What Is Forex Trading ? – A Definition & Introduction

Hey traders,

This free Forex mini-course is designed to teach you the basics of the Forex market and Forex trading in a non-boring way. I know you can find this information elsewhere on the web, but let’s face it; most of it is scattered and pretty dry to read. I will try to make this tutorial as fun as possible so that you can learn about Forex trading and have a good time doing it.

Upon completion of this course you will have a solid understanding of the Forex market and Forex trading, and you will then be ready to progress to learning real-world Forex trading strategies.

What is the Forex market?

• What is Forex? – The basics…

Basically, the Forex market is where banks, businesses, governments, investors and traders come to exchange and speculate on currencies. The Forex market is also referred to as the ‘Fx market’, ‘Currency market’, ‘Foreign exchange currency market’ or ‘Foreign currency market’, and it is the largest and most liquid market in the world with an average daily turnover of $3.98 trillion.

The Fx market is open 24 hours a day, 5 days a week with the most important world trading centers being located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney.

It should be noted that there is no central marketplace for the Forex market; trading is instead said to be conducted ‘over the counter’; it’s not like stocks where there is a central marketplace with all orders processed like the NYSE. Forex is a product quoted by all the major banks, and not all banks will have the exact same price. Now, the broker platforms take all theses feeds from the different banks and the quotes we see from our broker are an approximate average of them. It’s the broker who is effectively transacting the trade and taking the other side of it…they ‘make the market’ for you. When you buy a currency pair…your broker is selling it to you, not ‘another trader’.

• A brief history of the Forex market

Ok, I admit, this part is going to be a little bit boring, but it’s important to have some basic background knowledge of the history of the Forex market so that you know a little bit about why it exists and how it got here. So here is the history of the Forex market in a nutshell:

In 1876, something called the gold exchange standard was implemented. Basically it said that all paper currency had to be backed by solid gold; the idea here was to stabilize world currencies by pegging them to the price of gold. It was a good idea in theory, but in reality it created boom-bust patterns which ultimately led to the demise of the gold standard.

The gold standard was dropped around the beginning of World War 2 as major European countries did not have enough gold to support all the currency they were printing to pay for large military projects. Although the gold standard was ultimately dropped, the precious metal never lost its spot as the ultimate form of monetary value.

The world then decided to have fixed exchange rates that resulted in the U.S. dollar being the primary reserve currency and that it would be the only currency backed by gold, this is known as the ‘Bretton Woods System’ and it happened in 1944 (I know you super excited to know that). In 1971 the U.S. declared that it would no longer exchange gold for U.S. dollars that were held in foreign reserves, this marked the end of the Bretton Woods System.

It was this break down of the Bretton Woods System that ultimately led to the mostly global acceptance of floating foreign exchange rates in 1976. This was effectively the “birth” of the current foreign currency exchange market, although it did not become widely electronically traded until about the mid 1990s.

(OK! Now let’s move on to some more entertaining topics!)…

What is Forex Trading?

Forex trading as it relates to retail traders (like you and I) is the speculation on the price of one currency against another. For example, if you think the euro is going to rise against the U.S. dollar, you can buy the EURUSD currency pair low and then (hopefully) sell it at a higher price to make a profit. Of course, if you buy the euro against the dollar (EURUSD), and the U.S. dollar strengthens, you will then be in a losing position. So, it’s important to be aware of the risk involved in trading Forex, and not only the reward.

• Why is the Forex market so popular?

Being a Forex trader offers the most amazing potential lifestyle of any profession in the world. It’s not easy to get there, but if you are determined and disciplined, you can make it happen. Here’s a quick list of skills you will need to reach your goals in the Forex market:

Ability – to take a loss without becoming emotional

Confidence – to believe in yourself and your trading strategy, and to have no fear

Dedication – to becoming the best Forex trader you can be

Discipline – to remain calm and unemotional in a realm of constant temptation (the market)

Flexibility – to trade changing market conditions successfully

Focus – to stay concentrated on your trading plan and to not stray off course

Logic – to look at the market from an objective and straight forward perspective

Organization – to forge and reinforce positive trading habits

Patience – to wait for only the highest-probability trading strategies according to your plan

Realism – to not think you are going to get rich quick and understand the reality of the market and trading

Savvy – to take advantage of your trading edge when it arises and be aware of what is happening in the market at all times

Self-control – to not over-trade and over-leverage your trading account

As traders, we can take advantage of the high leverage and volatility of the Forex market by learning and mastering and effective Forex trading strategy, building an effective trading plan around that strategy, and following it with ice-cold discipline. Money management is key here; leverage is a double-edged sword and can make you a lot of money fast or lose you a lot of money fast. The key to money management in Forex trading is to always know the exact dollar amount you have at risk before entering a trade and be TOTALLY OK with losing that amount of money, because any one trade could be a loser. More on money management later in the course.

