Level 2 Forex Courses

Course 201 – Knowing When To Buy Or Sell A Currency Pair

Knowing When To Buy Or Sell A Currency Pair | Free Forex Lectures

In this lesson, we’ll be using fundamental analysis to determine when to buy and when to sell a currency pair.

For starters, note that each currency belongs to a particular country or region. In forex trading, the sale is determined through fundamental analysis which focuses on factors like the region’s overall economic state, which includes employment, manufacturing, productivity, interest rates, and international trade.

Below are examples, though not entirely of major currency pairs.

EUR/NGN

Here, the euro determines buying or to sell, as it is the base currency.

If the trends in the Nigerian economy make you believe that it will continue to weaken, which is bad for the Nigerian Naira, you would execute a BUY EUR/NGN order.

By doing so, you have bought euros with the expectation that they will rise against the Nigerian Naira.

But if you think that the Nigerian economy is strong and the euro will weaken against the Nigerian Naira, you would execute a SELL EUR/NGN order.

By doing so, you have sold euros with the expectation that they will fall against the Nigerian Naira.

USD/CNY

In this case, the U.S. dollar is the base currency and thus the determinant for the buy or sell.

If you can predict that the Chinese government is going to weaken the yuan in order to help its export industry, you would execute a BUY USD/CNY order.

By doing so you have bought U.S dollars with the expectation that they will rise against the Chinese Yuan.

If you believe that Chinese investors are pulling money out of U.S. financial markets and converting all their U.S. dollars back to yuan, and this will hurt the U.S. dollar, you would execute a SELL USD/CNY order.

By doing so you have sold U.S dollars with the expectation that they will depreciate against the Chinese yuan.

GBP/USD

In this example, the pound is the base currency and thus the “basis” for the buy/sell.

If you think the British economy will continue to do better than the U.S. in terms of economic growth, you would execute a BUY GBP/USD order.

By doing so you have bought pounds with the expectation that they will rise against the U.S. dollar.

If you believe the British economy is slowing while the American economy remains, you would execute a SELL GBP/USD order.

By doing so you have sold pounds with the expectation that they will depreciate against the U.S. dollar.

USD/CAD

In this example, the U.S. dollar is the base currency and thus the “basis” for the buy/sell.

If you think the Canadian dollar is overvalued, you would execute a BUY USD/CAD order.

By doing so you have bought U.S. dollars with the expectation that they will appreciate against the Canadian dollar.

If you believe that the U.S. housing market weakness will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CAD order.

By doing so you have sold U.S. dollars with the expectation that they will depreciate against the Canadian dollar.

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Margin Trading

Just as it’s more convenient to purchase certain goods in bulk rather than in small portions, in forex, it would mean being penny wise and pound foolish to buy or sell 1 USD, so they are sold in trade sizes called “lots”. There is the standard lot (100,000 units of currency), mini (10,000 units) and micro, (1,000 units), depending on your broker and the type of account you have.

Not to worry, with margin trading you can still trade even if you don’t have enough money to buy 10,000 USD.

In simple terms, margin trading makes it possible to trade with borrowed capital, in other words, you can open $1,500 or $50,000 positions with as little as $30 or $1,000.

It gets really easy to speedily run relatively large transactions, at a cheap rate with a small amount of initial capital.

Let us explain.

Listen carefully because this is very important!

You can decipher that signals in the market are indicating that the British pound will go up against the U.S. dollar.
You open one standard lot (100,000 units GBP/USD), buying with the British pound at 2% margin and wait for the exchange rate to climb. When you buy one lot (100,000 units) of GBP/USD at a price of 1.50000, you are buying 100,000 pounds, which is worth US$150,000 (100,000 units of GBP * 1.50000).If the margin requirement was 2%, then US$3,000 would be set aside in your account to open up the trade (US$150,000 * 2%). You now control 100,000 pounds with just US$3,000. Hope you’ve been able to get the basic idea of how it works.
Your predictions come true and you decide to sell. You close the position at 1.50500. You earn about $500.

Your Actions	GBP	USD
You buy 100,000 pounds at the exchange rate of 1.5000	+100,000	-150,000
You blink for two seconds and the GBP/USD exchange rate rises to 1.5050 and you sell.	-100,000	+150,500
You have earned a profit of $500.	0	+500

On closing a position, your original deposit is returned to you and a calculation of your profits or losses is done and then credited to your account.

The good news is with the innovation of retail forex trading, there are some brokers who allow traders to have custom lots. Custom lots make it possible for you to trade with your custom number of units, in other words, you don’t need to trade in micro, mini, or standard lots!

