hope that the information and strategies presented in this book will serve as a valuable resource for you as you navigate the fascinating world of Forex trading. So let's dive in and begin our journey towards Forex trading mastery!

CHAPTER 1

Introduction to Forex

F

OREX, or foreign exchange, is a decentralized market where the world’s currencies are traded. It is the world’s largest and most liquid financial market, with an average daily trading volume of over $5.3 trillion. The FOREX market operates 24 hours a day, five days a week because there is always at least one financial center in the world open for business and accessible from anywhere in the world.

The Forex market is unique because there is no central marketplace or exchange. Instead, it is an electronic network of banks, institutions, and individual traders who buy and sell currencies. As a result, the market is open to anyone, from large financial institutions to individual retail traders.

In the FOREX market, one currency is traded for another. For example, if you want to buy euros, you must pay for them in US dollars. The exchange rate between the two currencies will fluctuate depending on supply and demand. If more people buy euros than sell them, the price will go up, and if more people are selling them than buying them, the price will go down. This constant fluctuation in currency values creates opportunities for traders to profit by buying low and selling high or selling high and buying low.

Investors and traders participate in the FOREX market for different reasons. One reason is to hedge against currency risk, which means they want to protect themselves from potential losses due to unfavorable changes in exchange rates. For example, a company that exports goods to a foreign country may use the FOREX market to hedge against currency risk by selling futures contracts or options to lock in an exchange rate for a future transaction.

Another reason investors and traders participate in the FOREX market is to speculate on the movement of exchange rates and make a profit. They buy or sell currencies with the expectation of profiting from changes in exchange rates. For example, a trader may buy a currency when they expect it to increase in value and then sell it when it reaches a higher value to make a profit.

It is important to note that FOREX trading is unsuitable for everyone, as it involves a high degree of risk. The price of a currency can be affected by many factors, including economic data releases, political events, and natural disasters. As a result, FOREX traders need to have a solid understanding of the market and a well-defined trading strategy to minimize their risk.

What is Forex Trading?

Forex trading is the act of buying and selling currencies to make a profit. In the forex market, currencies are traded in pairs, and the value of one currency is determined by its exchange rate with another currency. For example, the exchange rate between the US dollar and the Euro might be 1.20, meaning that 1 US dollar equals 1.20 euros.

Forex traders buy and sell currencies in the hopes of taking advantage of fluctuations in the exchange rate. For example, if a trader believes that the US dollar will increase in value relative to the euro, they might buy US dollars and sell euros. If their prediction comes true and the value of the US dollar does indeed increase, they can then sell their US dollars for a profit.

Forex trading is conducted through a broker and is accessible to individual investors and large financial institutions. Trading is typically done online, using a trading platform that provides real-time pricing data and allows traders to execute trades with just a few clicks.

To begin forex trading, a trader must first choose a broker and open a trading account. The trader will then need to deposit funds into the trading account, which can be done through various payment methods such as bank transfers, credit/debit cards, and e-wallets.

Once the trader funds their account, they can then place trades on different currency pairs. A currency pair is a combination of two currencies, such as the US dollar and the Euro. The exchange rate between the two currencies is the price at which one currency can be exchanged for another.

Traders use many different strategies in forex trading, such as technical, fundamental, and sentiment analysis. Technical analysis involves using charts and technical indicators to analyze price movements and identify trading opportunities. Fundamental analysis involves analyzing economic and geopolitical events to forecast future currency movements. Sentiment analysis involves monitoring market sentiment to gauge investor confidence and sentiment toward a particular currency. Each strategy has advantages and disadvantages and may be suitable for different types of traders and market conditions.

Again, forex trading is considered a high-risk investment, as many unpredictable factors, including economic data releases, political events, and natural disasters, can influence the value of currencies. As a result, it is crucial for forex traders to have a solid understanding of the market and to employ risk management strategies to minimize their potential losses.

Examples:

Let’s say that the current exchange rate between the US dollar (USD) and the Euro (EUR) is 1.20, meaning that 1 US dollar equals 1.20 euros. A forex trader believes that the US economy will perform well in the near future and that the value of the US dollar is, therefore, likely to increase relative to the euro. The trader decides to buy US dollars and sell euros. A few days later, the exchange rate between the USD and EUR rises to 1.25, meaning that 1 US dollar is now equal to 1.25 euros. The trader decides to close their trade, selling their US dollars and buying back the euros they had previously sold. In doing so, they have made a profit of 5 cents per US dollar they bought, or 0.05 x the amount they traded.

