Category: Forex Course

Forex course starting from the basics and up to advanced topics. This course will consist of 11 modules for a total of over 300 lessons. Each lesson will cover one short topic and in the end it will include a quiz to self-test the knowledge of the student.
Course 01 – Forex basics.
Course 02: Brokerages
Course 03; Charts, Support/Resistance, Candlesticks, FIbonacci, Moving Averages, Popular indicators
Course 04: Oscillators, chart patterns, pivots
Course 05: Elliott Wave, Harmonic Patterns
Course 06: DIvergences, market envoronment, Breakouts, multiple timeframe analysis
Course 07: Market Sentiment, Trading the News, carry trade
Course 08: The US Index, Intermarket Correlations, Using equities, Contry profiles
Course 09: Developing a trade plan, Find which trader you are, the trading system, trading journal, Metatrader 4
Course 10: Risk management, Leverage, Position sizing, Stop losses, Scaling in and out, currelations
course 11: Trading mistakes, Forex scams, personality quizes, The last words.

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58. Exploring More Candlestick Patterns – Cheat Sheet!

Introduction

Introduction

Introduction

In the previous lessons, we have discussed many candlestick patterns out of which some were single, some were multi-candlestick patterns (Dual & Triple). But there are many more patterns that one needs to be aware of. Since it is not possible to cover each and every one of them, we have picked some of the most profitable and important patterns everyone should be aware of. So, this article basically acts as a cheat sheet for any reference. By referring to this guide, one can get the basic price-action structure of all these important patterns that are mentioned below.

Hammer Candlestick Pattern

It is a single candlestick pattern signaling a possible reversal to the upside. The Hammer is mostly seen after a prolonged downtrend. On the day this pattern is formed, the market will be inclined towards the sell-side. As the candle comes to a close, the market recovers and closes near the unchanged mark or maybe a bit higher.

                         

That is a clear indication of the market reversal. We must take trades only after the appearance of a confirmation candle and not before. So we see a bullish candle on the charts immediately after the Hammer pattern, consider buying the currency pair.

Doji Candlestick Pattern

This pattern is formed from a single candle and is considered a neutral pattern. A Doji represents the equilibrium between demand and supply. The appearance of this pattern indicates a tug of war in which neither the bulls nor the bears are winning.

               

In the case of an uptrend, the bulls will be winning the battle, and the price goes higher, but after the appearance of Doji, the strength of the bulls is in doubt. The opposite is true in case of a downtrend. If we come across this pattern, we must wait for extra confirmation to take any action.

Piercing Candlestick Pattern

The Piercing Pattern is a two candle reversal pattern that implies a possible reversal from downtrend to an uptrend. This pattern is typically seen at the end of a downtrend. The second candle in the pattern must be bullish and should open below the low of the previous day and closing more than halfway into the previous day’s bearish candle.

                                   

We generally will have two options after noticing this pattern. Either we can buy the forex pair to benefit from the uptrend that is about to begin, or we can look at buying ‘options’ to reduce risk.

Engulfing Candlestick Pattern

It is two candle reversal pattern that is formed at the end of a downtrend or an uptrend. Bullish Engulfing Pattern is formed when a small ‘Red’ candlestick is followed by a large ‘Green’ candlestick that completely engulfs the previous day’s candle. For a Bearish Engulfing Pattern, the situation is vice-versa.

                                   

The shadows of the small candle should be preferably short, and the body of the large candle should overpower the entire previous day’s candle. When we come across a Bearish candlestick pattern, we must activate our sell trades and vice-versa.

Meeting Line Candlestick Pattern

This pattern is a two candle reversal pattern that occurs in a downtrend. The first candle must be a bearish candle followed by a second long bullish candle that gaps down and closes higher. It has the close at the same level as the close of the first candle.

                                 

This pattern only signals partial bullishness and buying strength, but not completely. Traders must look for other signs of reversal than just relying on the pattern stand-alone because just the Meeting Line pattern is not a clear confirmation for a complete reversal of the trend.

Harami Candlestick Pattern

It is a dual candlestick reversal pattern indicating the reversal of a bullish or bearish trend. In Bullish Harami pattern, the first candle is usually a Red candle with a large real body, and the second one is a small Green Candle. It’s opposite in the case of a bearish Harami pattern.        

Traders must look at the appearance of a bullish Harami pattern as a good sign of taking long positions in the market. Likewise, we must be shorting once we confirm the appearance of the bearish Harami Pattern.

Three Black Crows Candlestick Pattern

This pattern consists of three Red candles and predicts the reversal of an uptrend. It does not occur very frequently, but when it occurs, we can be sure that the market is going to reverse.

                                

The first candle in this pattern is a long bearish candle that appears in a prevailing uptrend. The second and third are also approximately the same size and color, indicating that bears are firmly in control. This pattern is most useful for long-term traders, who take short positions and hold them for several weeks.

Abandoned Baby Candlestick Pattern

It is a three candle reversal pattern that occurs during a downtrend. The first candle in this pattern is a bearish one. The second candle is a Doji, which gaps down from the previous candle. The third candle is a long bullish candle and opens above the second candle.

                                     

We must take long positions only if the price breaks above the third bar in this pattern. Also, make sure to use a stop-limit order for additional risk management.

Deliberation Candlestick Pattern

The Deliberation is a three-line bearish reversal candlestick pattern that occurs during an uptrend. This pattern is comprised of three bullish candles. The first and second candles have significantly large bodies than the third one.

                                           

This pattern signals a bearish reversal of the current uptrend. The confirmation is usually a Red candle that overcomes the midpoint of the second candle’s body. We can take aggressive short positions in the currency pair right after we notice the confirmatory candle. This pattern is rarely seen on the price charts, but it does appear, it is highly rewarding.

Three Line Strike Candlestick Pattern

We have discussed single, dual, and triple candlestick patterns till now. Three Line Strike is the first four candlestick pattern, which signals the continuation of the current trend. This pattern can be found in both bullish and bearish markets, depending on the trend.

In an uptrend, the first, second, and third are bullish, and each candle needs to close above the previous candle. The fourth candle is bearish and closes below the open of the first candle. We can take long positions only after the trend is confirmed by technical indicators like RSI & MACD

Learning to recognize and interpret candlestick patterns is important for anyone who aspires to be a professional technical trader. Perfecting this skill will take time and practice. But once you master these patterns, you can trade with enough confidence as you will know how to read the market better.

That’s about candlestick patterns and how to trade them. In the upcoming lesson, we will see how to trade candlesticks using support and resistance levels. We hope you practice these patterns better and become a better trade. Kindly let us know if you have any questions in the comments below. Cheers.

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57. Trading Triple Candlestick Patterns – Part 2 (Reversal)

Introduction

Introduction

Introduction

We have discussed some of the major triple candlestick continuous patterns in the previous articles. In this lesson, let’s talk about the triple candlestick reversal patterns. Morning Star and Three Inside Up patterns are very well known as they provide some of the most profitable signals. Let’s get right into the topic.

Morning Star Candlestick Pattern

Morning Star is a bullish candlestick pattern consisting of three candles and is interpreted as a bull force. The pattern is formed following a downtrend and indicates the start of an uptrend, which is a complete reversal. After an occurrence of the Morning Star, traders seek reversal confirmation through additional technical indicators. The RSI is one such indicator which tells that the market has gone into an oversold condition and that a reversal can happen anytime.

Below is how a Morning Star Pattern looks like on a price chart

Criteria for the Morning Star pattern

  1. The first candle is a long bearish candle with little or no wicks.
  2. The second candle is a smaller bullish or bearish candle that captures the indecision state of the market, where the sellers start to lose control.
  3. The third and last candle is a long bullish candle that confirms the reversal and marks a new uptrend.

A trader must lookout for a bullish position in the Forex pair once they identify the Morning Star pattern on the charts. Another important factor for traders to consider is to pair this pattern with a volume indicator for additional confirmation.

Three Inside Up Candlestick Pattern

The Three Inside Up is also a triple candlestick reversal pattern. This pattern indicates the signs of the current trend losing momentum, and warns the market movement in the opposite direction. It is a bullish pattern that is composed of large bearish candle, a smaller candle contained within the previous candle, and then a bullish candle that closes above the second candle.

Below is the picture of how the Three Inside Up pattern would appear on a chart.

Criteria for the pattern

  1. The market should be in a downtrend with a large bearish first candle.
  2. The second candle should open and close within the real body of the first candle, which shows that sellers have stopped selling further.
  3. The third candle is a bullish candle that closes above the second candle, trapping all the short-sellers and attracting the bulls.

Traders must take long positions at the end of the third candle or on the following green candle, which provides additional confirmation. This pattern is not always reliable when used stand-alone. So there are chances that the trend could reverse once again quickly. So risk management should be in place before taking any trades. A stop-loss must be placed below the second candle, and it depends on how much risk the trader is willing to take.

Conclusion

The opposite of the Morning Star candlestick pattern is the Evening star. Even this is a reversal pattern, but it signals a reversal of an uptrend into a downtrend. Likewise, the opposite of the Three Inside Up pattern is the Three Inside Down pattern, which reverses an uptrend. Learn about more triple candlestick patterns and how to trade them. The more you research, the better trader you will be. Cheers.

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56. Learning The Triple Candlestick Patterns – Part 1 (Continuous)

Introduction

Introduction

Introduction

After acquiring a fair bit of knowledge about Single and Double candlesticks patterns, let’s now proceed and learn the Triple Candlestick Patterns. A Triple Candlestick Pattern, as the name clearly suggests, is formed by three candles. In the next couple of articles, we discuss two Continuation patterns and two Reversal patterns to understand how these patterns are formed. Also, most importantly, we will be learning how to trade these patterns as well. So in this article, we will be discussing the basic & well-known Continuous Triple Candlestick Patterns – Three White Soldiers and Falling Three Methods.

Three White Soldiers Candlestick Pattern

Three White Soldiers is a bullish triple candlestick pattern that predicts the reversal of the short term downtrend. The reversal of this short term trend leads to the continuation of the long term trend, and hence this pattern is classified as a continuation Pattern. This pattern consists of three long-bodied candles that open within the previous candle’s body and close above the previous candle’s high.

Below is how the Three White Soldiers candlestick pattern looks on the price chart

Criteria for the pattern

  1. The second and third candles should open within the body of the previous candle
  2. All three candles in the pattern should not have very long shadows.
  3. The continuation pattern is confirmed by other technical indicators such as the RSI and EMA.

Three White Soldiers pattern is used by traders for both entry and exit. Traders, who were short in the currency pair will look for exit and traders who were following the long term uptrend take a bullish position and enter the market.

Falling Three Methods

The Falling Three Methods is a major trend continuation pattern and is sometimes referred to as five candle patterns because of the confirmation candles at the first and fifth positions. These two long candles confirm the trend and its continuation. The sole of this pattern is the three counter-trend candlesticks in the middle. This pattern should never be considered as a reversal pattern; it is a clear trend continuation pattern.

Below is an image of how the pattern looks on the price chart

Criteria for the pattern

  1. The Falling Three Methods is a bearish continuation pattern with two long candlesticks in the direction of the main trend and three counter-trend candles in the middle of the two big bearish candles.
  2. The series of small-bodied candles should be of the same color. However, a bearish Doji as the third candle can also be considered.

This pattern is used by traders to initiate new short positions or add to an existing one. A trade is taken only after the fifth candle, which confirms that the trend is going to continue. There are also traders who use the 10-day moving average to confirm that the market is in a downtrend. While trading this pattern, one needs to make sure that this pattern is not at the key support level.

Conclusion

These are two famous triple candlestick trend continuation patterns. Make sure not to use these patterns stand-alone. They must be paired with other credible technical tools like indicators or chart patterns to confirm the authenticity of signals they generate. In the upcoming lesson, let’s look at some of the Reversal Triple Candlestick Patterns. Cheers!

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55. Learning The Dual Candlestick Patterns – Part 2 (Reversal)

Introduction

Introduction

Introduction

In the previous lesson, we learned Continuous Dual Candlestick Patterns by taking examples of the two most traded patterns. In this lesson, we will see how to generate trading signals using Dual Candlestick reversal patterns. We will mainly look at the two widely used dual candlestick patterns – Engulfing and Dark Cloud Cover patterns. As the names suggest, both of these patterns consist of two candlesticks, and when we see them on a price chart, we should be anticipating a trend reversal shortly.

Engulfing Candlestick Pattern 

Engulfing is a two-candle trend reversal pattern. It got its name from the fact that the second candle completely engulfs the first candle, irrespective of its size. There are both Bullish Engulfing and Bearish Engulfing patterns. A Bullish Engulfing can be identified when a small (preferably) red candle of the downtrend is followed by a large green candle that overpowers the previous candle entirely. Vice-versa for a Bearish Engulfing Pattern.