• Who trades Forex and why?

Banks – The interbank market allows for both the majority of commercial Forex transactions and large amounts of speculative trading each day. Some large banks will trade billions of dollars, daily. Sometimes this trading is done on behalf of customers, however much is done by proprietary traders who are trading for the bank’s own account.

Companies – Companies need to use the foreign exchange market to pay for goods and services from foreign countries and also to sell goods or services in foreign countries. An important part of the daily Forex market activity comes from companies looking to exchange currency in order to transact in other countries.

Governments / Central banks – A country’s central bank can play an important role in the foreign exchange markets. They can cause an increase or decrease in the value of their nation’s currency by trying to control money supply, inflation, and (or) interest rates. They can use their substantial foreign exchange reserves to try and stabilize the market.

Hedge funds – Somewhere around 70 to 90% of all foreign exchange transactions are speculative in nature. This means, the person or institutions that bought or sold the currency has no plan of actually taking delivery of the currency; instead, the transaction was executed with sole intention of speculating on the price movement of that particular currency. Retail speculators (you and I) are small cheese compared to the big hedge funds that control and speculate with billions of dollars of equity each day in the currency markets.

Individuals – If you have ever traveled to a different country and exchanged your money into a different currency at the airport or bank, you have already participated in the foreign currency exchange market.

Investors – Investment firms who manage large portfolios for their clients use the Fx market to facilitate transactions in foreign securities. For example, an investment manager controlling an international equity portfolio needs to use the Forex market to purchase and sell several currency pairs in order to pay for foreign securities they want to purchase.

Retail Forex traders – Finally, we come to retail Forex traders (you and I). The retail Forex trading industry is growing everyday with the advent of Forex trading platforms and their ease of accessibility on the internet. Retail Forex traders access the market indirectly either through a broker or a bank. There are two main types of retail Forex brokers that provide us with the ability to speculate on the currency market: brokers and dealers. Brokers work as an agent for the trader by trying to find the best price in the market and executing on behalf of the customer. For this, they charge a commission on top of the price obtained in the market. Dealers are also called market makers because they ‘make the market’ for the trader and act as the counter-party to their transactions, they quote a price they are willing to deal at and are compensated through the spread, which is the difference between the buy and sell price (more on this later).

Advantages of Trading the Forex Market:

• Forex is the largest market in the world, with daily volumes exceeding $3 trillion per day. This means dense liquidity which makes it easy to get in and out of positions.

• Trade whenever you want: There is no opening bell in the Forex market. You can enter or exit a trade whenever you want from Sunday around 5pm EST to Friday around 4pm EST.

• Ease of access: You can fund your trading account with as little as $250 at many retail brokers and begin trading the same day in some cases. Straight through order execution allows you to trade at the click of a mouse.

• Fewer currency pairs to focus on, instead of getting lost trying to analyze thousands of stocks

• Freedom to trade anywhere in the world with the only requirements being a laptop and internet connection.

• Commission-free trading with many retail market-makers and overall lower transaction costs than stocks and commodities.

• Volatility allows traders to profit in any market condition and provides for high-probability weekly trading opportunities. Also, there is no structural market bias like the long bias of the stock market, so traders have equal opportunity to profit in rising or falling markets.

While the forex market is clearly a great market to trade, I would note to all beginners that trading carries both the potential for reward and risk. Many people come into the markets thinking only about the reward and ignoring the risks involved, this is the fastest way to lose all of your trading account money. If you want to get started trading the Fx market on the right track, it’s critical that you are aware of and accept the fact that you could lose on any given trade you take.

Other articles:

Analysis: New ESMA Regulations Likely to Reshape the Industry as We Know It

The new regulatory environment which European watchdogs have unfolded will change this business for the better

Unfortunately, as it many times happens, the mistakes of the few have impacted the many (or perhaps the other way around in this case, not so sure on this one). Unregulated brokers that have plagued the Forex and CFD trading industry, along with binary options brokers have prompted a drastic response on behalf of the supranational EU-wide industry watchdog.

The changes in short

Again… I am assuming you are not from Mars, but just in case Elon did manage to insert you inside the spaceman suit on that roadster, here are the changes to regulations in brief. Maximum leverage for trading FX has been cut to 1:30, indices and gold are at 1:20, other commodities are at 1:10 and shares are at 1:5.