Another example is a forex trader who believes that the Japanese yen (JPY) will weaken relative to the US dollar (USD). The current exchange rate between the JPY and USD is 110, meaning that 1 US dollar equals 110 Japanese yen. The trader decides to sell yen and buy US dollars. A few days later, the exchange rate between the JPY and USD rises to 115, meaning that 1 US dollar is now equal to 115 Japanese yen. The trader closes their trade, buying back the yen they had previously sold and selling the US dollars they had bought. In doing so, they have made a profit of 5 yen per US dollar they bought, or 0.05 x the amount they traded.

Note that these are just examples, and real-world forex trading is much more complex. The prices in Forex are subject to influence by numerous unpredictable factors, and as a result, traders must continuously keep an eye on market developments to make informed decisions. Additionally, trading in forex comes with substantial risk, and traders must implement risk management strategies to reduce their potential losses.

Opportunities and Advantages of Forex Trading

One of the key advantages of the Forex market is its high degree of liquidity, which enables traders to enter and exit trades with ease and speed. This is evidenced by the ability of market participants to buy or sell substantial amounts of currency without causing significant fluctuations in market prices. For instance, a trader who wishes to sell a considerable volume of 100,000 currency units can do so seamlessly, with little or no impact on the market’s prevailing price levels. Such liquidity is crucial in Forex trading, as it enables traders to capitalize on market opportunities as they arise without facing significant hurdles in terms of executing their trades.

The Forex market provides unparalleled accessibility to traders, who can easily place trades on the go using their mobile devices or from the comfort of their homes via their computers. Thanks to the Internet, traders can now access the Forex market virtually anywhere, making it a truly global marketplace. This level of accessibility has revolutionized the way traders participate in the market, allowing them to stay connected to the market’s movements and seize opportunities in real time, no matter where they are located.

Forex trading provides traders with the advantage of 24/7 availability, allowing them to capitalize on market conditions and opportunities around the clock. Unlike traditional stock markets, the Forex market remains open during weekends, enabling traders to enter and exit trades conveniently, even when other financial markets are closed. This provides traders with the flexibility to react swiftly to market developments, news, and events, as they occur, regardless of the time of day or night. As a result, traders can seize opportunities as they arise and manage their positions more effectively without waiting for the opening bell of traditional financial markets.

Forex trading is highly versatile and provides traders with a diverse range of trading options, making it one of the most flexible financial markets to trade in. Traders can choose from various currency pairs to trade, providing ample opportunities to find suitable trading setups based on their market analysis and trading preferences. Additionally, Forex trading allows traders to select different time frames to trade, ranging from short-term scalping to longer-term swing trading or position trading strategies. This flexibility in trading time frames will enable traders to adjust their approach according to their trading goals, risk tolerance, and market conditions. Furthermore, traders can also employ various trading strategies to optimize their trading performance, such as technical analysis, fundamental analysis, or a combination of both. With this level of flexibility, Forex trading enables traders to tailor their trading approach to their specific needs and preferences, helping them achieve their trading objectives more efficiently.

Forex trading can offer the potential for high returns, mainly when leveraged properly, but it is crucial to remember that it also carries a high level of risk. Forex trading gives traders access to high leverage levels, enabling them to control large positions with relatively small investments. With the use of leverage, traders can amplify their trading positions, potentially magnifying their profits or losses. For example, a trader could control a position worth $100,000 with just $1,000 of their capital by utilizing 100:1 leverage. This allows traders to increase their exposure to the market, potentially generating higher returns on their invested capital. However, it’s important to note that while leverage can significantly enhance profits, it can also magnify losses, making risk management a critical aspect of successful Forex trading. As such, traders must exercise caution when using leverage and implement effective risk management strategies to mitigate potential losses.

Forex trading can be an effective tool for diversifying an investment portfolio, as it provides exposure to a wide range of currencies and markets. By trading multiple currency pairs and markets, traders can diversify their risk and reduce their exposure to any single market or currency. This is because currency markets are influenced by various factors, such as economic data releases, geopolitical events, and central bank policies, which can impact different currencies in different ways. As a result, Forex trading can help investors spread their risk across multiple markets, potentially mitigating the impact of any adverse events on their portfolio. Additionally, the global nature of the Forex market means that it can offer exposure to emerging and developed markets, providing further opportunities for diversification.