Below is the picture of how the Bullish Engulfing pattern looks like on a chart.

Criteria for the pattern

  • The body of the second candle should be at least twice the size of the first candle.
  • Even though it is a dual-candlestick pattern, Bullish Engulfing gives the best reversal signals when the bullish candle engulfs the bodies of four or more previous candlesticks.
  • It is better if the Engulfing candle does not have any upper wicks. This shows the buying interest among investors and increases the likelihood of Green candles in the following days.

The Bullish Engulfing Pattern is a powerful reversal pattern that has the potential to reverse the current downtrend and turn it into an uptrend. Hence, traders always look out for this pattern and take big positions in the market by adding to their ‘long’ positions.

Dark Cloud Cover Candlestick pattern

The Dark Cloud Cover pattern is a bearish reversal candlestick pattern that is formed from two candles. In this pattern, the Red candle opens above the close of the prior candle and then closes below the midpoint of the previous green candle.

This pattern implies that buyers are trying to push the price higher, but sellers finally take over and push the price sharply down. A shift in momentum causes the trend to reverse, and this marks the beginning of a new downtrend.

Below is an image of the Dark Cloud Cover pattern that makes a reversal of the trend.

Criteria for the pattern

  1. The first requirement is to have an uptrend that is clearly visible on any chart.
  2. The second candle should be a gap up that, by the end of the day, comes down and closes as a bearish candle.
  3. The bearish candle needs to close below the midpoint of the previous bullish candle.

Traders usually wait for confirmation before taking aggressive short positions in the underlying Forex pair. The confirmation is just another Red candle following the first Red candle. On the close of the third candle, traders sell the currency and exit on the following days as the price continues to decline. They place stop-loss just above the high of the bearish candle.

Conclusion

The Engulfing pattern is a bullish reversal pattern, which is one of the easiest patterns to identify and trade. Talking about the bearish reversal Dark Cloud Cover pattern, it has the potential to identify the lower lows and lower highs, which is very rewarding on the downside. This was about the Dual Candlestick reversal patterns. Please explore more patterns of this kind to increase your exposure. In the next lesson, we will talk about the triple candlestick patterns and their types. Cheers!

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54. Learning The Dual Candlestick Patterns – Part 1 (Continuous)

Introduction

Introduction

Introduction

In the previous article, you were made familiar with different single candlesticks patterns that gave both continuous and reversal signals. In this article, we shall acquaint ourselves with the rest of the most popular double and triple candlestick patterns. In the following sections of the article, we will talk about the continuous double candlestick patterns – Tweezer Tops and Bottoms & Harami. Both of these candlestick patterns involve two candles, and they indicate signs of trend continuation in the market.

Tweezer Tops and Bottoms Candlestick Pattern

Tweezer patterns are double candlestick patterns that indicate a continuation of the current trend. But a broader context is needed to confirm the signal since Tweezers can occur frequently. A topping pattern occurs when the highs of two candlesticks occur at almost exactly the same level following a bullish candle. A bottoming pattern occurs when the lows of two candlesticks occur at almost exactly the same level following a decline in price.

The idea behind the topping and the bottoming pattern is that the first candle shows a strong move in the direction of the short term trend. While the second candle may be a pause or even a candle that completely reverses the previous day’s action. It means a short-term shift in momentum has occurred, and the price moved in the direction of the long term trend.

The image below shows how the pattern looks and explains the concept clearly.

Charts are taken from Tradingview

Pattern Confirmation Criteria

  • The first candle needs to have a large real body, i.e., the difference between open and close should be preferably big.
  • The second candle can be of any size. But if it is larger than the previous candle, the price can accelerate soon in the same direction.

Traders view this pattern as a potential sign of trend continuation and enter into a new position depending on the broader trend, with a minimum stop loss.

Harami Candlestick Pattern

Harami is a candlestick pattern that is formed by two candlesticks and indicates a continuation in the trend. Let’s discuss the Bullish Harami pattern to understand this concept better. A Bullish Harami Pattern essentially shows that the short term downtrend in an asset is coming to an end, and the market may continue its uptrend.

The pattern is formed by a long candlestick followed by a relatively smaller body. The second candle is completely contained within the vertical range of the previous body.

The chart below shows a Bullish Harami pattern. The few candles before the pattern indicate a short term downtrend in the currency, and the Green candle represents a slightly upward trend, which is wholly contained within the previous candle.

Charts are taken from Tradingview

Pattern Confirmation Criteria

  • It is necessary to have initial candles that indicate a clear short-term downtrend and that a bearish market is pushing the price lower.
  • The second candle needs to close near the middle of the previous candle, signaling a higher likelihood that a reversal of this downtrend will occur, and the price will move in the direction of the major uptrend.

Traders look at the appearance of the Bullish Harami pattern as a good sign of entering into a long position on an asset. This pattern is also combined with single candlestick patterns for confirmation signals. The opposite is the case for Bearish Candlestick Patterns.

While Tweezer Tops patterns are more flexible and easy to identify, Harami has a mandatory requirement of a ‘Doji’ (Candles with tiny body and long shadows) as the second candle. Both of these are trend continuation patterns with a high degree of accuracy. There are many more dual candlestick trend continuation patterns which you should be researching on your own. In the next lesson, we will be discussing double candlestick trend reversal patterns. Cheers!

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53. Trading The Single Candlestick Patterns – Part 2

Introduction

Introduction

Introduction

In the previous lesson, we discussed some basic single candlestick patterns, which gave us trend continuation signals. In this lesson, we will look at reversal patterns that are formed by a single candlestick and how traders should perceive them.

These patterns are very important to learn as they indicate clear market reversals. So essentially, when we find these patterns on the charts, we should anticipate a reversal and take our trades accordingly.

The Hanging Man Candlestick Pattern

A Hanging Man is a single candlestick pattern that occurs during an uptrend. They give warning signals that markets are going to fall. This candlestick pattern is composed of a small body, a long lower shadow, and no upper shadow. Since it is a reversal pattern that reverses the current uptrend, The Hanging Man indicates the selling pressure that is starting to increase. Below is how the Hanging Man candlestick would look like.

Below is a picture of how this pattern would like on the chart and how the trend reversal takes place.

Pattern Confirmation Criteria

  • Hanging Man is a single candlestick pattern that forms after a small rally in the price. The price rally can also be big, but it should at least be composed of few candles moving higher overall.
  • The candle must have a small body and a lower shadow at least twice the size of the real body.
  • This pattern is only a warning and a bearish candle after the formation of this pattern is highly desired. This is necessary for the Hanging Man pattern to prove to be a valid reversal. This is called confirmation.

The Hanging Man pattern is used by traders to exit long positions or enter into new short positions. After entering for a short position, stop loss can be placed above the high of the Hanging Man candle.

The Shooting Star Candlestick Pattern 

A Shooting Star is a bearish single candlestick pattern which also indicates a market reversal. It has a long upper shadow with little or no lower shadow and a small body.

This pattern typically occurs after an uptrend and forms near the lowest price of the day. The Shooting Star pattern can be seen as the market creating potential resistance around the price range. It implies that the sellers stepped in, erasing all the gains, and pushed the price near the open. Basically, at the appearance of this pattern, buyers are losing control, and sellers are taking over.

Below is a picture of how the pattern would look like on a chart

Pattern Confirmation Criteria

  • The pattern must appear after an advance in price. The price must rally in at least alternate green and red candles if not in all green candles.
  • The distance between the highest price of the candle and the opening price must be twice the length of the body of the candle.
  • It is best if there is no shadow below the body of the candle.

Traders should not take immediate action after the formation of this pattern. They should wait to see what the next candle does following the Shooting Star. If they see a further price decline, they may sell or short that currency pair. However, if the price continues to rise, it means the uptrend is still intact. So traders must favor long positions over shorting.

The difference between the Hanging Man and the Shooting Star is in the length of upper and lower shadows along with the context. By now, we have understood how continuous and reversal single candlestick patterns work. In the upcoming lessons, we will be learning dual candlestick patterns and their implication. Cheers!

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52. Trading The Single Candlestick Patterns – Part 1 (Continuous Patterns)

Introduction

Introduction

Introduction

In the previous article, we have discussed the basics of candlestick patterns. We also understood that there are different candlestick patterns like single, dual, and triple depending on how many candlesticks are involved. We also know that in each of these types, there are continuous and reversal patterns.

In this article, let’s discuss ‘Single Continuous Candlestick Patterns.’ As the name suggests, a single continuous candlestick pattern is formed by just one candle, and the appearance of this pattern indicates that the trend will continue in its actual direction. This means the trading signal generated by this pattern is based on a single candle’s trading action. The trades taken based on a single candlestick pattern can be extremely profitable, provided the pattern has been identified and executed correctly.

Now let’s see an example of one of the most important single continuous candlestick patterns.

The Marubozu Candlestick Pattern

Marubozu is a candlestick with no upper and lower shadow (appearing bald). Essentially, this pattern has a single candle with just the real body, as shown below.

The Marubozu candle can be both bullish and bearish, depending on the major trend. The Marubozu, in an uptrend, suggests that the buying strength of the currency pair is still prevailing in the market, and the trend is supposed to continue. The same is the case if it appears in a downtrend (Bearish Marubozu), which is a sign of trend continuation.

As always, a Red candle represents Bearish Marubozu, and a Green candle represents Bullish Marubozu.

Below is the picture of how the Marubozu pattern looks on a price chart.

A bullish Marubozu indicates that there was so much buying interest in the currency that the market participants were willing to buy the currency at every price point during the day (considering a daily time frame chart). The buying interest is so much that the pair closed near its highest point for the day. So, when such a pattern appears on the chart, it is recommended to build long positions in that Forex pair with appropriate stop-loss and take profit.

The Spinning Top Candlestick Pattern 

The Spinning Top is a very interesting candlestick pattern. Unlike other patterns, the Spinning Top is not specifically a continuous or reversal pattern. It can be indicating both depending on the market condition. A Spinning Top is a candlestick with a small real body and upper & lower wicks being identical in size.

It basically conveys the market indecision as both bulls and bears weren’t able to influence the market. When a trader encounters this pattern in a trending market, he/she needs to be prepared for two situations:

  • Either there will be another round of huge buying or selling
  • Or the markets could reverse significantly in either direction

Below is how the Spinning Top Candlestick pattern appears on a price chart.

During such uncertainty, it is recommended to trade in the options segment of the market to profit from this candlestick pattern.

This was about single candlesticks patterns and their significance. There are many more single candlestick patterns, but we hope you got the gist. We recommend you research and learn as many single patterns as you can on the internet. In the upcoming articles, we will look into some of the reversal single candlestick patterns and how they are different from the continuous patterns we discussed today. Cheers!

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51. Fundamentals Of Candlestick Patterns

Introduction

Introduction

Introduction

In the previous course lessons, we have discussed the basics of candlesticks along with the pros and cons of using them. From this lesson, we will learn the basic candlestick patterns and their usage. As discussed, the idea of candlesticks charts has started in Japan in the late 1870s. These charts were then introduced to the outside world by Steve Nison through his first book, ‘Japanese Candlestick Charting Technique.’

In this lesson, let’s discuss the primary advantage of using candlestick charts. Although a single candlestick gives us many details about the price movement of an asset, a sequential set of candlesticks is more powerful. These sets are also known as patterns in simple trading language, and using these patterns, traders across the world take trading decisions.

Expert traders have decoded many such patterns and rigorously backtested them to analyze what those patterns will eventually result in. They also examined how the market direction will change after the appearance of these patterns on the charts. Now, let’s see the different candlestick patterns one must know.

Different types of candlestick patterns

There are single, dual, and triple candlestick patterns depending on how many candlesticks are involved in them. For example, if there are the candlestick pattern is formed by three candlesticks, it is known as the triple candlestick pattern. Every single pattern has its own significance and can be found in most of the Forex charts.

The main intention of identifying any candlestick pattern is to understand the further price movement in the market. Hence these patterns are classified into two different types – Continuation Patterns & Reversal Patterns. When we identify a continuation candlestick pattern on the chart, it means that the market will continue in the same direction as the underlying trend. Contrarily, if we identify a reversal pattern on the charts, we can expect the price to change its direction. Also, these patterns are internally classified as bullish and bearish continuous/reversal patterns, which will be discussed in the upcoming lessons.

Examples of Continuation Candlestick Patterns

  • Deliberation Pattern
  • Concealing Baby Swallow Pattern
  • Rising Three Methods Pattern
  • Separating Lines Pattern
  • Doji Star Pattern

Examples of Reversal Candlestick Patterns  

Some of these are single candlestick patterns, while some are multiple candlestick patterns. We shall be discussing each of these patterns in detail in our future articles.