Brokers are required to provide a negative balance protection and display clearly on their marketing message what is the percentage of their clients that lose money. Yes, exactly, that must read like something similar to: “come along and deposit some money with our brokerage, we hope you are not one of the 90 percent of poor folks that lose money.” (You might as well add a smiley face at the end, just for color.)

Impact for market makers

We are going to have a look at the impact on the industry from two different perspectives. The first one is that of brokers that are acting as principals and are internalizing their flow. The so-called ‘market makers’ are likely to get more materially affected by the changes mandated by the ESMA.

The reason for that is that such brokers are typically more reliant on direct marketing, trading incentives, and most crucially, their clients losing money. Higher leverage always means a shorter life-span for a retail trader’s account. Low levels of leverage are the preferred way to trade for institutional investors, where big drawdowns in the account balance are quite unwelcome.

Brokers have been offering high leverage to clients in order to lure them into the narrative that it is easy to make a lot of money with a relatively small deposit. The reality in the financial markets however, is that, as described by the ESMA, between 80 and 95 percent of retail clients are losing their deposits.

So when a market-making broker attracts a client with say 1:400 leverage, the likelihood that the holder of this account will be bust within three months is very high. A switch between fear and greed emotions in the brain chemistry is one of the most perilous enemies of a trader.

Trading the market is catering to these emotions and short bursts of dopamine when a trader is winning are driving their desire to trade more. Curiously, some social media users are experiencing precisely the same pattern that lures them into continuing to stick to that phone screen on the train.

The levels of leverage which the ESMA is mandating are automatically slamming the breaks on excitement levels. Suddenly a trader has to deposit $5000 to open a position sizeable enough to change one’s life. When previously $500 were enough, this makes a huge difference. Brokers will need to change their acquisition and retention strategy altogether to stay on top of their game when attracting clients.

 

Impact for STP brokers

After we established some of the potential risks for market makers, let’s focus on STP brokers. Straight-Through Processing (STP) is a different mode of operation for the retail brokerage industry. Such firms are not relying in any way on the losses of their clients, as the money in those accounts is flowing into the market.

The revenue of the brokerage is relying on commissions. The more trades a trader makes within their lifespan, the more commissions the brokerage is getting. As a result, we can deduce that such brokerages are keen on their clients not losing money, because they will stop generating commissions to the brokerage the moment they lose their balance.

Such brokers are typically more inclined to provide their clients with added value tools that can drive a mediocre trader closer to success. The ESMA’s new regulations are going to have an impact on such companies in two major ways.

The first one is trading volumes. Granted, broker trading volumes will register a decline, and probably, at least initially it will be big. Leverage restrictions, however, have had a mixed impact on other markets. In Japan, for example, the official maximum leverage of 1:25 has not impacted the industry in the long run as local brokers are posting the highest trading volumes in the world.

Capital requirements is another issue. All brokers are now mandated to provide negative balance protection and the FCA was one of the first regulators that suddenly realized that having firms with a capital requirement of a couple of hundred grand was no longer adequate. All STP firms are very likely to need to apply for a 730.000 euro ($900.000) license and prepare to meet the capital requirements that come with that.

Loss percentage disclosure (Ouch!)

Last but not least, I want to pay some explicit attention to a subject that has not been discussed enough. That is the disclaimer that every broker has to accompany their advertisement messages with a  line reading ’90 percent of our clients lose money!,’ or something of the likes.

The ESMA’s announcement has just created a great new incentive for brokerages and that is to attract the best possible traders. This will inevitably result in a paradigm shift for good practice in the industry. Suddenly attracting traders is not enough, brokers that want to remain in this industry for the long haul will have to attract the right kind of clients and strive to make their clients better traders all the time.

Not many brokers have been working in this direction, and even fewer have been successful in doing so. Education will no longer be an extension of retention. I am referring to a number of products that are branded as education but the only thing they do is confuse a trader even more and completely disconnect them from the reality of the market: it is very hard to make money trading.

I hope that many brokers manage to succeed in the quest to teach traders how to trade. It has been a long and hard way for the few that remain in this business. In the meantime, those phony educators that are acting akin to affiliates are now becoming something closer to a bad practice for every broker who is committed to having a good ratio of profitable traders.

As the final rules are published by the ESMA and as local regulators start chipping in with circulars, we will know more details. But for now, it is well worth thinking about how you are going to approach this brand new market starting from a couple of months from now.

Coinbase Acquires Earn.com In $100 Million Deal

Perhaps the best-known company in all of cryptocurrency has announced their first major acquisition. Coinbase has bought Earn.com, a startup that allows users to be compensated in digital currency for completing small tasks and responding to emails.