Forex trading has relatively low barriers to entry, which means that traders can start with small investments. One example of low barriers to entry in Forex trading is the ability to open a trading account with a small amount of capital. Many Forex brokers offer trading accounts that require a minimum deposit of as little as $100. This allows traders with limited capital to participate in the Forex market and take advantage of its potential for profits. Additionally, the low transaction costs associated with Forex trading make it an attractive option for those starting in the market.

Forex trading enables traders to participate in the global financial market and capitalize on opportunities in different countries. One example of participating in the global market through Forex trading is a trader who takes advantage of the differences in interest rates between countries. For instance, if the interest rate in Australia is higher than in the United States, a trader might buy the Australian dollar and sell the US dollar. By doing so, the trader earns a profit from the interest rate differential, commonly called the carry trade strategy. In addition to interest rate differentials, Forex trading provides access to a broad range of trading opportunities in different countries and regions, such as currency fluctuations, economic data releases, geopolitical events, and more.

Automation is a significant advantage of Forex trading. It allows traders to execute trades automatically, reducing the time and effort required for manual trading. One example of Forex trading automation is using expert advisors (EAs) to execute trades and manage positions. An EA is a program that traders can create or purchase to automate their trading strategies. Once programmed, the EA can analyze the market conditions, identify trading opportunities, and execute trades automatically. For instance, a trader can program an EA to place a trade if a certain market condition is met, such as a support level break.

Additionally, EAs can be programmed to manage positions by setting stop loss and take profit levels, trailing stops, and other parameters. This enables traders to minimize risk and maximize profits automatically. The use of automation in Forex trading provides several benefits, such as increased efficiency, accuracy, and consistency in trading. However, it’s important to note that automation also carries some risks, such as technical errors and incorrect programming. Therefore, traders should thoroughly test and optimize their EAs before using them in live trading and monitor their performance regularly.

Forex trading offers traders an opportunity to develop valuable skills that can be applied in various areas of their life. One example of such skills is risk management. By monitoring and adjusting their trades, a trader can develop a strong understanding of risk management, which can be applied to other areas of their life. A trader can learn to identify and manage risks effectively, minimize losses, and maximize profits. This can be particularly useful for personal finance, business, and investment management. In addition to risk management, Forex trading can also help traders develop discipline and patience. Successful trading requires discipline, patience, and a clear mind, which can be challenging to develop in other areas of life. Forex trading can help traders develop these skills by requiring them to stick to their trading plan and avoid making impulsive decisions based on emotions. This can help traders remain calm and focused in other areas of their life, such as decision-making in personal and professional settings. Finally, Forex trading can also help traders develop analytical skills. To succeed in Forex trading, traders must analyze market data, identify patterns, and make informed decisions. This analytical ability can be useful in other areas of life, such as problem-solving, research, and data analysis.

Challenges and Limitations of Forex Trading

Forex trading carries a high level of risk, and traders can potentially lose more than their initial investments. Moreover, even when a trader bases their decisions on technical analysis indicators, there is no guarantee that the market will move in the direction they expect. In fact, it is common for markets to move in the opposite direction, leading to significant losses for the trader. Therefore, traders must be aware of the inherent risks and have a comprehensive risk management plan to minimize potential losses.

The Forex market is known for its high volatility, and unanticipated price fluctuations can result in substantial losses for unprepared traders. In addition, geopolitical events such as natural disasters, political turmoil, or sudden policy changes can trigger rapid and dramatic price swings in the Forex market, catching traders off-guard. Therefore, traders must be well-informed and prepared for the risks associated with such market events, such as implementing appropriate risk management strategies and avoiding emotional decision-making based on short-term market movements. By being proactive and informed, traders can better navigate the challenges posed by the Forex market’s inherent volatility.

Forex trading is a complex activity that requires traders to have a thorough understanding of both technical and fundamental analysis to succeed. Technical analysis involves using various indicators and chart patterns to interpret market trends and make trading decisions. Traders must be proficient in applying these technical tools to analyze the market accurately. On the other hand, fundamental analysis involves analyzing economic indicators, political developments, and central bank decisions to understand the overall health of a country’s economy and its impact on the currency. Traders must have a deep understanding of economic data releases and central bank policies, including interest rate decisions, to make informed trading decisions.

One significant disadvantage of Forex trading is the lack of regulation in some countries, which can expose traders to a higher risk of fraudulent activities and scams. Forex brokers in unregulated jurisdictions may not have to adhere to the same level of regulatory standards and oversight as those in regulated countries. This can make it easier for unscrupulous brokers to engage in unethical practices such as price manipulation, stop-loss hunting, or withholding funds. Moreover, unregulated brokers, such as insurance coverage, segregated accounts, or reliable dispute resolution mechanisms, may not adequately protect traders’ investments. In the event of a dispute or fraudulent activity, traders may have limited or no recourse to recover their funds or seek compensation.