Psychological context of candlestick patterns

The candlestick patterns demonstrate the psychological trading that takes place during the period represented by a single or multiple candles. We need to start imagining the price movement as a battle between buyers and sellers. Typically, Buyers expect that prices will increase and drive the price up through their trades. Whereas sellers bet on falling prices and push the price down with their selling interest.

Also, the Japanese gave very visual names to these patterns so that it impacts the mentality of a trader. For instance, pattern names like Hanging Man and Dark Cloud Cover represent negativity, while the patterns like Three White Soldiers and Morning Star indicate positive market results. Hence, as soon as we hear the names of these patterns, our sub-conscious memory will know whether the forecast of the market is positive or negative.

Benefits of trading candlestick patterns

Although initially conceived for daily timeframes, Candlestick patterns can be used by swing traders, day traders, and even long term investors. Below are some of the significant advantages of these patterns.

  • They are very easy to identify and comprehend. They provide a detailed description of the occurrences and happenings in the markets.
  • Interaction between the buyers and sellers can easily be understood just by reading the pattern and without having to analyze the market entirely.
  • Candlestick patterns can be used in conjunction with other indicators for extra confirmation on the trading signals generated.
  • They display reversal patterns that cannot be seen in other charts like Line & Bar charts.

That’s about the introduction to Candlestick patterns. In our upcoming lessons, we will discuss different candlestick patterns and how to generate trading signals using these patterns. So, stay tuned.

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50 – Basic Anatomy Of A Candlestick Chart

Introduction

Introduction

Introduction

In the previous article, we have discussed the history, introduction, advantages, and disadvantages of using candlestick charts. Now, in this lesson, we will discuss how to read a typical candlestick chart.

Every candlestick has a central portion which is referred to as the body of the candlestick. It shows the distance between the opening price and the closing price of the security that is being traded. The faint line between the top of the body and the high of the trading period is the upper shadow. Likewise, the thin line between the low of the body and the low of the trading period is known as the lower shadow.

The chart below is made up of lines going from top to bottom. These lines are known as candles. This vertical axis of this chart shows the price, whereas the horizontal axis shows the time.

(Chart Taken From Trading View)

Each of the candles in the above chart gives us four pieces of information.

Candlesticks always refer to the information for a specific unit of time. For example, in a daily chart, each candle represents one single trading day. Every single candle is comprised of the open, close, high, and low for that given trading period. The horizontal axis of the above chart can be used to know which day corresponds to which candlestick. Almost every candle has a wick (also known as shadow) that goes outside the body of the candle. They represent the highest and lowest price of a security during that period.

               

The color of the candle is the essential aspect of any candle. It determines if the opening price of a security was higher or lower than the closing price of a security. If the candle is Red, it is known as a bearish candle. Always remember that the opening price is higher than the closing price in a bearish candle. Contrarily, if the candle is Green in color, it is known as a bullish candle, and that means that the opening price is lower than the closing price.

Market Emotions & Candlesticks

The names given to candlestick patterns are a colorful way to describe the emotional sentiment of the market. When we hear words like ‘dark-cloud cover’ or ‘hanging-man,’ they easily indicate the unhealthy state of the market. We are not saying they provide proper trading signals, but they clearly indicate the negative market state.

Without even knowing the technicalities of these patterns, we get an idea of where the market is heading to just by hearing their names. For instance, consider the names like ‘morning star’ & ‘evening star’ candlestick patterns. The morning star essentially implies the bullish state of the market as the appearance of the morning star is just before the sunrise. Likewise, the evening star indicates a bearish signal because it comes out just before the sunset.

The other emotional price point that should be noted is the closing of any candle. If you recall the concept of Margin calls from brokers, they are based on the close of the candle alone. Thus we can expect emotional involvement when the market closes.

That’s about the anatomy of candlesticks. In the upcoming articles, we will be discussing many of such amazing candlestick patterns which are sure going to be very interesting.

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49. Quick History & Introduction To Japanese Candlesticks

What are Candlestick Charts?

What are Candlestick Charts?

What are Candlestick Charts?

A candlestick chart is simply a way of depicting the price moment’s information. Since these chats are very famous, they are available on almost every trading platform. Candlestick charts were first developed by a Japanese rice trader Sokyu Honma in the late 17th century. He is known as the father of candlesticks. Yes, it has been more than 250 years since this chart has been devised and yet they are so relevant even today.

Sokyu Honma – Father of Candlesticks

(Photo Credits – Alchetron)

Japanese are huge technical traders. They use a combination of candlestick techniques & western charts to analyze the market. The primary advantage of a candlestick chart is that it identifies the underlying psychology of traders in the market. This feature differentiates candlesticks from the other chart types we know today.

Have you come across terminologies like ‘hanging-man,’ ‘dark-cloud,’ and ‘evening-star’ but not sure what they are? Good. In the first part of this course lessons, we will be discussing everything about candlesticks and its patterns. We will also discuss how to use these charts & patterns to make profitable trades, as it will open a new way of analysis for you and show how Japanese candlesticks can enhance your trading performance.

Why do most of the traders use candlestick charts? 

There is a great interest in candlesticks by top traders. There are many reasons for that, and few of them are listed below:

🕯️ Candlestick charts are flexible. This is because they can be used as standalone or in combination with other technical indicators. These charts provide an extra dimension to the analysis.

🕯️ This technical approach is an age-old tradition of analysis, which has evolved from centuries of trial and error.

🕯️ Japanese are quite visual on the terms used to describe the patterns. A term like ‘hanging-man’ will spark interest among traders. There are hundreds of such names. Once a trader gets an understanding of what that pattern is, they will not be able to trade without using them.

🕯️ Another important reason for using the candlestick chart is that it can be paired along with the bar charts for people who see bar charts alone.

🕯️ All the usual technical analysis tools can be easily used with candlestick chartings, such as moving averages, trend lines, Elliot waves, retracements, and more. These charts provide a unique way of analysis, which is not provided by any other charting tool.

Limitations of using the Candlestick charts

🕯️ As with all other charting methods, candlestick pattern depends on the interpretation of the trader. This could be one of their limitations. As a trader gain experience, they discover which candlestick pattern suits them the best.

🕯️ Every candlestick has a close. Therefore, traders will have to wait for the close to get a valid trading signal. However, a trader might try and anticipate what the close would be a few minutes before the actual close.

🕯️ The opening price is vital in candlestick. Traders with no access to live market data might not be able to get the opening price of a security.

That’s about the introduction to Candlestick charts, its pros & cons. In the next article, we will learn the anatomy of a single candlestick chart so that you can read the chart better. Make sure to take the quiz below before moving on. Cheers!

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Forex Course Forex Daily Topic

Introduction To Forex Course 3.0

Hola Readers! We have successfully completed the first two courses and received an amazing response for both of them. We can’t thank you enough for that. Also, we hope these first two courses have helped you in understanding the most fundamentals basics of the Forex market. It is very important to know these basics in order to succeed in the Forex market. We have made a quick navigation guide for both the courses just for you to access the articles easily.

Hola Readers! We have successfully completed the first two courses and received an amazing response for both of them. We can’t thank you enough for that. Also, we hope these first two courses have helped you in understanding the most fundamentals basics of the Forex market. It is very important to know these basics in order to succeed in the Forex market. We have made a quick navigation guide for both the courses just for you to access the articles easily.

Hola Readers! We have successfully completed the first two courses and received an amazing response for both of them. We can’t thank you enough for that. Also, we hope these first two courses have helped you in understanding the most fundamentals basics of the Forex market. It is very important to know these basics in order to succeed in the Forex market. We have made a quick navigation guide for both the courses just for you to access the articles easily.

You can find them here the guides for – Course 1.0 | Course 2.0

With all these basics in mind, we will be moving on to our new course, which is a bit different than the other two courses. We are saying this because the first two courses are more inclined towards information and theory. But Course 3.0 is all about Technical Analysis. Hence most part of it deals with the practical applications that are involved rather than just theory. The quizzes and everything remain as is, but a lot more effort from your side is required to ace the knowledge that we are going to provide in the lessons.

Having said that, Technical Analysis has the most logical approach to the prediction of price movement than the Fundamental & Sentimental Analysis. There are a lot of components within the technical analysis, and some of them include Price-Action trading, technical tools such as Indicators & Oscillators, Volume based trading, etc. In this course, we will be going through all of them in detail.

Topics that will be covered in this course 

✫ Everything About Candlesticks

✫ Support & Resistance Levels

✫ Moving Averages

✫ Popular Indicators & Oscillators

✫ Fibonacci Trading

In each of the topics, there will be about 7 – 10 article lessons where complete information is provided related to the topics. Quizzes will be available for each of the articles like before.

We are proud to present this course to you as it is prepared by some of the top technical traders with great expertise in this field. Aren’t you excited? We wish you all the best in studying and learning the concepts with at most interest. Cheers!

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47. Which is the best way to analyze the market?

Introduction

Introduction

Introduction

Now with the knowledge of three type analysis, let us determine the best type of analysis suitable for you.

Before that, let’s brush up through the previous lessons.

✨ Fundamental Analysis – This is a technique to analyze the market by considering the factors which affect the supply and demand of security (currency). Some of the fundamental indicators include interest rates, inflation, GDP, money supply, manufacturing PMI, etc.

✨ Technical Analysis – It is the analysis of the market by understanding the historical price movements of the currency. In other words, it is the study of price movements using technical tools like candlestick patterns and indicators.

✨ Sentimental Analysis – This type of analysis involves understanding the real essence of trading. Here, we get into the shoes of the bug players and determine if they’re buying or selling.

Out of these three, which do you think can help you find success in trading? Well, as a matter of fact, once can succeed in trading only if they have the knowledge of all these three types of analysis. Let us understand with an example of the hurdles that can come your way if you focus only on one type of analysis.

Let’s say a trader named Tim trade only on technical analysis, and he found a good buying opportunity on EUR/USD. But, after he hits the buy, he sees the market falling straight down 100 pips against him due to some news he wasn’t unaware of. This situation brings in emotions in him by which he ends up closing the trade. However, later in the day, he observes that the market ends up going in the direction he predicted.

Here, though his analysis was right, the obstacles like news and emotions took over the technical analysis and put him in a loss. Hence, from this, we can conclude that technical analysis, fundamental analysis, and sentimental analysis are interdependent on each other.

How to structure your analysis?

Above, we have discussed how crucial and dependent all three types of analysis are. However, there are traders in the industry who have expertise only in a kind of analysis but still manage to grow their accounts significantly. Below are some of the tips on how one must structure their analysis, considering they specialize in technical analysis.

  • Before you begin to analyze the market, determine if there is any upcoming news on the currency, you’re looking to trade. And it is recommended to stay away from the currency pairs which have fundamental news coming in.
  • Once you determine the currency pair you’re going to trade, you can begin your technical analysis on that pair.
  • And most importantly, before you place the trade, you must have a complete plan on all the situations that can possibly occur when you’re in the trade, including position sizing, stop-loss levels, and profit-taking levels.  Because, once you enter the trade, emotions take over technical analysis which can make you take incorrect trading decisions.

Therefore, following these three simple steps can drastically bring a change in the way you analyze the markets. Cheers.

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46. Analyzing the Forex Market: Sentimental Analysis

Introduction

Introduction

Introduction

Have you come across the saying that 95% of the traders lose money in Forex, and only a handful of 5% succeed? As a matter of fact, this statement is entirely true. Though trading in the Forex market is no different from doing business in the real market, most of the Forex traders find it challenging to succeed in trading. This is because, in the real world business, there is hardly any relation between business and emotions, whereas, the Forex market is closely related to human psychology.

Many traders trade based only on fundamental analysis or technical analysis and ignore the existence of the sentiment involved in trading. This is the reason we have the concept of 95% and 5%.

Why is there sentiment entailed in trading?

To answer this particular question, we’ll have to understand the core basics of trading.

Firstly, what is trading? Trading, according to the textbooks, is the process of buying and selling of products. Or in simple terms, it is the process where a seller sells his products to a buyer, or a buyer buys products from a seller.

Now, the point one must note here is that to buy or sell a product, both parties (buyer and seller) are obligatory. Without a buyer, the existence of a seller is useless, and without a seller, the presence of a buyer is pointless.

And this above concept is the answer to the above question. Let us understand how.

There is an end number of traders trading the Forex market. The logic for buying and selling is the same as the real-world market. That is, a trade cannot be completed without the presence of both parties. For example, if you want to buy a currency pair, then you mandatorily need a seller to sell it to you. And if there are no sellers in the market to sell it at your desired price, then your buy order will remain pending (incomplete).

Broadly speaking, traders can be segregated into two types. The first set of traders includes large banks, hedge funds, mutual funds, and big-time investors who move the market. And the second set comprises small retail traders who do not have the capability (enough capital) to drive the market.

How do big players always win?