ROLLOVER

In forex trading, there are interest rates that are either earned or paid by traders depending on your established margin and position in the market. These occur when there are positions still open after 5:00 pm EST which is also 10 pm WAT which is the stipulated time for forex trading to be closed daily. In order to avoid paying or earning interest on your positions, all you need to do is make sure your positions are closed before 5:00 pm EST or 10 pm WAT.

Forex trading can be explained as borrowing one currency to buy another, it, therefore, attracts interest rollover charges.

Interest is PAID on the currency that is borrowed.

Interest is EARNED on the currency that is bought.

If you are purchasing a currency with a higher interest rate than the one you are borrowing, then the net interest rate differential will be positive (i.e. USD/CNY) and you will earn interest as a result.

On the other hand, if the interest rate differential is negative then you will have to pay.

Note that many retail brokers adjust their rollover rates based on different factors (e.g., account leverage, interbank lending rates), it is therefore important that you enquire with your broker for more information on rollover rates and crediting/debiting procedures.

Below is a table with the most current interest rate differentials of the major currencies. The NGN is not among the major currencies, it’s just a piece of additional information.

BENCHMARK INTEREST RATES

Country	Interest Rate
United States	≤2.500%
Eurozone	0.00%
United Kingdom	0.750%
Japan	-0.100%
Canada	1.750%
Australia	1.000%
New Zealand	1.500%
Switzerland	-0.750%
Nigeria	13.5%

With time, you will be learning how to use interest rate differentials to your advantage.

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

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Related Topics:When to Buy And Sell In Forex

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Course 202 – What Is A Pip In Forex Trading

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Forex Trading Requires Patience

Course 206 – Forex Trading Requires Patience And Knowledge

We don’t want to go any further without letting you in on some things you should know before considering trading currencies.

All forex traders, LOSE money on some trades.

Being flexible is key to trading successfully, so you should not totally rule out losing sometimes or else you would find it difficult to adjust to trading because loss is inevitable at some point or another.

However, it is important to know that 90% of traders lose money, mainly due to lack of preparedness, skill, discipline, not having a trading edge, and having poor money management guides.

Trading forex is neither for the unemployed, nor for those who can’t afford to pay their bills.

You should have at least ₦350,000 of trading capital that you can afford to lose.

Don’t expect to start an account with a few thousand Naira and expect to become a billionaire.

Due to the size and liquidity of the forex market, not to mention the tendency for currencies to move in strong trends, the market is largely known for speculations.

This doesn’t mean that every forex trader makes it big, actually, only a few traders are very successful.

A lot of traders start out with the wrong expectations, hoping to make really huge profits in no time but lacking the discipline and diligence required to master the art of trading.

If you are not disciplined at little commitments, how then can you be ready to take on one of the most taskings, but financially profitable, endeavors known?

Short term trading IS NOT for beginners, and it hardly results to “getting rich quick”. You can’t make huge profits without taking huge risks.
It’s also important to know what a trading strategy is not. If you mistake taking huge risks for suffering huge losses from inconsistent trading performances, then it’s either you most likely don’t even have a trading strategy or you think trading is gambling.

Forex Trading is NOT a Get-Rich-Quick Scheme

Forex trading requires SKILL and it takes TIME to learn.

Skilled traders record huge success in this field. Just as it is other professions, it takes a process to achieve success, it doesn’t just happen.

Forex trading isn’t as easy as some people might want you to think it is. Look at it this way, if it were that easy, wouldn’t everyone trading be millionaires?

The fact is that, just as it is in business, even skilled and experienced traders are also faced with losses once in a while.

We need you to understand that there is no easy way out in forex trading.

It takes consistent PRACTICE and EXPERIENCE to master.

You can’t cut corners. Hard work, deliberate practice, and diligence are key.

In conclusion, use a DEMO ACCOUNT to practice trading until you’re certain of a method that you know thoroughly, and can comfortably execute objectively. In conclusion, find what works for you and how.

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

How To Start Demo Trading

Course 205 – Demo Trade Your Way To Success

Becoming a successful forex trader is possible; it, however, as with other works of life requires diligence, commitment, a little luck, and a whole lot of patience and astuteness.

With most forex brokers, you can open a demo account easily. The good news is it’s FREE in most cases. These “pseudo” accounts have almost the same capacity that “actual” accounts have.

If you are wondering “Is it entirely free? Why is it free?”

