Lesson 1 – Knowing The Forex

1) What is Forex?

Forex stands for FOReign EXchange. The Forex market has very high liquidity and involves transaction of $2 trillions a day. Prior to 1998, the Forex market was a game for large financial firms, trading companies and banks. Since 1998, the Forex market is opened to everyone. And now, everyone can involve in the Forex through numerous brokers with a low capital. Some brokers provide a mini account for as little as $250 deposit. In Forex, people trade different types of currencies.

2) How does Forex work?

The Forex plays a major role in the world economy and is a major indicator of the economic strength of a country. All tradings in the world, both export and import, involve Forex. For instance, trading between Singapore and United States will involve Singapore Dollar (SGD) and US Dollar (USD).

3) What are the advantages of trading in Forex?

There are many advantages. For instance, the Forex market runs for 24 hours. So, you can trade anytime you want. Besides, trading Forex generally has lower risk as compared to other investments such as stock.

4) How to trade currencies?

You can start trading through different online Forex brokers. The brokers provide either online Java real-time Forex platform and some require you to download the Forex platform. You can start trading currencies in through the platform.

Lesson 2 – Jargons used in Forex

Major currencies – the 8 most frequently traded currencies (SD, EUR, JPY, GBP, CHF, CAD, NZD and AUD)

Minor currencies – other currencies

Base currency – the first currency in any currency pair. For example, EUR/USD rate, EUR is the quote currency.

Quote/counter currency – the second currency in any currency pair. For example, EUR/USD, USD is the quote currency.

Long(buy), going long – buy (buy the base currency and sell the quote currency)

Short(sell), going short – sell (sell the base currency and buy the quote currency)

Bid – the price the dealer is willing to buy the base currency in exchange of the quote currency

Ask – the price the dealer is willing to sell the base currency in exchange of the quote currency

Spread - the difference between bid and ask (can be regarded as the fee charged by the broker for the transaction)

Pips – the smallest decimal place in the currency. For instance, if EUR/USD is 1.5633, 1 pip means 0.0001. All currencies are measured in pips in Forex.

Lot – it is a unit in Forex trading. The size of a lot varies from $10,000 to $100,000
leverage - regard this as multiplication. For instance, if a broker provides 100x leverage, when you invest $1000, you are actually trading in $100,000 volume. This is the wonder of Forex market, in which you can earn a lot with little money (due to leverage), but at the same time, lose a lot because of high leverage.

Margin call – if the money in your account falls below a level, your broker will make a margin call and sell all your positions at a loss. To prevent this from happenning, you should have a loss limit or only invest 10-20% of your account balance.

Market order – place a buy/sell order at market price

Limit order – buy/sell at a particular price. Will automatically help you buy/sell when the market price reaches that price.

Stop-loss order – a function that allows you to set the limit of loss. If the market prices go against you over the limit, it will automatically cancel your positions.
Many lingos and jargons huh? Please do not worry and get discouraged because you will get use to it when you start trading.

Lesson 3 – Reading The Chart

There are 3 types of chart – line, bar and candlestick. In a Forex platform you will be able to view the chart in tick, 1 minute, 5minutes… daily,weekly and monthly.
In the tick mode, you can only view a line chart. In tick mode, the lines will move in real time. There will be 2 lines in the chart – bid and ask. The upper line is the bid line and the lower line is the ask line. The gap between the bid and ask line is the spread (consider this as the fee charged by the broker).

In other mode, you will be able to read the chart in bar and candlestick mode.
A bar chart is also called OHLC, (open, high, low and close). When
you zoom into the bar chart, you will different units formed by 2 horizontal lines and 1 vertical line.

Open: The little horizontal line on the left is the opening price

High: The top of the vertical line defines the highest price of the time period

Low: The bottom of the vertical line defines the lowest price of the time period

Close: The little horizontal line on the right is the closing price

A candlestick chart conveys the same information as bar chart, but it has nicer graphic. There are 2 types of candlestick, green and red colors.

Green color – the price closed higher than it opened

Red color – price closed lower than it opened

Types of analysis :

There are 2 types of analysis, mainly Fundamental and Technical.
Fundamental analysis surrounds in the ideology that we should understand the market through economics, social and political perspective, thus making a decision to invest in a prospective currency to yield maximum benefit in the long run.
Technical analysis suggests us to look at both short term and long term chart to find out a particular trend. The trend generally will hold for a period of time and will be unlikely to change in a huge volume even with the influence of sudden news. TREND is very important for both short term and long term investment. Now, you should try to see the daily,weekly and monthly bar/candle stick chart for different currencies, you should be able to observe certain obvious trend like gradual increment, or gradual decrement.
Whilst Forex analysis is much more than the 2 types above, these 2 types of analysis are very important and should be practiced everyday.

Reading candlestick will allow you to understand the strength of buyer (bull) and seller (bear) in the market. We regard the middle green & red color as body and the line sticking out as shadow.
Body
Long green candlesticks show strong bidding pressure. The longer the green candlestick, the further the close is above the open. This indicates that prices increased considerably from open to close and buyers were aggressive.
Long red candlesticks show strong selling pressure. The longer the red candlestick, the further the close is below the open. This indicates that prices fell a great deal from the open and sellers were aggressive.
Shadow
If a candlestick has a long upper shadow and short lower shadow, this means that buyers are aggressive and bid very high, but for some reason, sellers came in and drove prices back down to end the session back near its open price.
If a candlestick has a long lower shadow and short upper shadow, this means that sellers are aggressive and ask very low, but for one reason or another, buyers came in and drove prices back up to end the session back near its open price.
By looking at the body and the shadow, we should somehow perceive the current market trend. And from different bodies and shadows, the traders have derived some common signals such as spinning tops, doji, shooting star etc.
About The Author

Forex Expert In Pakistan
Muhammad Umar and Robin John is a very successful foreign currency trader. He also trains traders to be more disciplined and profitable. He holds the degree of MBA in Finance. He has more than 7 years of experience in the currency markets.
Sami has traded just about everything an individual trader is likely to trade. He has worked as an analyst in the foreign exchange companies in Pakistan, and has published literally dozens of market analysis and trading methods.
He has also conducted training programs in Forex and provided comprehensive consultancy to Forex students in Pakistan. If You Want open your Account. Please You can contact him via email at:

Send Mail muhammad.umar20@gmail.com