Coinbase Deal as Much About New Staff as it is the Acquisition of Earn.com

Recode reports that Coinbase has bought Earn.com for just over $100 million. Along with the acquisition, there are some additional perks for digital currency exchange too. The buyout will enable Coinbase to bring Balaji Srinivasan on board as their first Chief Technology Officer.

According to a blog post by Coinbase CEO Brian Armstrong, Srinivasan is “one of the most respected technologists in the crypto field”.

A brief look at his resume gives clear indication as to why Coinbase would want him to fill the role of CTO. Srinivasan holds qualifications up to PhD level in Electrical Engineering, as well as an MS in Chemical Engineering. These were awarded by Stanford University where he also teaches a variety of subjects. These include data mining, statistics, genomics, and blockchain courses.

Armstrong outlined the purpose of Srinivasan’s appointment in the post:

“Balaji will serve an important role as the technological evangelist for the company. Balaji will evangelise for both crypto and for Coinbase, educating the world and recruiting crypto-first talent to the company.”

The blog post seemed much more focused on the appointment of the new CTO than it did about the acquisition itself. That said, Armstrong did state that Coinbase would be expanding the Earn.com model within the crypto exchange. He went on to acknowledge the platform as a prime example of an early use of blockchain technology that had been able to “achieve meaningful traction.”

Conversely, a post on Earn.com’s news section expressed excitement for what the acquisition would mean for the platform itself. Under Coinbase, the company expects to be able to get “bigger and better”. This will better position them to complete their lofty end goal:

“If we’re successful in our long-term goals, we will be able to turn the billions of smartphones worldwide into a new source of work.”

Earn.com, formerly 21.co,  started out in 2013 as a Bitcoin mining hardware manufacturer. They’ve since rebranded in late 2017. The company now offers a service in which users are paid for responding to emails and completing small tasks such as surveys.

By using cryptocurrency to compensate their users, Earn.com can appeal to a truly global user base. They can pay people a small sum of money for their time, even if the user doesn’t have access to traditional banking infrastructure.

Week of 3/25/2018 Market Moving News

FOMC speeches will set the tone for the week. We are expecting USD to crash 1% or more tomorrow (Monday) 

 

This could be the breaking point for the S&P and even possibly the Dow

 

 

 

with FOMC speeches all week & GDP being published we may see some moment in the dollar 

 

 

As for Forex we see some great opportunities

EURJPY long (intraday type setup)
https://www.tradingview.com/chart/EURJPY/MUscO5YT-EURJPY-Long/

USDCAD short (intraweek setup)
https://www.tradingview.com/chart/USDCAD/SKv8FzvB-USDCAD-SHORT-overall/

USDJPY potential long (intraday setup)
https://www.tradingview.com/chart/USDJPY/gdO6NJC0-USDJPY-highly-active-potential-long/

AUDUSD double play. Shorting then longing (look at chart)
https://www.tradingview.com/chart/AUDUSD/T5AKBlCQ-AUDUSD-Major-Trend-Long-W-chart-Shorting-D-chart/

EURUSD keeping an eye out but not trading
https://www.tradingview.com/chart/EURUSD/9W0l7yu2-Not-trading-EURUSD-for-now/

 

Dollar Remains Slightly Lower after U.S. Jobs Report



Investing.com - The dollar remained slightly lower against the other major currencies on Monday after Friday’s U.S. jobs report tempered expectations for a faster rate of rate hikes by the Federal Reserve this year.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was at 89.94 by 10:13 AM ET (14:13 GMT), down 0.13% for the day.

The U.S. economy added 313,000 jobs in February, the Labor Department reported Friday, but average hourly earnings rose by just 0.1%.

The strong jobs growth boosted risk appetite, while the slowdown in wage growth dampened expectations for four rate hikes by the Fed this year, a negative for the dollar, which tends to become more attractive to yield-seeking investors when borrowing costs rise.

The euro was little changed, with EUR/USD last at 1.2310 after rising as high as 1.2341 earlier.

Sterling pushed higher against the softer greenback, with USD/GBP climbing 0.27% to 1.3889.

The pound’s gains were held in check amid fears that an upcoming Brexit summit meeting later this month would fail to secure a transition arrangement.

Sterling was higher against the euro, with EUR/GBP down 0.2% to 0.8863.

Against the yen, the dollar was lower, with USD/JPY down 0.24% to 106.54.

Demand for the Japanese currency was boosted amid concerns over a cronyism scandal linked to the country’s prime minister and his wife involving the sale of public land. The safe haven yen tends to rise in times of market uncertainty.