The answer is YES, it is entirely free. Most brokers would love for you to master the nitty-gritty of their trading platforms and enjoy trading without risk, that’s why you have free access to demo accounts for the practice. They want you to fall in love with the art of trading, so much that you’ll want to trade with real money. With the demo accounts, you will learn the intricacies of forex trading, be able to test your trading skills and processes with NO risk involved.

YOU ARE ADVISED TO DEMO TRADE UNTIL YOU DEVELOP A FIRM, PROFIT-MAKING SYSTEM BEFORE YOU VENTURE INTO PUTTING REAL MONEY ON THE LINE.

You sure don’t want to lose your money, do you?

Do NOT open a live trading account until you are CONSISTENTLY trading PROFITABLY on a demo account.

If you can’t practice until you’re profitable on a demo account, it is most likely you’ll not be profitable live when real money and emotions are involved.

It is advised that you demo trade for at least THREE to TWELVE months.

You certainly can avoid losing all your money for a year, can’t you? Well if you can’t, you better use the money for something else…maybe sow a seed.

Another piece of advice you should heed is to concentrate on ONE major currency pair.

For beginners, it gets way too complex if you have to keep tabs on more than one currency pair as a demo trader.

Concentrate on ONE of the majors because they are the most liquid and this means tighter spreads and less chance of slippage.

Another reason is, as a beginner, you need time to focus on improving your trading procedures and creating good habits.

You’ll also need to try different market environments and learn how to fine-tune your processes and approach as market behavior changes.

Finally, I’m going to need you to make a solemn promise; say after me:

“I will demo trade until I develop a firm, profit-making system before I trade with real money.”

“I am a clever and patient forex trader”

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

Level 2 Forex Courses

Course 204 – Types Of Forex Orders

Forex orders are mechanisms traders use to manage their daily trad. A good knowledge of FX orders is important, as they aid traders to exit and enter the market appropriately.

There are different orders and they vary between brokers, however, there are some orders which all brokers accept and adopt. Let’s Take a quick look at some of these orders.

Market Order

The market order is normally the first order traders come across in the market. Basically, a market order is an order to buy or sell at the best available price. In the market order, an action to buy is immediately executed at the prevailing market price.

For example, the bid price for EUR/USD is currently at 1.2140 and the ASK price is at 1.2142. If you wanted to buy EUR/USD at the market, then it would be sold to you at the price of 1.2142 You would click buy and your trading platform would instantly execute a buy order at that exact price.

Note: due to market factors and other related conditions, the selected price might be different from the final executed price. This is always not the case though.

Limit Entry Order:

A limit entry order is an order to buy or sell at a particular price or better. A limit order to BUY at a price below the current market price will be executed at a price equal to or less than the specified price.

A limit order to SELL at a price above the current market price will be executed at a price equal to or more than the specific price.

Stop Entry Order:

A stop entry order is quite the opposite of a Limit Entry Order. A stop entry order is an order placed to buy above the market or sell below the market at a specific price.

Stop Loss Order:

A stop-loss order is applied to prevent further losses if the market goes against your trading position. Stop-Loss Orders are important in forex trading as they aid to minimize losses in any event of one.

If you are in a long position, it is a sell STOP order. If you are in a short position, then it is a buy STOP order.

Trailing Stop Order:

A trailing stop is a modification of the Stop Loss order. However, unlike the stop order, a trailing stop order is not subject to a specific amount, here the stop price is fixed with an attached trailing amount. That is if the market price rises in your favor, the stop price rises by the trial amount, but if the stock price falls against you, the stop loss price will not change rather it comes into effect to prevent a loss or further loss.

Good Till Cancelled (GTC):

A GTC order is only effective at the instance of the trader. It means that your position in the market remains good until you decide to cancel notwithstanding the market situation at the time.

Here, even your broker cannot cancel the order, he could only play an advisory role.

Good for the Day (GFD):

A good-for-the-day order is only active until the end of the particular trading day the order was made.

It is important that you confirm with your broker what time signifies the close of a trading day in the active market since the FOREX market is a 24- hour market.

One-Cancels-the-Other (OCO):

This implies placing a combination of two entry and/or stop-loss orders, the execution of one order in effect cancels out the other order immediately.

For example, if the price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985. The understanding is that if 1.2095 is reached, your buy order will be triggered and the 1.1985 sell order will be automatically canceled.

One-Triggers-the-Other:

This is the opposite of the OCO, here the execution of one order automatically initiates the execution of the other order.

This method is usually employed when a trader seems to be too busy to monitor his trading and the market fluctuations.

As a newbie, it is strongly advised to not do complicated, stick to the basics of trading, and grow with experience. Importantly, always ask your broker questions for better clarification.