Forex traders are often susceptible to emotional and impulsive decisions, leading to poor trading outcomes. For example, the fear of missing out on potential profits can significantly drive traders to make impulsive and irrational decisions. This may lead to traders entering trades that are not based on sound analysis but rather on their emotions and a desire to capitalize on perceived opportunities. Other emotions, such as greed, anxiety, and frustration, can also affect traders’ decision-making processes, leading to irrational and impulsive trading behaviors. As a result, traders may be tempted to take excessive risks, overtrade, or hold onto losing positions longer than they should, leading to significant losses.

The Forex market generates a vast amount of information and data, making it challenging for traders to keep up and make informed decisions. In addition, traders are often inundated with information from various sources, such as news outlets, social media, and analysis platforms, making it challenging to separate relevant information from noise. Furthermore, the Forex market is highly dynamic, and market conditions can change rapidly, making it challenging to keep up with the latest developments and make informed decisions. As a result, traders must constantly monitor multiple currency pairs, economic indicators, and market trends to stay ahead of the game.

The value of currencies in the Forex market can fluctuate rapidly and unpredictably, and traders must manage this risk effectively. Sudden market changes or economic events can lead to rapid currency appreciation or depreciation, creating market volatility and uncertainty. For instance, a sudden change in government policy, unexpected economic data releases, or geopolitical tensions can cause rapid fluctuations in currency values, making it challenging for traders to make informed decisions. Therefore, traders must be able to monitor and analyze market conditions effectively to identify potential risks and opportunities and adjust their trading strategies accordingly.

Forex trading is not a guaranteed investment, and returns depend on various factors, including market conditions and the trader’s ability to make informed decisions. In addition, the Forex market is highly volatile and unpredictable, and the value of currencies can fluctuate rapidly due to a wide range of factors such as economic data releases, geopolitical events, and market sentiment.

Forex traders may be subject to various commissions and fees, impacting their profitability and reducing their returns. For example, Forex brokers may charge commissions for executing trades, spread fees for buying and selling currency pairs, or other fees such as withdrawal fees or inactivity fees. These fees can add up quickly and significantly reduce a trader’s overall returns, particularly for frequent or high-volume traders. As such, it is essential for traders to carefully consider the fees charged by their Forex broker when selecting a trading platform.

Forex trading can be fast-paced and stressful, as the market is always open, and prices can change rapidly and unpredictably. Traders must remain focused and alert to take advantage of potential trading opportunities and manage risk effectively. The Forex market operates 24 hours a day, five days a week, and traders must be available to monitor the market and respond to changes in real-time. This can be challenging, especially for traders located in different time zones, as it may require them to adjust their schedules and work during non-traditional hours. Moreover, Forex trading involves making decisions quickly, often with limited information, which can be stressful and demanding. Traders need to be able to analyze market data, identify trends, and assess the potential risks and rewards of a particular trade quickly. This requires a deep understanding of technical and fundamental analysis and the ability to remain calm and focused under pressure.

Chapter Summary

Chapter 1 explains forex trading and the forex market, which operates electronically with no central exchange. Forex traders buy and sell currencies in pairs to profit from changes in exchange rates. The chapter also discusses the advantages and disadvantages of forex trading and the importance of risk management techniques. Seeking professional advice, education, training and having a well-defined trading plan are recommended to maximize success. The forex market is the world’s largest and most liquid financial market, with an average daily trading volume of over $5.3 trillion.

The chapter explains that investors and traders participate in forex trading to hedge against currency risk or speculate on exchange rate movement to make a profit. Different strategies, such as technical, fundamental, and sentiment analysis, are used by traders to identify trading opportunities. Each strategy has its own advantages and disadvantages and may be suitable for different types of traders and market conditions. The chapter emphasizes the importance of understanding the risks involved in forex trading, including the impact of economic data releases, political events, and natural disasters on currency prices. A well-defined trading strategy and risk management techniques can help traders minimize their risk.

CHAPTER 2

Key Concepts and Terminology of Forex

Forex trading involves a range of important concepts and terminology that every trader should be familiar with. In this chapter, you'll gain a solid understanding of these key ideas, which are critical for making well-informed trading choices and effectively navigating the forex market.