Big players are the ones who always win in the market. And they make this possible by bringing in emotions in trading. Let us understand this with an example.

Let’s say a currency pair is in an uptrend from a month. At this point in time, what do you think the whole world is thinking? As obvious as it gets, most retail traders are looking at it as a buy. Now, since everyone (big players and retail traders) are looking to buy, there is no seller to sell it to them. This situation, in turn, creates loads of pending orders in the market. So, the masterminds (big players) start to become the sellers in the market to the retail buyers. And this continuous selling by the big players causes the market to drop pretty drastically.

Seeing this drastic fall in the market, all retail traders who were buying get stopped out, and the rest begin to look it as a sell. And once the retail traders start to sell, the big players buy it from these sellers (retail traders). Hence, from this, the market again starts to head north. This is how big players bring in emotion in the minds of the public, manipulate them in the market.

Finally, we can conclude by saying psychology plays a major rule when it comes to trading in the Forex market. And the sentimental analysis is all about learning more about psychological trading. So in our further lessons, we will be discussing a lot more on these topics.

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45. Analyzing the Forex Market – Technical Analysis

A way to analyze the markets other than fundamental analysis is technical analysis. In this lesson, we shall exactly understand what technical analysis is, and also the different techniques to analyze the market using technical analysis.

A way to analyze the markets other than fundamental analysis is technical analysis. In this lesson, we shall exactly understand what technical analysis is, and also the different techniques to analyze the market using technical analysis.

A way to analyze the markets other than fundamental analysis is technical analysis. In this lesson, we shall exactly understand what technical analysis is, and also the different techniques to analyze the market using technical analysis.

What Is Technical Analysis?

In simple terms, technical analysis can be defined as the study of price movements.

Unlike fundamental analysis, where people study the factors which affect the supply and demand of the market, technical analysis involves the study of the historical price movements and the present market condition.

Why should Technical Analysis be used?

Let us answer this question by bringing up an analogy.

The first thing one must understand about the market is that the forex market business is no different from a real-life business.

For instance, let’s say there’s a car dealer and they have been selling one particular car for six months by varying the prices every month. And an illustration of the sales report is given below.

Now, from the above table, can you predict what could be priced in the near future? If yes, then you can consider yourself as a technical analyst, as this is what technical analysts do.

Consider the above table. We can see that initially, the car was priced at $20,000, and 9,000 units of the car were sold. Next month, the owner price reduced by $1,000, and the sales increased by 1,000 units. Seeing this demand in the car, the owner increases the price to $25,000. But, this time the sales drop down to 1,000 units. So, the car owner reduces the price back to $19,000. And he observes that the sales increase from 1,000 to 10,000. Later, he again raises the price to $26,000.

Now, by analyzing the past price movements, we can predict with a high probability that the price will reduce yet again, as the previous time the price came to $25,000, the price dropped drastically. Thus, looking at the price of the car in June, we can see that the price did fall to $15,000.

Therefore, the above example, in a nutshell, is referred to as Technical Analysis.

Switching back to the Forex market, the analysis is done similarly. The only difference being the Forex market involves the trading of currency pairs, and the real market consists of the buying and selling of products.

Hence, from this, we can conclude that a market moves as per the historical price movements. The above example is just to give you a gist of how technical analysis work. There are many more complex ways to accurately predict the market using technical analysis. Price Action traders do their technical analysis using different types of charts (like candlesticks, bars, lines, area, etc.), timeframes, and indicators.

Hence, this brings us to the end of this lesson. In the lessons coming forward, we shall be discussing tons of stuff related to technical analysis. So, stay tuned.

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44. Analyzing The Forex Market – Fundamental Analysis

Introduction

Introduction

Introduction

We’ve now come to one of the most exciting topics in this course, which is analyzing the Forex market. Now that we know the history and the working of the Forex market, we’re all set to predict the future of the market. Several types of analyses are used by traders across the world to analyze the  Forex market. However, these analyses can broadly be classified into three types.

In this lesson, and the lessons coming forward, we shall be discussing all these three types of analyses.

Types of Forex market analysis

The three types of forex market analysis are:

  1. Fundamental analysis
  2. Technical analysis
  3. Sentimental analysis

Now, you must be wondering which one of them is best for analyzing the markets. Well, if you look at the most successful professional traders in the industry, they analyze the market by considering all the types. In this lesson, let’s understand the most essential Fundamental Analysis.

Fundamental Analysis

Fundamental analysis, as the name pretty much suggests, is the way of analyzing the market by studying the economic, social, and political forces in the country. These factors are considered because they affect the supply and demand of an asset.

The whole idea of trading using fundamental analysis is by considering the factors that affect the supply and demand of a currency. These factors are technically referred to as fundamental or economic indicators.

The concept behind this type of analysis is straightforward. If a country’s currency or economic outlook is good, then there is a high probability that the currency will show strength in the future and vice-versa.

What are the major economic indicators?

Below are some of the economic indicators which have the power to shift the economic situation of a country.

Interest rates

One of the most popular and important economic indicators are interest rates. There are several types of interest rates, but we will be focusing on the basic form of the interest rates set by the central banks. Central banks are the creators of money. This money is borrowed by private banks. And the percentage (interest) or the principle the private banks pay to central banks for borrowing the money is called a nominal or a base interest rate.

If the central banks wish to boost the economy, they decrease the interest rates. This then stimulates borrowing by both private banks and other individuals. And this, in turn, increases consumption, production, and the overall economy. Lowering the interest rates can be a good way to inflate the economy but can be a poor strategy too. Because in the long term, low-interest rates can over-inflate the economy with cash and create an unbalance in the money supply.

So, to avoid this, central banks increase interest rates. And this increase results in less money in the hands of private banks, businesses, and individuals to play around with.

Inflation

Inflation, as the name pretty much says, is fluctuation in the cost of goods over time. Inflation, too, is a vital indicator for economists and investors to forecast the future economy. Inflation will have a good effect on the economy if done uniformly. But, too much inflation can bring the balance of supply and demand on the tip in favor of the supply. And this eventually will bring down the value of the currency.

Apart from these two, there are many other macroeconomic indicators that traders consider to do their fundamental analysis. Some of them include GDP, PPI, CPI, Unemployment Rate, Government Debt, etc. Indicators like these help the investors & traders in analyzing the market and predicting its future.

This completes the lesson on fundamental analysis. In the next lesson, let us understand the insights about technical analysis. Don’t forget to take the quiz below before moving ahead!

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43. Steps Involved In Opening A Forex Trading Account

Introduction

Introduction

Introduction

Now that we have enough knowledge about the Forex market, it is time to open a real Forex trading account with a broker. Note that, before opening a real trading account, it is highly recommended to open a demo account first, because this will give us an idea on how the Forex market and the brokers actually work.

Once we decide on the broker with whom we wish to open an account, the process of opening the account is pretty simple and straightforward. Typically, it doesn’t take more than five minutes to create a Forex trading account.

Step by Step procedure to open a Forex Trading Account

  1. Selecting the Account Type
  2. Registration
  3. Activation of the account

1️⃣ Selecting the Account Type

The first step to open a trading account is to choose the type of account we wish to trade-in. That is, we will be given a choice to open a trading account between a personal account and a business account. Back then, traders had to choose whether they wanted to open a standard, mini, or a micros account. But now, such a choice does not exist as brokers allow traders to trade custom lots.

Apart from Personal and Business accounts, some brokers offer ‘managed accounts’ as well. A managed account is a type of trading account where the broker places trades on behalf of their clients, that is, on behalf of the traders like you and me.

Also, Forex brokers these days have customized trading accounts in order to cater to traders with different trading experiences. For instance, Student or Classic account for amateur traders and Professional or VIP account for experienced traders.

2️⃣ Registration

This is the typical paperwork which is done by all the firms. The entire process is digitalized, of course. To register with a broker, one will have to submit a form that might vary from broker to broker. And this form is usually filled on their web page at the time of registering an account with the broker.

List of requirements to register with a Forex broker are:

  • Name
  • Address
  • Email
  • Phone number
  • Birth of date
  • County of citizenship
  • Social security number or Tax ID
  • Employment status

Apart from this, traders are answerable to a few financial questions such as Annual Income, Net worth, Trading experience & Trading motive.

Important: Before completing the registration process with the broker, make sure to know the costs related to all kinds of transactions (bank wire transfer, depositions, withdrawal, etc.), as this could sum to a significant amount of a trader’s account capital.

3️⃣ Activation of the Account

Once the registration process is successful, a trader will receive an update (by email or on the broker’s web portal), which will provide the instructions to fully complete the account activation process. This step is basically for verification. One must produce at least two IDs to get their account activated. One for the proof of residence and the other for the proof of identity.

After all these steps are fulfilled, the trader will receive the final email from the broker with the corresponding username and password. It will also provide the trader with instructions on how to add funds to their account. This completes the account verification & activation process.

Once we log in and fund our accounts, we can start trading the Forex market.

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42. How to stay away from the Forex Bucket Shops

Introduction

Introduction

Introduction

With a significant increase in the demand for retail traders to trade in the Forex market, tons of forex brokers have established their businesses to profit from their clients. This might seem like an advantage for traders as they have a variety of options to choose a broker. However, this is not the case.

In the world of forex brokers, there exist both genuine and fraudulent brokers. And these fraudulent brokers are referred to as bucket shops. These brokers have a frequent practice of misquoting and requoting and slippage, which favors only them.

Back in the day, as there was no internet, it was not possible for traders to know the actual price of the currency or security every moment. So, the clients used to place trades via phone. But, there were brokers who used to put the clients’ phone orders on slips and drop them into a bucket instead of officially executing them. Later, these orders were unofficially executed against the bucket shop operates, known as bucketeers.

These bucketeers usually did not disclose the real price of the currency, which was being traded in the market. They used to tell their clients that the price didn’t move in their favor, even if it actually did. But with the introduction of the internet and the improvement in the regulation of forex brokers, these scams have considerably reduced.

However, unfortunately, there still are these brokers out in the market. So, we’re here help to protect you from these scams. Things one must always keep a track of when trading with a broker are as follows:

✨ Constantly compare the price movement

Many traders trade based only on the prices mentioned by the brokers on their trading platform, which is quite dangerous. Currently, on the internet, there are many web portals that show the price feeds every tick. Hence, one must always keep track of the price feeds from several third-parties to confirm if the prices shown by the broker are real or not.

✨ Have a Trading Journal

Developing the habit of keeping a detailed journal of all the trades and transactions is extremely vital for a professional trader. Because if a trader feels that the broker has cheated them, they will need evidence to prove the genuineness in the filed case. And the simplest way to keep track of it is by taking a screenshot of every transaction they make. This can act as an excellent backup when they are cheated by a broker.

✨ Filing a legal action

Sometimes the disputes between the clients and brokers are not settled completely. So, this is when a trader must take legal action. If any conflict is unsettled, Forex traders can approach either the Commodity Futures Trading Commission (CFTC) or the National Futures Associations (NFA).

The CFTC has something called Reparation programs that provide an unbiased forum to handle and resolve customer’s complaints. You can click here to access the program.

Hence, by considering all these factors, one can stay away from being trapped by the fraudulent brokers in the industry.

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41. Picking A Genuine Forex Broker 101

Introduction

Introduction

Introduction

Choosing the right broker is a vital point to consider, as all your transactions such as deposition, withdrawal, opening a position happen in this corner. In the present world, the competition between the retail brokers is so high that it can take a lot of hard work to determine the right broker of your choice.

So, in this lesson, we will discuss some of the most critical criteria you consider before opening an account with a broker.

📍 Security

Security can be considered as the most important criterion to choose a broker. Since traders will be playing around with their money here, it is necessary to make sure that the broker is genuine and trustworthy.

Checking the credibility of the broker is pretty simple, as there are regulatory agencies that disclose the trustworthiness of a broker. So, if a broker is registered with any of these agencies, we can consider the broker to be genuine and secure.

For your reference, some of the regulatory agencies are given below.

  • National Futures Association and Commodity Futures Trading Commission, in the US
  • Prudential Regulation Authority and Financial Conduct Authority, in the UK
  • Swiss Federal Banking Commission, in Switzerland
  • Australian Securities and Investment Commission in Australia
  • Investment Information Regulatory Organization of Canada, in Canada
  • Financial Conduct Authority, in the UK
  • Cyprus Securities and Exchange Commission, in Cyprus

📍 Types of Fee levied

Many brokers claim that they do not charge any fee other than the spread. However, some brokers do charge different types of fees from the clients, such as brokerage fees, commission fees, daily rollover interest, etc. Therefore, one must verify with the broker on what all charges are imposed by them.

📍 Margin trading

This is no doubt the best feature provided by the forex brokers. Margin trading is the facility provided by the brokers where a trader can open larger positions with a lesser amount. Different brokers provide different margins. So, one must choose their broker by considering the margin provision and also by keeping the risk factor in mind.