Market Snapshot – Dollar Weakening Continues

The euro rose higher during the course of trading today as the dollar weakness assumed larger proportions during this period and we saw the dollar weaken all across the board. We are likely to see this weakening continue for the rest of the trading session as worries about the tariffs imposed by the US continued to dominate the headlines and weaken the dollar. Not only would these tariffs increase the domestic costs of cars and other items that use these metals, it would also lead to a large possibility of a trade war breaking out between the global economic powers and this is not good for any country for that matter. This has led the stock markets lower and this is likely to keep the dollar weak as well. Just when it looked as though the dollar would be able to make a major bullish run, we are seeing the euro about to close the week above the 1.2240 support region and this should help the bulls regain control.

In the crypto markets, the BTC prices have once again lost touch with the $11000 region and with the weekend closeby we can see the action begin to wind down in a slow and steady manner. The market is open during the weekends but we doubt whether the bulls would have the power to push the prices higher by too much over the weekend and this is likely to lead to consolidation and ranging for much of the weekend. The traders were hopeful that the bulls would be able to establish control atleast over the next few days but that has not happened so far and we believe that the price action is likely to be even more choppy in the coming days as the prices swing on either side of the larger range between the $10000 and the $12000 regions so far.

Market Snapshot – Traders Tread Cautiously on Hawkish Fed

Stocks Move Lower

The stock markets have been trading in a cautious manner over the last few days as the Fed has been more hawkish than what many would have expected it to be. The focus over the last 24 hours has been on the FOMC meeting minutes that were released yesterday. After some initial confusion over how it needed to be interpreted, the traders realised that the Fed meant business and that it could be possibly even 4 rate hikes during the course of the year depending on how the incoming data from the US pans out. This kind of hawkish language was not something that was expected at this stage from the Fed and this has led the dollar higher and put the pressure on the stock markets. The increase in interest rates could make taking loans a costly affair in the US and hence this is likely to affect the stock markets in the medium term. This is one of the reasons why the stocks are under pressure and the traders are trading carefully with the next bearish leg just around the corner.

Cryptos Hit by Losses

In the crypto world, we are seeing some all round losses with the BTC moving below the $10,000 region after scything through the strong support at the $10,400 region which had been holding up the prices till yesterday. The ETH prices have also dropped below the $800 region as of this writing and it can be said that these losses can be seen all around the markets. There have been no specific reasons that can be attributed to the drop but as the markets begin to mature, we have to try and see how the different markets and instruments operate in co-relation with each other in the short and medium term. The last couple of days has seen some solid strength in the dollar and the prospect of quick rate hikes in the US and this could be affecting the demand of the cryptocurrencies. The traders need to wait and see if there is a pattern emerging out of this.

 

Global Equities Struggle after Fed Report, Wall Street Reverses Lower

Global equities have sold off this morning. The Nikkei Index declined by more than a percent, and the Hang Seng fell nearly 1 and a half percent. European equities have also produced selling. French Consumer Price Index statistics were lackluster with a result of minus 0.1%. And a German Business Climate reading missed its estimate. Wall Street was positive most of Wednesday, but upon investors digesting the Federal Reserve’s Meeting Minutes the three major indexes experienced strong momentum downwards. Wall Street is expected to open with further headwinds per indicators coming from the Futures Markets.

U.S Dollar Reacts in Strong Fashion, Disappointing U.K Business Sentiment

Forex has provided pure fireworks the past day. The U.S Dollar became stronger late last night as investors began to react to the renewed prospects of a few interest rate hikes in the States. The Pound and Euro have been trading relatively calmly the past couple of hours, but remain below yesterday’s higher values. Second Estimate GDP results came from the U.K this morning and were slightly below expectations. And a Business Investment survey, also from Britain proved disappointing. The Yen has been slightly stronger as risk adverse trading dominated Asian equity markets today.

Near-Term Appears Vulnerable to Gold, Steady Decline and Headwinds

A strong reversal took place for Gold late on Wednesday. After initially gaining upon the Federal Reserve’s report, the precious metal began a steady decline and headwinds have continued. Gold is near 1321.00 U.S Dollars an ounce and looks vulnerable for the near term.

Canadian Retail Sales Statistics, Weekly Unemployment Numbers from the U.S

Crude Oil Inventories data will come from the U.S at 16:00 GMT and could provide insights for commodity traders.

  • 13:30 PM GMT Canada, Core Retail Sales
  • 13:30 PM GMT U.S, Unemployment Claims
  • 16:00 PM GMT U.S, Crude Oil Inventories