Introduction
to Forex Trading
swissquote.com/forex
“The mark of a well-educated
person is not necessarily in
knowing all the answers, but in
knowing where to find them.”
Douglas Everett
© Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
Content
What is Forex 4
What affects the Forex market 5
How a Forex trade works 6
Trading strategies 8
Trading platforms 10
How to start trading Forex 11
© Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
What is Forex
The forex market is If you have traveled, you probably already In other words, forex trading occurs
the world’s largest have forex trading experience: when you from Monday morning in New Zealand until
buy the currency of your destination country midnight Friday on the west coast
financial market while paying with your own currency, that is of the USA.
forex trading.
Forex trading You might enjoy trading the major
Forex traders buy and sell currencies for profit currency pairs, or have knowledge about the
occurs from or to protect investments. An estimated USD strength of an exotic currency, or a feel for
Monday morning in 5 trillion is traded daily, most of it speculative. commodities; some opportunities present
New Zealand until themselves to people who keep up with
The forex market is the world’s largest news and events, while others require patient
midnight Friday on financial market, and since trading is between analysis. Traders bring their own strengths and
the west coast of market participants, there is no “open” or preferences to their trading and, over time,
the USA “close” of market except on weekends. create their own trading style.
Most traded
currency pairs London
New York
Tokyo
EUR/USD
USD/JPY
GBP/USD Sydney Sydney
USD/CHF
00 23 22 21 20 19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 00
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What affects the Forex market
People trade forex Each market participant has their goals; The various market participants place different
based on expectations some are companies who are hedging weight on information about interest rates,
currency exposure to protect their business; policy (laws), economic announcements
of the future, which some are fundamental traders who focus and natural or man-made events: all affect
are shaped by many on factors that affect the strength of whole expectations and thus market movements.
factors. economies; others are technical traders who
look for price patterns to trigger their trades. Remember that in the forex market, you can
profit from down-turns as well as rising prices.
In addition, there are central banks, hedge
funds and financial institutions who all bring
different goals and interpretations to their
trading.
Participants
Central
Banks
Individual
Financial Forex
institutions traders
Companies
Forex Natural/
geopolitical
Market events
Interest Economic
rates news
Trade
Laws
Influencers
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How a Forex trade works
Similar to your vacation pocket money, Value Long trade (buy)
forex trading always involves two currencies.
The base currency is the one you are buying Sell EUR 100,000
or selling, and its price is given in the quote Buy USD 105,250
currency: 1.0525
USD 250 profit
1.0500
Buy EUR 100,000
Base currency/Quote currency Sell USD 105,000
EUR/USD Time
1/1.0500
One Euro costs 1.05 US dollars.
Margin
Imagine that you believe the EUR will rise Also called leverage, margin is money borrowed from your
in value relative to the USD. You buy EUR Forex broker. Leveraging amplifies price changes and thus
100,000, paying USD 105,000 from your the profit or loss from a given trade. A 2% margin means
trading account (regardless of the account’s that you can command positions that are 50 times greater
denomination). than the funds in your account.
The EUR indeed rises a great deal, to
1.0525 at the end of the day. Therefore,
when you close your position by selling the
EUR 100,000, you receive USD 150,250, Lot
earning USD 250. A lot is a unit used in trading, especially on MetraTrader
MT4/MT5 platforms. At Swissquote, 1 lot is 100,000 of
You might ask, “where did I get
USD 105,000 the base currency. In other words, in the example, 1 lot
from in the first place?” and the answer might is traded.
be that you have USD 2,000 in your trading
account, and your broker enables you to
borrow USD 100 for each US dollars in your 1 lot = 100,000 units of base currency
account. With this 100:1 margin, you can
enter forex positions with values of up to 1 mini-lot = 10,000 units of base currency
USD 200,000. If you did have USD 2,000 in 1 micro-lot = 1,000 units of base currency
your account and earned USD 250, you earned
12.5% of your account value on this trade.
It is possible to trade less than 1 lot. For example, to trade
10,000 of the base currency (called a mini lot), type 0.1 lot
into the Volume field. To trade 1,000 of the base currency
(called a micro lot), write 0.01 lot. The smallest enabled
trade size is a micro lot. Trade sizes are given in lots on the
trading platform, so keep this in mind!
6 © Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
Now imagine that in the example above, Value Long trade (buy)
the Euro did not rise; indeed instead it fell to
1.0475 at the end of the day. Therefore, Buy EUR 100,000
when you close your position by selling the Sell USD 105,000
EUR 100,000, you receive USD 104,750, 1.0500
loosing USD 250. USD 250 loss
1.0475
Sell EUR 100,000
Buy USD 104,750
Time
Bearish
Bullish
You think a currency will rise You think a currency will fall
You buy the currency You sell the currency
You take a Long position You take a Short position
When you trade Forex, you have the choice between buying or selling a currency pair.