📍 Deposit and Withdrawal

It is essential to choose brokers who provide a user-friendly, swift, and fast feature to process the deposits and withdraws. One should check the withdrawal policies of the broker before signing up with them. Because this is where most of the brokers have their hidden costs or undisclosed withdrawal limits.

📍 Trade execution

The trading software must be such that the orders are filled at the best available prices. This is an important factor for scalpers to consider, as every micro pip has significance.

📍 Trading platform

The trading platform also plays a vital role while choosing a broker. For a novice trader, if the UI of the trading platform is not user-friendly, it can become quite challenging for them to place and manage trades. Also, the presence of trading tools and indicators is necessary for professional traders. Hence, one should make sure that the broker meets all your requirements and specifications.

Therefore, considering the above points can definitely help you fetch a good broker for you to trade the forex market.

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40. Two Different Types Of Spreads In The Forex Market

In the last lesson, we clearly talked about what Spread in forex is and also how it is calculated. In this lesson, we will dig up a little more on the concept of spreads and understand its types.

In the last lesson, we clearly talked about what Spread in forex is and also how it is calculated. In this lesson, we will dig up a little more on the concept of spreads and understand its types.

In the last lesson, we clearly talked about what Spread in forex is and also how it is calculated. In this lesson, we will dig up a little more on the concept of spreads and understand its types.

In Forex, the spread is of two types:

  • Fixed spread
  • Variable/Floating spread

Fixed spreads are typically offered by Dealing Desk brokers, whereas, Variable spreads are offered by No Dealing Desk brokers. Let’s understand both in detail.

Fixed Spreads in Forex

As the name pretty much suggests, Fixed spreads remain the same regardless of the condition of the market. Be it a volatile or non-volatile market, the spread always stays the same.

As mentioned, these spreads are usually offered by Market Makers type of brokers.

Dealing Desk brokers buy a large number of positions from their liquidity providers and then offer these positions to traders (clients). Since the brokers will own these positions, they can control and display the prices to their clients with a fixed spread.

Why choose Fixed Spreads?

  • Fixed spreads do not require a large capital to trade. So, fixed spread brokers offer an alternative for traders who don’t have much cash to begin with.
  • “Fixed” spread itself is an advantage. Fixed spreads make it easy to calculate the transaction costs. And since spreads always remain constant, you will exactly know how much amount you will be paying to the broker for each trade.

Variable Spreads in Forex

Again, as the name suggests, Variable spreads are the spreads that are constantly changing, just like the exchange rates. That is, as and when the bid and ask price changes, the difference between the two changes. This, therefore, changes the spread as well.

This type of spread is offered by Non-Dealing Desk brokers. These brokers obtain the prices from multiple liquidity providers and directly pass on these prices to the traders without the involvement of a dealing desk. This means that NDD brokers do not have control over the spreads. It all depends on the market’s supply and demand and its overall volatility.

As a typical tendency of the market, when there is an economic event, the spreads widen. And same is the case when the market volatility drops.

Advantages of Variable spreads

  • Variable spreads diminish the experience of requotes, where requote is the difference in the price you hit the buy/sell and the price when your order reached the broker. However, this doesn’t mean that you won’t experience slippage.
  • Variable spreads provide transparent pricing, as you will be getting the prices from multiple liquidity providers, which in turn means better prices due to high competition.

If you’re wondering which type of spread you must choose? Well, it completely depends on the type of trader you are. For example, traders with small accounts who trade occasionally can go with a broker that offers fixed spread, whereas, a trader who wants fast execution and also wants to avoid requotes, can look for brokers offering variable spreads.

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39. Understanding the Concept of Spreads in Forex

Introduction

Introduction

Introduction

Ever wondered how brokers make money from their clients? Well, it is through a simple concept of Spreads.

In the previous course, we discussed the terminologies such as pip, pip value, bid price, ask price, etc. In this lesson, we shall be extending our discussion and touch base on ‘Spreads’ in Forex.

What is Spread in Forex?

The difference between the ask price and the bid price is called the spread.

The “bid” is the price displayed by the broker at which one can Sell a currency pair. Similarly, the “ask” is the price offered by the broker at which one can Buy a currency pair. In both, “bid” and “ask,” Buying and Selling happen on the base currency.

So, the difference between these two prices yields some pips. And these pips become the profit of the brokers. This is how brokers make money without any commission.

In Forex, clients need not pay any additional fee to make a trade, as all the charges are built into the buy and sell prices itself. So, people must not get carried away by brokers who claim that they charge “Zero commission,” because traders will indirectly be paying commission in the form of spread.

How is spread calculated?

In the forex market, the spread is typically measured in pips, which is the smallest unit of price movement in a currency pair.

For example, let us say the current price of EUR/USD is 1.1500 / 1.1504. Here, the left quoted price is called the bid price, and the right quoted price is called the ask price.

Now, to calculate the spread, we just find the difference between the two prices.

So, Spread = ask price – bid price = 1.1504 – 1.1500 = 0.0004

Hence, the spread for this currency pair is 4 pips.

Note: Always subtract the lower price with the higher price.

Moving forward, let us say a trader wants to buy one mini lot of EUR/USD at this price. So, to do the buy, he/she will be paying the ask price (1.1504). And, to close the trade, he/she will be given the bid price (1.1500).

Assuming that they bought and closed (sold) immediately, they would be in a loss of 4 pips. Now, to obtain the loss in terms of cost, we need to multiply the cost of one pip by the number of lots they are trading.

Assuming that the value per pip is $1 for every mini lot, the total cost would sum up to $4. Total cost = 4 pips * 1 mini lot * $1 (per mini lot) = $4

Similarly, if they were trading eight mini lots, the total transaction cost would turn out to be $32. Total cost = 4 pips * 8 mini lots * $1 (per mini lot) = $32

Hence, this brings us to the end of this lesson. And in the next lesson, we shall elaborate more on this topic by understanding the types of spreads in forex.

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Forex Course

38. Two Types of ‘No Dealing Desk’ Brokers

Introduction

Introduction

Introduction

In the previous lesson, we have discussed the two major classifications of forex brokers – Dealing Desk and No Dealing Desk. In this lesson, we will dig a little deeper and understand the types of No Dealing Desk brokers.

No Dealing Desk brokers can be classified into two types:

  • ECN brokers
  • STP brokers

What is an ECN broker?

An ECN broker is a forex broker expert that uses electronic communication networks to provide clients with direct access to other participants in the exchange market. Also, since these brokers consolidate prices from several other market participants, they usually offer their clients tighter bid/ask spreads. However, this tight spread is compensated by a small fixed commission charged by the brokers.

ECN brokers are NDD brokers, who do not pass the clients’ orders to market movers. Instead, they find participants in a trade electronically and then pass the orders to liquidity providers.

Understanding ECNs

As the name suggests, ECNs provide a network for buyers and sellers to participate and execute trades in the market electronically. These brokers make this possible by providing access to information on the orders being entered by the participants, and by facilitating the execution of these orders.

This network is designed to match the Buy and Sell orders currently traded in the exchange. And when the price requested by the client is not available, it provides the highest bid and lowest ask in the market.

What is an STP broker?

STP brokers, or Straight Through Processing brokers, are the ones who pass the clients’ orders directly to their liquidity providers. As discussed, the liquidity providers include banks, hedge funds, investment banks, etc. In this system, no intermediary or such will be involved in the execution of the order. Hence, the unavailability of the Dealing Desk makes the broker’s electronic trading platform Straight Through Processing (STP).

Moreover, with the absence of an intermediary (Dealing Desk), the brokers will be able to process orders of the clients much faster and without any delays.

Looking it the other way, STP brokers benefit from having many liquidity providers, because an increase in the number of liquidity providers increases the chances of the orders being filled for their clients.

Additionally, each time a client places a trade through an STP platform, the STP broker will make a profit. As STP brokers do not take the opposite of the clients’ trade, they add a minimal extra spread when quoting a bid/ask rate. And this small markup to the spread is passed to the clients via its electronic platform.

This completes the lesson on different types of No Dealing Desk brokers. Take the quiz below to know if you have got the concepts right.

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37. Types Of Brokers in the Foreign Exchange Market

Introduction

Introduction

Introduction

If you can recall, we have discussed a bit about Forex brokers in course 1.0. Here is the link for that article. There we have discussed the brief history and introduction to brokers. We recommend you to have a quick look at that article to get a better understanding of Forex brokers. In this article, let’s discuss the two different types of brokers.

Forex brokers can be mainly be classified into two types:

  • Dealing Desks (DD)
  • No Dealing Desks (NDD)

What is a Dealing Desk broker?

Dealing Desk brokers are the Forex brokers who make money through spreads. Also, they are the ones who provide liquidity to the clients. Hence, these brokers are also referred to as Market Makers. The specialty of these brokers is that they can literally make the market for their clients. This is because they usually take the other side of the clients’ trade. So does this mean that brokers take every price the client requests? Well, that’s not the case. They set both sell or buy quote, which is offered to the clients.

While trading with Dealing Desk brokers, the clients cannot see the real interbank market rates. However, as there is always stiff competition between brokers, the rates provided by the Dealing Desk brokers are close or sometimes the same as the interbank rates. Hence, the exchange rates are not a matter of concern.

Working of Dealing Desk brokers

Comprehending the working of Dealing Desk brokers is quite simple. Let’s say that a trader wants to buy one standard lot (100,000 units) of USD/CAD with a Dealing Desk broker. Once the request for a buy is sent to the brokers, the following are the scenarios that take place.

Firstly, to fill the order, the broker will try to match the order with their other clients who are willing to sell at that price. If they do not find any sell order, they route the trade to its liquidity providers, a sizeable entity who is always on the go to buy or sell a financial asset.

However, still, if there are no matching orders, they end up taking the opposite of the trader’s trade.

What is a No Dealing Desk broker?

As the name pretty much suggests, these are the set of brokers who do pass their clients’ orders through a Dealing Desk. Meaning, they do not take the opposite trade of their clients. To put it in simple words, No Dealing Desk brokers act like bridge builders. They simply link two different trading parties.

Since these brokers connect the clients directly through the Interbank Market (Banks, Hedge Funds, Mutual Funds, etc.) they usually charge some commission from the clients, or they slightly increase the spreads.

This completes the lesson on types of brokers. And in the next lesson, we shall do a comparison between these two brokers to give you an idea of which broker one must choose. Don’t forget to take the quiz below before you go.

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Forex Course Forex Course Guides

Forex Course 1.0 – Complete Guide

Hello Readers!

Hello Readers!

Hello Readers!

If you have been following us lately, you must have known that providing quality trading education is the number one motto for us at Forex Academy. With this being our principal mission, we have rolled out an in-house course that covers every single thing about Forex Trading. We want to primarily thank you all for the amazing response we have got on the first part of that course. This will only motivate us to provide more quality content.

This piece of article will help you in finding any particular concepts or for a quick overall revision. Basically this is a quick navigation guide of Forex Course 1.0.

  1. Introduction To The Forex Market – Link
  2. Currency Pairs – Link
  3. Mechanism Of Buying And Selling – Link
  4. Liquidity of The Forex Market – Link
  5. Different Ways Of Trading – Link
  6. How Does Profit & Loss Take Place – Link
  7. Right Currency Pair To Buy & Sell – Link
  8. The Concept Of ‘Pip’ – Link
  9. Lots & Its Different Types – Link
  10. Various Order Types – Link
  11. First Step In Your Trading Journey – Link
  12. General Myths About Forex – Link
  13. Different Trading Sessions – Link
  14. Tokyo Session – Link
  15. London Session – Link
  16. New York Session – Link
  17. Best Time To Trade The Forex Market – Link
  18. Forex market’s hierarchy – Link
  19. Forex Market Movers – Link
  20. Perks Of Trading Forex – Link
  21. Stock Market & The Forex Market – Link
  22. Margin Trading Fundamentals – Link
  23. Balance & Rollover – Link
  24. Unrealized P/L and Realized P/L – Link
  25. Margin Requirement & Required Margin – Link
  26. Used Margin and Equity – Link
  27. Free Margin – Link
  28. Margin Level – Link
  29. Margin Call & Margin Call Level – Link
  30. Stop Out Level In Margin Trading – Link
  31. Refresher – Margin Trading – Link
  32. Leverage & Margin – Link

We hope you find this comprehensive guide useful. Let us know if you have any questions regarding Course 1.0 in the comments below. Cheers!

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Introduction – Forex Academy’s Forex Course 2.0

In the previous course, we started off by understanding what Forex Market is actually about and went on until the concepts related to margin trading. Thank you for the fantastic response to the Course 1.0. Now, its time to step up our learning a bit and move to the next level.

