Forex Trading Manual
Table of Contents
1. What is Forex?
2. Basic Forex Terms
3. How to Read a Forex Quote
4. Types of Forex Orders
5. Key Trading Strategies
6. Risk Management
7. Technical vs. Fundamental Analysis
8. Popular Forex Indicators
9. Trading Platforms
10. Developing a Trading Plan
11. Practice with a Demo Account
1. What is Forex?
Forex (foreign exchange) trading involves buying and selling currencies against each other. The
goal is to make a profit from changes in exchange rates.
For example, you might trade the EUR/USD currency pair, where you buy the euro and sell the U.S.
dollar if you expect the euro to appreciate.
2. Basic Forex Terms
- Currency Pair: A pair of currencies traded against each other, e.g., EUR/USD, GBP/JPY.
- Base Currency: The first currency in a pair (e.g., EUR in EUR/USD).
- Quote Currency: The second currency in a pair (e.g., USD in EUR/USD).
- Pip: The smallest price movement in the forex market (usually 0.0001 for most pairs).
- Lot: The size of a trade. A standard lot is 100,000 units of the base currency.
3. How to Read a Forex Quote
A quote like EUR/USD = 1.1500 means 1 euro is worth 1.1500 U.S. dollars.
- If you buy EUR/USD, you are buying euros and selling dollars.
- If you sell EUR/USD, you are selling euros and buying dollars.
4. Types of Forex Orders
- Market Order: Buy or sell at the current market price.
- Limit Order: Buy or sell at a specific price or better.
- Stop Order: An order to buy or sell when the price reaches a certain level, often used to limit
losses.
5. Key Trading Strategies
- Trend Following: Buy in an uptrend, sell in a downtrend.
- Range Trading: Buy at support levels, sell at resistance levels.
- Breakout Trading: Buy or sell when price breaks through key support or resistance levels.
6. Risk Management
- Stop-Loss Orders: Automatically close a trade if the market moves against you.
- Position Sizing: Trade a smaller portion of your account balance to manage risk effectively.
- Leverage: Forex brokers offer leverage, allowing you to control a larger position with a smaller
amount of capital, but it also increases risk.
7. Technical vs. Fundamental Analysis
- Technical Analysis: Uses price charts and technical indicators (like moving averages, RSI) to
forecast future market movements.
- Fundamental Analysis: Involves analyzing economic indicators, central bank policies, and
geopolitical events to predict currency movements.
8. Popular Forex Indicators
- Moving Averages (MA): Averages the price over a period, used to identify trends.
- Relative Strength Index (RSI): Measures the magnitude of recent price changes to evaluate
overbought or oversold conditions.
- MACD (Moving Average Convergence Divergence): A trend-following momentum indicator that
shows the relationship between two moving averages.
9. Trading Platforms
Forex brokers provide platforms like MetaTrader 4 (MT4), MetaTrader 5 (MT5), and others to place
trades, analyze charts, and access market data.
10. Developing a Trading Plan
- Define your risk tolerance and trading goals.
- Choose a trading strategy that suits your style (scalping, day trading, swing trading).
- Stick to your plan and avoid emotional trading.
11. Practice with a Demo Account
Before trading with real money, open a demo account with a broker to practice and familiarize
yourself with the platform and strategies.