The forex market offers a wealth of opportunities for traders to profit from currency movements, but it can be complex and confusing to navigate without a solid understanding of the terminology used. Therefore, learning about all forex terminology is essential for anyone who wants to become a successful forex trader.

The forex market offers a wealth of opportunities for traders to profit from currency movements, but it can be complex and confusing to navigate without a solid understanding of the terminology used. Therefore, learning about all forex terminology is essential for anyone who wants to become a successful forex trader.

One of the primary benefits of understanding forex terminology is the ability to communicate effectively with other traders and market participants. Forex has its own language, and traders need to know the jargon to be able to understand what other traders are saying and to convey their own ideas clearly. By learning forex terminology, traders can better interpret market information and make informed decisions about when to buy or sell a currency.

Another benefit of learning forex terminology is understanding the technical analysis used in forex trading. Technical analysis involves analyzing charts and other market data to identify trends and patterns indicating future price movements. This requires an understanding of terms such as support and resistance levels and candlestick patterns. Without this knowledge, traders may struggle to understand the data and miss out on profitable trading opportunities.

Moreover, knowing forex terminology can help traders to identify and avoid scams and frauds. The forex market is notorious for fraud and scams, and many traders have fallen victim to unscrupulous brokers and trading platforms. By understanding the terminology, traders can identify warning signs such as promises of guaranteed profits, high-pressure sales tactics, and unrealistic claims. They can also be more discerning when selecting a broker or trading platform and can better understand the risks associated with forex trading.

Important Concepts and Terminology

Pips

Pips refer to the smallest unit of price movement in a currency pair. The term pip stands for Percentage in Point or Price Interest Point and is used to measure changes in the exchange rate of a currency pair.

Most currency pairs are priced to four decimal places, so a pip represents a change of 0.0001 in the exchange rate. However, some currency pairs, such as the Japanese yen, are priced to two decimal places, so a pip represents a change of 0.01 in the exchange rate. For example, let's say the EUR/USD currency pair is trading at 1.2100 and climbs to 1.2105. This corresponds to 5 pips of variation. If a trader buys his EUR/USD at 1.2100 and sells it at 1.2105, he makes a profit of 5 pips.

Pips are essential in forex trading as they determine the profit or loss of the trade. Each pip's value depends on the position size and the currency pair traded. For example, a trader who buys 100,000 units of the EUR/USD currency pair at 1.2100 and sells it at 1.2105 will profit $50, as each pip in a position of 100,000 units is worth $10.

Lot Size

A lot is the standard unit used to measure the volume or size of a trading position. A lot size refers to the number of units of the base currency in a forex trade. It determines the size of the position a trader takes in a currency pair, which determines the potential profit or loss the trader can make.

The three main types of lot sizes in forex trading are standard, mini, and micro lots. A standard lot equals 100,000 units of the base currency in a forex trade. A mini lot equals 10,000 units of the base currency, while a micro lot equals 1,000 units.

A trader's lot size depends on their trading strategy and risk management plan. A smaller lot size can reduce the risk of a significant loss, while a larger one can increase the potential profit. However, trading with larger lot sizes also increases the risk of a margin call if the trade goes against the trader.

When a trader opens a trade, the lot size determines the margin they must deposit with their broker. The margin required for a trade is calculated based on the traded currency pair's lot size, leverage, and current market price. For example, if a trader is using a standard lot size to trade the EUR/USD currency pair with a leverage of 1:100, and the current market price of the EUR/USD is 1.1200, then the margin required would be:

Margin required = (100,000 units x 1.1200) / 100 = $1,120

The lot size also affects the pip value of a trade. The pip value is calculated based on the lot size and the traded currency pair. For example, the pip value for a standard lot of EUR/USD is $10. This means that if the EUR/USD moves by 1 pip, the profit or loss on a standard lot trade would be $10.

Leverage

Leverage is a forex terminology that refers to the ability to control a large amount of money in the forex market with a relatively small amount of capital. It allows traders to increase their potential profits by magnifying the size of their positions, but it also increases their risk of losses.

Leverage is expressed as a ratio, such as 1:50 or 1:100. This means that for every $1 of trading capital, the trader can control $50 or $100 worth of currency. So, for example, with a leverage ratio of 1:100, a trader with $1,000 in their account could control a position worth $100,000.

The advantage of using leverage is that it can amplify the potential returns on a trade. For example, if a trader buys a currency pair at 1.1000 and sells it at

Reviews for Forex Trading Made Easy

[Kemy Sandlar · Rating: 5 out of 5 stars]

I wish I had found this book when I started trading. Very informative, Highly recommended.