In the previous course, we started off by understanding what Forex Market is actually about and went on until the concepts related to margin trading. Thank you for the fantastic response to the Course 1.0. Now, its time to step up our learning a bit and move to the next level.

In the previous course, we started off by understanding what Forex Market is actually about and went on until the concepts related to margin trading. Thank you for the fantastic response to the Course 1.0. Now, its time to step up our learning a bit and move to the next level.

In this course, we shall be discussing two of the most important topics. They are

✫ Forex Brokers

✫ Types of Analysis

Forex Brokers

If we see back in the ’90s, it was pretty difficult to participate in the retail Forex market due to its high transaction costs. Also, there were many restrictions put up by the government to the people who wanted to participate in the Forex market. However, as time passed, the CFTC (Commodities Futures Trade Commission), a U.S. regulatory agency, decided to bring an end to these complications. So, they passed a couple of bills – the ‘Commodity Exchange Act’ and the ‘Commodity Futures Modernization Act,’ which opened doors for online Forex brokers to ease the process for retail traders.

Then, with the introduction to the world wide web, it became extremely easy for small retail traders to open a forex trading account. Moreover, with an exceptional demand, thousands of Forex brokers came up to benefit from the booming Forex industry as well.

Coming to the present day, we learned about the Margin trading facility provided by the brokers. Now it is time to understand the different types of Brokers in the foreign exchange market. Hence, in this course, we shall go over everything you need to know about Forex Brokers.

Types of Analysis

In the second installment of the course, we will understand a very vital topic, which is on Types of Market analysis. Broadly speaking, there are three ways to analyze the market.

✔︎ Technical Analysis – This analysis is the study of price movement using trading tools like charts and indicators.

✔︎ Fundamental Analysis – It is the analysis of currency by considering its social, political, and economic factors.

✔︎ Sentiment Analysis – Are you under the impression that Forex market analysis is all about numbers and math? That is true to a great extent. But, on top of all those complex numbers, Forex has a close relation with human psychology too. In this type of analysis, traders understand the sentiment of other traders and try predicting the future of the market.

In this course, we will present all the types of analyses mentioned above. By the end of this course, you will also be able to understand how to combine all of these analyses and make your trades more holistic. The format will be similar to that of Course 1.0. A concept will be explained clearly in less than 500 words, and at the end of the course, you can check your learnings by taking a quick 4 – 5 question quiz.

We will start Course 2.0 by understanding the types of Brokers existing in the Forex Market. Are you excited to learn more? Stay tuned for the most amazing, simple, and informative content. Cheers!

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33. Understanding Leverage & Its Relationship With Margin

Leverage

Leverage

Leverage

There is a close relationship between the Leverage and Margin. That is, both go hand in hand. In simple terms, the margin is used to create leverage. The meaning of leverage is similar to the margin. It is a facility provided by brokers, which allows a trader to take larger positions by investing a lesser amount than required.

Margin is expressed in percentage, while Leverage is expressed as a ratio

Leverage is the ratio between the capital a trader has in their account to the amount of capital he/she can trade. And this ratio is expressed in the form “X:1,” where X is the amount of leverage.

Expressing Margin in terms of Leverage

If a trader wishes to purchase one mini lot of a currency, they don’t need $1,000 in their account balance. Instead, they will need only a small percentage of the position size. And this percentage is referred to as Margin Requirement.

This same percentage in terms of a ratio is termed as Leverage.

For example, let’s say John wants to buy 100,000 units of USD/CAD. If the Margin Requirement is 1%, John will require only $1,000 to take this trade. That is, the Leverage for this trade would be 100:1.

Calculating the Leverage

Leverage is calculated using the below formula

Leverage = 1 / Margin Requirement

Considering the above the example,

Leverage = 1 / 0.01

Leverage = 100

Hence, the leverage will be 100:1.

Similarly, if the Margin Requirement is 2%, the Leverage will be 50:1.

Conversely, using Leverage, we can obtain the Margin Requirement as well.

Margin Requirement = 1 / Leverage

For example, if the Leverage is 500:1, the Margin Requirement  = 1 / 500 = 0.002

Hence, the Margin Requirement when Leverage is 500:1 will be 0.002 or 0.2%.

Mostly, Margin and Leverage have an inverse relationship.

Forex Margin and Stock Margin

Forex margin and Stock (Securities) margin are two completely different terms, though both are from the same trading industry.

In the Stock market, the margin is the amount a trader borrows from their broker to purchase a stock. Basically, it is like borrowing funds as a loan from their broker.

Whereas in the Forex market, the meaning of margin is different. Here, as we know, it is the amount of money a trader will have to keep aside with the broker as a deposit to open a margin position.

Hence, to sum it up, we can consider margin either as a loan provided by the brokers or as collateral collected by the respective brokerage firm.

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34. Refresher – Margin Trading & All The Topics Involved

Introduction

Introduction

Introduction

We have discussed all the terminologies and concepts related to Margin Trading in the previous articles. In this article, let’s get a quick recap of all these terms with the help of examples.

Let’s go through the steps involved in margin trading with the help of these terms. This exercise will help you in understanding how all of these terms are interrelated.

Let’s say Tom wants to margin trade GBP/USD currency pair. Below is the step-by-step procedure that he should follow.

Step 1: Balance

To start taking positions in his margin account, Tom must first deposit some amount. So, let’s say he has deposited $1,000 in his margin account. Once this amount gets deposited, Tom’s Balance will be $1,000.

Step 2: Required Margin

After depositing, if Tom wishes to go long on GBP/USD, he must know the Required Margin to open a position. Assuming the price of GBP/USD is 1.3150, and he wants to open 10,000 units, the Required Margin, if the Margin Requirement is 2%, is,

Required Margin = Notional Value x Margin Requirement

In terms of USD, Notional value = 10,000 pounds x $1.3150 = $13,150

Hence, the Required Margin will be,

Required Margin = $13,150 x 0.02 (2%) = $263

Step 3: Used Margin

As we know, when there is only one position open, the Used Margin will be equal to the Required Margin. So, here, the Used Margin of Tom’s margin account will be $263.

Step 4: Equity

Initially, let us say that Tom’s trade is in breakeven (no profit no loss). The Equity for this can be obtained using the below formula,

Equity = Balance + Floating P/L

= $1,000 + $0

Hence, Equity = $1,000

Step 5: Free Margin

From Equity and Used Margin, we can calculate the Free Margin as well. It is the simple difference between the two.

Free Margin = Equity – Used Margin

= $1,000 – $263

Thus, the Free Margin turns out to be $737.

So, this is the amount Tom has left to take new positions.

Step 6: Margin Level

Taking another step forward, we can calculate the Margin Level as,

Margin Level = (Equity / Used Margin) x 100%

= ($1,000 / $263) x 100% = 380%

Hence, the Margin Level is 380%. This is an important term for brokers as they use it to determine Tom’s eligibility to take new positions. Because both the Margin Call Level and Stop Out Level fixed by the brokers will be considering the Margin Level of Tom’s Margin Account.

The values that will be changed after the price changes are Notional value, Used Margin, Floating P/L, Equity, Free Margin & Margin Level.

Now, let’s say the price of the GBP/USD dropped to 1.1000. Let us calculate the changes in the values.

Notional value

Notional value = 10,000 pounds x $1.1000

Notional value = $11,000

Used Margin

Used Margin = Notional value x Margin Requirement

= $11,000 x 0.02 = $220.

Floating P/L

(Entry Price = 1.1800)

Assuming the pip value to be $1, the Floating P/L for a movement of 800 pips will be,

Floating (Unrealized) P/L = (Current price – Entry price) x pip value

= (1.1000 – 1.1800) x 10,000 x $1

= -0.08 x 10,000 x $1

From the above calculation, the Floating P/L will be = (– $800)

Equity

Similarly, Equity will change to

Equity = Balance + Floating P/L

= $1,000 + (-$800)

Hence, the Equity will be $200.

Free Margin

Free Margin = Equity – Used Margin

= $200 – $220 = (–$20)

Margin Level

Margin Level = (Equity / Used Margin) x 100%

= ($200 / $220) x 100%

Hence, we obtain the Margin Level to be 90%.

Now, if you recall the previous two lessons, at this point, Margin Call will be initiated by the broker. And a further fall could lead to Stop Out as well.

In case if the Margin Call Level is the same as the Stop Out Level, then Tom’s Used Margin will be released, and the Floating Loss will be realized. Also, Tom’s Balance will be updated accordingly. We hope it all makes sense now. Check your learning by taking the quiz below.

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32. Understanding Stop Out Level In Margin Trading

Introduction

Introduction

Introduction

In the last lesson, we saw how Margin Level was found to be useful for giving meaning to Margin Call Level. Similar to the previous lesson, in this lesson, we shall be discussing another term that involves the dependency of the Margin Level. This lesson will be dealing with the understanding of what Stop Out Level is and also the implications and consequences of it.

Stop Out Level, and Margin Call Level have almost got the same meaning. There is only a thin line difference between these two. Hence, understanding the Margin Call Level is critical to comprehend Stop Out Level.

What is Stop Out Level?

Stop Out Level is a level that is set by the brokers, which triggers them to take action when the Margin Level falls below this specified level (Stop Out Level). That is, when the Margin Level breaks below the Stop Out Level, the broker forcibly closes some of the trader’s position, usually without their consent. The positions are liquidated because of the unavailability of the margin in the account.

Before the broker closes the positions, the trader is first intimated that their Margin Level has significantly reduced and is at risk. This intimation is called Margin Call. If the Margin Level falls much more than the Margin Call Level and goes below the Stop Out Level, the positions are liquidated. And this process of liquidation is called Stop Out.

The complete flow to Stop Out

If we were to dig deeper, the dependency of Stop Out level drops down to the basic concepts like Balance, Margin, Floating P/L, etc.

For instance, when a trader takes a position, the above terms come into action. If the trade is in profit, the floating P/L increases, and there are no worries about the margin call and stop out as the margin level would be considerably higher than the margin call level and the stop out level. But, if the trade is running in the negative, eyes must be on the margin call level as well as stop out level. Let’s get this point clearer, with an example.

Let’s say a trader has deposited $1000 into his account and has used $200 for taking few positions. Consider the Stop Out Level to be at 20%.

If the trades are running in a loss of$970. The equity for this is calculated as:

Equity = balance + floating P/L = $1,000 + (-$970) = $30

Similarly, the margin level will be,

Margin level = (Equity/used margin) x 100% = ($30 / $200) x 100% = 15%

Now, since the margin level has gone below the stop out level, the positions are scratched off. So, the trader will have booked a loss of $970. And the newly updated balance will be $30.

This brings us to the end of this lesson on Stop Out Level. Also, this completes all the terminologies that are involved in Margin Trading. Take the quiz below and stay tuned to learn a different lesson tomorrow. Cheers!

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31. The Concept Of Margin Call & Margin Call Level

Introduction

Introduction

Introduction

By now, you would have known that risk management is the most crucial factor of consideration while trading in a margin account. The trader is not solely responsible for their risk, but brokers, too, have some features that directly or indirectly try reducing the risk of the traders. In the previous lesson, we understood what margin level was. And in this lesson, we shall be putting more meaning to it by introducing another term which is correlated with margin level. The margin term, which will be discussed in this lesson is ‘Margin Call Level.’ So, without any further talks, let’s get our feet wet with this topic.

Margin Call Level

Margin Call Level, as the name suggests, is a specific level in Margin Level when the broker warns the trader that their positions are at risk. It is a threshold level when the broker alerts the trader that some of their trades can be forced to close.

As mentioned, the Margin Call Level is closely related to Margin Level. Hence, Margin Call Level is expressed in terms of percentage.

Example

Let’s say the Margin Call Level set by the broker is 100%. So, if an account’s Margin Level falls below 100%, then it is said that the account has hit the Margin Call Level.

Margin Call

Margin Call and Margin Call Level is pretty much the same thing. Margin Call is simply a different version of the Margin Call Level. If Margin Call Level is a specific ‘level’ set by the broker, Margin Call is a ‘call’ or ‘notification’ given by the broker. So, when an account’s Margin Level falls below the Margin Call Level, the account holder will receive a call or notification from the broker notifying the same.

This above explanation was the simple exterior working of Margin Call. If we were to see the internal working of it, one would receive a Margin Call when the Equity value becomes less than the Used Margin. That is when the floating loss becomes larger than the Used Margin.

Now, let’s get this concept cemented by considering an example.

Assume that a trader has deposited $1,000 in his account. Also, he went short on EURUSD for 10,000. The required margin for this trade was $300. Considering this to be the only running trade, the Used Margin will be $300 (same as the Required Margin).

Let’s say the trade is performing well, and the current unrealized P/L is $100. The Equity at this point of time will be,

Equity = Account Balance + Floating P/L = $1,000 + $100 = $1,100

Now, since the trade is running in profit, the Margin Level will obviously be above the Margin Call Level.