When you buy, When you sell,
you are said to be Bullish you are said to be Bearish
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Trading strategies
Fundamental trading
Some traders find opportunities to trade Events that move a given currency quickly
by looking at fundamental indications of enable intra-day trades, i.e. trades that are
economic health. For example, supply and opened and closed on the same day. If your
demand for a currency decide the price and expectation is for price movement over longer
liquidity, so traders keep an eye on the central time, you will hold your trading position open
bank’s interest rates to see which way the for longer; in general, your position is closed at
market might move. 22.00 GMT and rolled over (“swapped”) into a
new trade opened immediately after. This new
If a currency has a high interest rate, it might position takes into account the closing price
be profitable to invest for the interest alone; and adds or subtracts interest.
however, the reason for the high interest rate
might be economic instability. All market Anything that makes an economy look
participants trade based on their information stronger points at taking long positions, while
and expectations. weaknesses point at taking short positions.
Fundamental traders look at indicators such
as employment rate, inflation and consumer
sentiment as well as news about policy
changes, interest rate and events. Much of this
information is announced by governments
according to a schedule, so it is possible to
find or create “economic calendars” that will
provide inspiration.
Carry trade
If one currency has a low interest rate
and the other a high interest rate, you
can participate in carry trading by buying
the currency with the high interest rate
while selling the currency with the low
interest rate. While you pay the low
interest on the currency you borrowed
to sell, you receive the high interest on
the currency you bought.
8 © Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
Technical trading
Most forex traders use charts to decide when
to enter and exit trades, and technical traders
in particular pay attention to price patterns.
By looking at charts and weighing price,
volume, volatility and timing, it is possible to
find patterns that indicate opportunities.
For example, if the price of a currency
repeatedly reaches a given value but does
not rise above or fall below it, the currency
is said to have found a resistance or support
level. Many traders will keep an eye on past
patterns and have an opinion on how far the
price will move if it does break the support or
resistance level.
Over time, various analyses have been
developed and built into our trading platforms.
Some are simple classics, others are more
difficult to apply, and still others are well
suited to some currencies but not others.
You can take a position at any time - any
expectation you have will point to an
opportunity to buy or sell.
Technical Analysis tools
Resistance:
key price level where the asset price tends to find
resistance as it rises. This means the price is more likely
Value to “bounce” off this level and fall afterwards.
Support:
key price level where the asset price tends to find
Resistance support as it fall. This means the price is more likely
to “bounce” off this level and rise afterwards.
line
nd Trend line:
Tre
Support It is formed when a diagonal line can be drawn between
a minimum of three or more price pivot points.
Time
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Trading platforms
EURUSD
The forex market participants create the forex
market; this is called an Over-the-Counter
(OTC) market. This is in contrast to, for example, Ask
1.13324
the stock market, where all trades go through
stock exchanges. Spread
Bid
1.13308
You access this market using
a trading platform provided Spread
by a broker. At Swissquote, The difference between the price you can buy and sell at is the spread.
investors can trade Forex The spread is the broker’s fee and reflects liquidity and risk. Although
with the proprietary platform many brokers apply commissions in addition to the spreads they
Advanced Trader or with the advertise, at Swissquote, there are no other fees or commissions.
popular MetaTrader 4 or 5.
On top, Swissquote provides Pip
spreads as narrow as 0.9 pips Forex price changes are given in pips. One pip is a change in the fourth
and offers 1% - 2% margin decimal point (except for JPY, for which it is the second decimal point).
on most pairs. Another way to look at it is that the pip is often the 5th digit in the quote
currency regardless of decimals.
When you have selected
your trading platform, EUR/USD = 1.1275 | USD/JPY = 106.78
familiarize yourself with the
available spreads and tools.
Swissquote provides demo
versions that enable you to
try everything using virtual
money. Try the charts and
indicators, and explore orders,
which are automatic trades
based on your expectations,
used to open or close
positions at predefined price
points.
&
10 © Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
How to start trading Forex
1 Why trading forex with Swissquote?
Go to swissquote.com/forex • 20 years of online trading expertise
2 • Trusted by +300,000 traders worldwide
Open a demo account. • Multilingual Customer Support
3 • Exclusive market research with daily &
weekly reports
You can practice Forex trading with
USD 100,000 virtual money. • Global Liquidity & Precise Execution
No risk & no obligation.
• Segregated accounts with deposit
protection
Try a demo now!
• International Group listed on the
SIX Swiss Exchange (SIX:SQN)
Swissquote is regularly quoted and
consulted by global financial media.
© Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors. 11
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