Later, let’s say the trade is going into the negative to -$700. The Equity now will turn out to be $300 ($1,000 – $700).

With these values, let’s find out the Margin Level.

Margin Level = (Equity / Used Margin) x 100% = ($300 / $300) x 100% = 100%

Assuming that the Margin Call Level set by the broker is 100%, the trader will now receive a Margin Call as the current Margin Level is at 100%.

Now, wondering what will happen if the Margin Level falls significantly below the Margin Call Level? The answer to this shall be discussed in the next lesson. Make sure to take the quiz below before you go.

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30. What Is Margin Level and How Is It Calculated?

Introduction
The margin concepts such as Used margin and Equity have proved to be essential to understand other margin terms. In this lesson, the concept of Margin level too revolves

Introduction
The margin concepts such as Used margin and Equity have proved to be essential to understand other margin terms. In this lesson, the concept of Margin level too revolves

Introduction

The margin concepts such as Used margin and Equity have proved to be essential to understand other margin terms. In this lesson, the concept of Margin level too revolves around the terms Used margin and Equity. Without further discussion, let’s get right into the understanding of the Margin level.

Margin Level

Margi level is the percentage ratio of Equity and Used margin. It is a term whose value is expressed in percentage. Also, the meaning of it is closely related to the Free margin.

The margin level determines if the trader can take new positions or not. It is a comparative factor as it is compared with a level set by the brokers. For easy comprehension, note that higher the margin level, higher is the possibility for the trader to take new positions and vice versa. Knowing the margin level is vital because this value has a relation with a Margin call and Stop out level as well.

Calculating Margin Level

The margin level is the ratio of Equity and Used margin expressed in terms of percentage.

Margin level = (Equity / Used Margin) x 100%

Understanding Margin Level

Similar to the Free margin, the Margin level will have no value when there are no positions open. This is simply because there is no margin used. However, when positions are open, the margin level has a non-zero value, which is dependent on the used margin and equity.

As mentioned earlier, the margin level determines if a trader is eligible to take new positions. And this is determined by the level set by the brokers. If the margin level falls below the level set by the brokers, the trader becomes ineligible to take a new position. Usually, the limit set by the brokers is 100%.

Example

Let’s say a trader has deposited $1,000 to their account and has gone long 10,000 units on USD/CAD. Below are the parameters that are to be calculated to determine the margin level:

  • Required margin
  • Used margin
  • Equity
Required Margin

If the margin requirement for this trade is 2%, the required margin will be,

Required margin = Notional value x Margin requirement = $10,000 x 2% = $200

Used Margin

Since there is only one position running, the value of the used margin will be equal to the value of the required margin, i.e., $200

Equity

Assuming the trade is running in a profit of $50, the equity is calculated as follows:

Equity = Account balance + Floating P/L = $1,000 + $50 = $1,050

Now that all the parameters are known, let’s go ahead and calculate the Margin level.

Margin Level

Margin level = (Equity / Used Margin) x 100% = ($1,050 / $200) x 100% = 525%

Now, since the value of the margin level is above 100%, the trader is still eligible to take new positions. This brings us to the end of this lesson on the Margin level. Don’t forget to take the below quiz.

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29. Other Important Margin Trading Terminologies – Free Margin

Introduction
In the previous lesson, the concept of used margin and equity was discussed. Apart from having their importance, these terms prove to be significant to understand other terms as

Introduction
In the previous lesson, the concept of used margin and equity was discussed. Apart from having their importance, these terms prove to be significant to understand other terms as

Introduction

In the previous lesson, the concept of used margin and equity was discussed. Apart from having their importance, these terms prove to be significant to understand other terms as well. And in this lesson, we will be dealing with a term that has a close relation with used margin and equity.

Just to brush things up, the used margin is basically the total amount of money that is used up by the broker for all the positions. In other words, it is simply the sum of the required margin for all the trades. And equity, on the other hand, is the sum of the account balance and the unrealized P/L. Now that these definitions are clear let’s understand what free margin is.

Free Margin

Free margin is the difference between the Equity and the Used margin. That is, Free margin is the amount that is available for the trader to take new positions. It is basically the complemented version of the Used Margin. Used margin is the margin that is locked by the broker for taking positions, while free margin is the margin that can be utilized to open new positions. Free margin is also referred to as available margin, usable margin, and usable maintenance margin.

Calculation of Free Margin

As already mentioned, the Free margin is calculated by finding the difference between Equity and Used margin.

Free Margin = Equity – Used Margin

In the previous lesson, it was discussed that equity changes continuously when any positions are open. Now, since Equity is one of the factors that determine the Free margin, the free margin also keeps constantly changing when positions are running.

So, when a trade is performing well, the floating P/L increases, which in turn increases the Equity as well as the Free margin. And conversely, the Free margin decreases when the floating P/L decreases.

Now that the formula is clear let’s understand it better with some examples.

Let’s say a trader has deposited $1,000 to their account and currently has no positions open yet. So, the account balance at this point would be $1,000. The Equity will be the same as the account balance as the floating P/L is $0. Since no trades are open, there is no margin used. From this, the free margin is calculated as:

Free Margin = Equity + Used Margin = $1,000 + $0 = $1,000

Thus, it can be concluded that Balance, Equity, and Free margin is the same when no positions are open.

Now, let’s say the trader went short 10,000 units on EUR/USD. Consider the required margin to be $150. Also, assume that the trade is running in a profit of $30.

Equity= Account balance + Floating P/L = $1,000 + $30 = $1,030

The used margin will be equal to $150 (required margin) as there is only one position open.

Free margin = Equity – Used margin = $1,030 – $150 = $880

We hope you understood what Free margin refers to in a margin account. In the coming lessons, we will be discussing the Margin level, Margin call level, and Stop out level. Check your learnings by taking up the below quiz.

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28. What Should You Know About Used Margin and Equity

Introduction
In the previous lesson, three terms related to margin was discussed. There is another term called used margin, which comes under the same roof of the margin requirement and

Introduction
In the previous lesson, three terms related to margin was discussed. There is another term called used margin, which comes under the same roof of the margin requirement and

Introduction

In the previous lesson, three terms related to margin was discussed. There is another term called used margin, which comes under the same roof of the margin requirement and required margin. And in the lesson, this term shall be discussed in detail. Apart from that, this lesson shall touch base on the concept of Equity in margin trading.

Before diving directly into the topic, let’s first brush up the previously discussed terms as they form the base for this lesson. To Start off with the Required Margin, it is basically the units of currency that is needed to open a position. Note that this is not the actual amount of the position size but the amount after applying the Margin Requirement to the required margin.

Used Margin

The Used margin is the term that is very similar to the required margin. In fact, the used margin is the required margin. However, there is a thin line difference between the two.

The Used margin is the amount that is blocked by the broker when positions are open on a trader’s account. This definition might seem the same as that of the required margin. The difference is that the required margin talks about one single trade, while the used margin considers the sum of the required margin of all the trades. This is the amount that is ‘used’ by the broker when the trade is open and cannot be utilized for taking new positions. However, once the positions are closed, this used margin is unblocked and returned to the account balance.

Example

Let’s say a trader has $1,000 in his account and wishes to open trades on EUR/USD and USD/CHF.

Let’s assume he is willing to go short 10,000 units on USD/CHF and long 1,000 units on EUR/USD. Let’s keep the margin requirement for USD/CHF and EUR/USD to 2%, respectively. Before going into the calculation of the used margin, the required margin is calculated as follows:

USD/CHF

Required margin = Notional Value x Margin Requirement = $10,000 x 0.02 = $200

EUR/USD

Required margin = Notional Value x Margin requirement = $1,000 x 0.02 = $20

Therefore, when positions on both trades are opened, the used margin turns out to be $220*.

*Used margin = $200 + $20 = $220

Equity

Equity is a variable term that represents the current value of the account balance. Equity constantly changes when traders have their positions running. This proves to be an important term because it determines how many more positions can be taken on this account.

Calculation of Equity

The calculation of Equity is simple. It is the algebraic sum of the account balance and the unrealized P/L. When there are no positions open, the Equity will be the same as the account balance as the unrealized P/L is 0. And when there are any running positions, the Equity will be determined by both account balance and unrealized P/L.

Equity = Account Balance + Floating P/L

From this, it can be inferred that, when trades are running in the positive, the Equity rises, and when they’re in the negative, the Equity drops.

Thus, this completes the lesson on Used Margin and Equity. In the next lesson, some advanced term on margin shall be introduced. Don’t forget to take the below quiz before you move on.

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27. Understanding Margin Amount, Margin Requirement, and Required Margin

Introduction
In the previous two lessons, the basic terms in a margin account were discussed. And this lesson shall talk about the concept of Margin in detail. Precisely, this chapter

Introduction
In the previous two lessons, the basic terms in a margin account were discussed. And this lesson shall talk about the concept of Margin in detail. Precisely, this chapter

Introduction

In the previous two lessons, the basic terms in a margin account were discussed. And this lesson shall talk about the concept of Margin in detail. Precisely, this chapter of the course will deal with Margin, Margin Requirement, and Required Margin, as these three terms are very crucial when it comes to handling a margin account.

Margin, Margin Requirement, and Required Margin are closely related to each other.    Margin, the used term in margin trading, is the amount one needs to possess to open a position. And Margin Requirement and Required Margin are terms which mean the same but differ in notation. Now, let’s dive right into the topic and understand each one of the terms in detail.

Margin Amount

It is the amount that is used up or blocked by the broker to open and maintain a position in the forex. An important point to be noted here is that capital blocked is usually not the same as the lot size traded. Hence, the Margin Amount can be related to deposit or collateral that is payable to be the broker. However, this amount differs based on the number of lots traded.

The margin amount is blocked from the account balance when a trade is opened and is freed to the account balance when the trade is closed.

Margin Requirement

Margin Requirement describes what percentage of the position size is required to open a position. For example, if the Margin Requirement for a trade is 3%, then 3% of the position size is to be produced by the trader to open the position. So, when brokers mention that Margin in terms of percentage, then they are referring to Margin Requirement.

Required Margin

Required Margin is simply the Margin Requirement expressed in terms of units of currency. For example, if the margin requirement is 1% to take a position worth $10,000, then the Required Margin for the same will be $100.

Calculation of Required Margin

Since Required Margin is closely related to the Margin Requirement, the Required Margin is the product of Margin Requirement and the Notional Value.

Required Margin = Margin Requirement x Notional Value

Summary

Let’s sum up all the terms by taking an example. Let’s say a trader has $1,000 in his trading account. This amount can be read as a balance, as well. Let’s say he wishes to go long 10,000 units on EURUSD. Also, let’s assume that 2% of the position size value is required to open a trade.

The Notional value, Margin Requirement, Required Margin can be calculated as follows:

Assuming an account dominated in the USD, the Notional value turns out to be $10,000. Similarly, the Margin Requirement will be 2%, and the Required Margin will be $200*.

*(Required Margin = $10,000 x 2%)

When the trade is placed, $200 is blocked by the broker as “margin.” And once the position is closed, the complete margin amount (deposit) will be added back to your account balance, given that the trader did not make a loss.

This brings us to the end of this lesson. Let’s see if you can get all the below questions right!

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26. Margin Terminologies – Unrealized P/L and Realized P/L

Introduction
In the previous lesson, the concept of balance was discussed. And in this lesson, two more terms shall be opened up, namely, unrealized P/L and realized P/L. First up

Introduction
In the previous lesson, the concept of balance was discussed. And in this lesson, two more terms shall be opened up, namely, unrealized P/L and realized P/L. First up

Introduction

In the previous lesson, the concept of balance was discussed. And in this lesson, two more terms shall be opened up, namely, unrealized P/L and realized P/L. First up, P/L is an abbreviation for Profit/Loss. Many assume that there is only one type of P/L, but this is not true. Not just in forex, in other markets as well, there exists both unrealized and realized P/L. Now, let’s begin with understanding each term with the help of examples.

Unrealized P/L

Unrealized P/L, as the name clearly suggests, is the profit or loss running in a trade that is not closed. The profit/loss in unrealized P/L constantly changes as the prices keep changing. Hence, this type of P/L is also referred to as Floating P/L.

The Unrealized P/L is calculated as follows:

❖ Unrealized P/L = Position size x (CMP – Entry price)  [Long]

❖ Unrealized P/L = Position size x (Entry price – CMP)  [Short]

(CMP – Currency Market Price)

This above formula gives the value in terms of pips. The value in terms of currency can be calculated by multiplying it with the pip value of the currency pair.

Example – Unrealized P/L or Floating P/L

Let’s assume a trader bought 10,000 units of EURUSD at 1.4100. After a while, the price rises to 1.5000. If the trade is still running, the floating P/L can be determined, as shown.

Since this is a long trade, the following formula is applied.

Unrealized P/L = Position size x (CMP – Entry price)

= 10,000 x (1.6100 – 1.5000)

= 10,000 x (0.11)

Unrealized P/L = 1,100 pips

Hence, the trade is currently running at a profit of 1,100 pips.

Now, if the pip value for a mini lot for EURUSD is $1, the profit sums up to $1,100 (1,100 x $1).

Now, bringing the concept of balance into the picture, the balance for unrealized P/L will not get affected though the trade is in profit or loss. However, once the trade is closed, the balance does get updated.

Realized P/L

Realized P/L is the profit or loss in a trade when it closed. Realized P/L is more significant than the unrealized P/L because this is the one that brings a change to the account balance.

The realized P/L can be calculated using the below formula:

❖ Realized P/L = Position size x (Closing price – Entry price)  [Long]

❖ Realized P/L = Position size x (Entry price – Closing price)  [Short]

Example – Realized P/L

Let’s say a trader went long on EURUSD with 10,000 units at 1.1000. The price drops down to 1.0000. Since the current market price is lower than the entry price, it can be ascertained that the trade is running in a loss, i.e., the unrealized P/L would be negative. Later, the price jumps up to 1.2000. At this point, the trader closes the trade. Since the trade is now closed, the realized P/L can be calculated as follows.

Realized P/L = Position size x (Closing price – Entry price)

= 10,000 x (1.2000 – 1.1000)

Realized P/L = 1,000 pips

In terms of currency value, the realized P/L will be $1,000 (1,000 pips x $1). And this time, the balance will be updated as well.

Hence, this begins us to the end of this lesson. In the next lesson, another important margin terminology shall be discussed. Before you go, make sure to take the below quiz to know if you have got the concepts right.

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25. Margin Terminologies – Balance & Rollover

In the previous lesson, we have understood the fundamentals of margin/leverage trading. In this lesson and the following few lessons, we shall be discussing different terms related to margin and

In the previous lesson, we have understood the fundamentals of margin/leverage trading. In this lesson and the following few lessons, we shall be discussing different terms related to margin and

In the previous lesson, we have understood the fundamentals of margin/leverage trading. In this lesson and the following few lessons, we shall be discussing different terms related to margin and margin account. And in this lesson, we will primarily talk about balance and also a brief description of the concept of rollover in Forex.

What is Balance?

Balance is the most basic term used in any type of account. Be it a regular savings account, a Demat account, or a margin account. The meaning of balance remains the same in the margin account as well, just like other account types.

Balance in a margin trading account is the amount of capital deposited by the user to his/her trading account. For example, if a trader deposits $1,000 to their margin trading account, then their balance would be equal to $1,000. This is the amount used for taking positions in the market. Apart from that, it is used up for other stuff as well, which will be discussed in the next sections of this article.

Another vital point to note here is that the balance amount is not affected when a trader enters a trade or when a position is open. The balance gets updated only after the trade is closed (rollover fee is an exception).

When does the balance gets affected?

The balance in a margin account is affected in the following ways:

  • When cash is deposited to the margin account.
  • When an open position is squared off (closed).
  • When open positions are kept overnight, so, though positions are open, funds will be debited from or credited to the margin account. And this fee is referred to as the rollover fee. 

What is Rollover in trading?

The concept of rollover is not a term that comes under a margin account. However, since this term is closely related to balance, it shall be discussed in this lesson.

As the name pretty much suggests, rollover is the process of shifting an open position from one trading day to another. This is a process that is done automatically by the brokers. As far as the internal working of rollover is concerned, the brokers close a position at the end of the trading day and simultaneously open a new position (at the closing price) the next trading day.

For this rollover to be done, brokers charge a fee called ‘swap.’ This is where the balance comes into the picture, as swap brings a change to the balance. Note that swap happens in both ways, i.e., it can be debited from as well as deposited to the user’s account balance. The interest rates of the currencies are the ones that determine if the swap is to be credited or debited. In simple words, If you are paid swap, the money will be credited to your account balance. Conversely, if you are charged swap, the money will be debited from your account balance.

This concludes the lesson on balance in a margin account. In the upcoming lesson, we shall be discussing two more terminologies related to Margin Trading. Don’t forget to take up the below quiz!

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24. Fundamentals Of Margin Trading

Introduction
Margin, which allows for Leverage trading, is one of the crucial reasons why most of the traders prefer trading Forex. It is an aggressive form of trading where traders

Introduction
Margin, which allows for Leverage trading, is one of the crucial reasons why most of the traders prefer trading Forex. It is an aggressive form of trading where traders

Introduction

Margin, which allows for Leverage trading, is one of the crucial reasons why most of the traders prefer trading Forex. It is an aggressive form of trading where traders take more risk while expecting an additional reward. Here, traders increase their bet by borrowing funds usually from their brokers. Thereby leverage trading allows a trader to trade with more funds than they actually have in their account. Leverage trading exists in the stock market, as well. The internal working of margin in both the markets is not quite the same, but the overall concept is the same.

Leverages is typically represented in ratios or with an ”X” next to it. For instance, the notation of two times leverage would be 2:1 or 2x. There are several other terminologies such as balance, realized and unrealized P/L, used margin, equity, etc. which are involved in margin trading. And to trade in a margin account, having knowledge about these terms is vital. So, in this lesson, some basic concepts and working of the margin trading shall be discussed.

Margin Account

A margin account, also referred to as a leverage account, is a trading account offered by a forex broker, which lets their clients trade large quantities without investing the total required amount. In a margin account, the forex broker acts like a loan lender who lends cash to its customers for taking positions in the market.

How does margin trading work?

Let us assume that a trader has deposited some amount into his account. The broker sets a margin percentage for the client. This margin percentage typically is between 1-2%. In forex, it is not the case that this account balance is used for taking a position. But, it is used up by the brokers as security deposits. Here, if the broker sets a margin percentage to 1%, then 1% of the trade value is utilized by the broker as a security deposit. So, a trader takes a position worth $100,000, then only $1,000 is used up, and the broker lends the rest 99% of the amount. This is the basic working of a margin account. There are many other terms involved in it, which shall be discussed in the subsequent lessons.

Benefits and Shortcomings of Leverage Trading

Initially, margin trading might seem very beneficial. To an extent, this is true, but there are disadvantages to it as well. Below are some of the advantages and disadvantages of margin trading.

Advantages

🟢 Ability to multiply a trader’s trade size

With margin trading, minimal capital is no more an issue because one can take larger positions even with a smaller investment.

🟢 Significant short-term gains

As margin accounts allow traders to take bigger positions, one can grow their account balance exponentially, even in the short-term.

Disadvantages

🔴 High risk

The market has two directions. So, though a trader trades on a margin, it does not mean that the trade will perform in their forecasted direction. A trader can make high profits and can even lose a significant amount of money. Hence, trading with margin involves high risk. And it is not recommended for novice traders.

🔴 The requirement of the minimum account balance

Trading in a margin account requires the user to maintain the minimum balance specified by the broker. If a user fails to maintain the minimum balance, then the trader is forced to close their positions.

This concludes the introduction of margin trading. In the next lesson, the terminologies involved in margin trading shall be discussed.

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23. A Brief Comparison Between The Stock Market & The Forex Market

Introduction
The Stock market and the Forex market are the most widely traded markets in the world. Many traders who enter the universe of trading are often in a dilemma

Introduction
The Stock market and the Forex market are the most widely traded markets in the world. Many traders who enter the universe of trading are often in a dilemma

Introduction

The Stock market and the Forex market are the most widely traded markets in the world. Many traders who enter the universe of trading are often in a dilemma on which market to trade on. Though both markets involve trading instruments, there are many differences between these two. In this lesson, we shall get insights on the different features of both markets and then come to a conclusion on which is the market has got the upper hand.

Market timings

The forex market is open for 24/5. This proves to be a considerable advantage, as traders can trade anytime during the trading hours according to their schedule. While this is not the case with the stock market because they’re open only for 7-9 hours in a day. So, the stock market timings can be helpful only to full-time traders.

Facility to buy and sell short

As already discussed in the previous lesson, there is no directional bias in the forex market. The process and working for buying and selling is the same. Hence, a trader can participate during any condition of the market.  In the case of the stock market, there are few restrictions on short selling a stock. Though the facility for short selling is available, the procedure is not as simple as buying a stock.

Leverage/Margin

Leverage is the facility provided by the brokers to take larger positions with smaller capital. Leverage is one of the reasons why small retail traders take part in the market. Now, comparing the leverage in the stock market with the forex market, the difference is quite significant. In the stock market, maximum leverage for a day trader is up to 4:1 and for a positional trader, it is up to 2:1. Coming to the forex market, the leverage is commonly around 100:1. In fact, in some brokerages, it goes up to 500:1 as well. However, it cannot be concluded that it is better to choose the forex market over the stock market. This is because, as the leverage increases, the risk involved in the trade also increases.

Dividends

Dividends are basically perks given by companies if an investor invests in their company. Investing in a stock that provides dividends to their customers can be considered as a risk-free business. This is because, even if the stock underperforms in the market, you are usually assured of dividend income. But, in the forex market, there is no concept of dividends as such. Hence, this market is for the ones who are willing to take the risk.

Diversification

Many traders look for diversifying their portfolio. In the US stock market, there are around 2,800 stocks listed on the NYSE and 3,100 on the NASDAQ. And these stocks are put into different sectors. The sectors have their specific features and perform differently from other sectors. Hence, the stock market is an ideal market for the ones looking to diversify their investments.

Conclusion

In considerations of the above features of the stock market and the forex market, it is quite hard to stay biased. In the initial features, the forex market proves to be a better market, and when it comes to dividends and diversification, the stock market is the clear winner. Hence, from this, we can conclude, ‘the best market’ is a variable factor. It all depends on the type of trader a person is.

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22. Perks Of Trading The Forex Market

Introduction
The foreign exchange market is, no doubt, the most popular market in the world. Though it is considered to be a very risky business, it can prove to be

Introduction
The foreign exchange market is, no doubt, the most popular market in the world. Though it is considered to be a very risky business, it can prove to be

Introduction

The foreign exchange market is, no doubt, the most popular market in the world. Though it is considered to be a very risky business, it can prove to be the best platform for trading and investing if things are done wisely. People often are in a dilemma to choose between the stock market, commodity market, and the forex market. Hence, it is important to know the benefits each market has to offer. So, in this lesson, we shall discuss some significant benefits the forex market has to offer.

Advantages of Trading Forex

Open 24/5

The forex market is traded throughout the day from Monday to Friday. And this got to be the biggest advantage for the part-time traders. Since there are quite a large number of people who are into 9-5 jobs, the forex market is an excellent option as one can trade anytime during the day. Hence, the forex market is the most flexible market when it comes to timings.

Great Liquidity

The forex market is the largest market in the world. It has a huge volume of orders coming in every single second. With high liquidity, trades are executed as soon as the order is placed. In fact, the forex market has the highest liquidity compared to any other market.

Margin Trading

In forex, the retail traders get the facility to trade with leverage. That is, with leverage trading, a trader can trade with quantities even if they do not possess the required amount. This is a great advantage as it paves the way for the small traders who are willing to participate in the market.

Nominal Commission and Transaction Costs

Another significant benefit to consider about the forex market is that the forex brokers don’t really charge any high fee, such as brokerage fees, exchange fees, or clearing fees. Having said that, they do charge commission, which is in the form of spreads. The bid/ask price, which is often referred to as the transaction cost, is typically around 1% when the market conditions are normal.

The Freedom on Lot Sizes

In forex, the brokers allow trading with as low as 0.001 lots. And traders can choose from 0.01 lots, 0.1 lots and 1 lot. Hence, there are variable lot sizes in this market. But, if you were to consider the futures market, the lot sizes are of one type and are determined by the exchanges.

Free Demo Trading

Demo trading is one of the best features the forex brokers have to offer. And the cherry to the cake is that demo trading accounts are free of cost. Demo trading can be very helpful to both novice and professional traders. Novice traders can use it to get the hang of placing orders and other features in the platform, while professional traders can use them to test the consistency of their strategies. Hence, we can consider demo trading to be a powerful risk-reducing tool.

Facility to Go long and Go Short

In the forex market, there is no directional bias. This is because currencies are traded in pairs. If a trader thinks the base currency would rise in value, they can go long, and if they think it will depreciate in value, they can go short. So, unlike the stock market, a trader need not borrow shares to sell short an instrument. Hence, traders can profit from both rising markets as well as falling markets without any complications.

Hence, these were some of the most significant features and advantages of the forex market. In the coming lesson, let us put up a comparison between different markets and see which market proves to be the best; for now, take the below quiz and see if you have understood this lesson correctly.

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21. Who Are The Forex Market Movers?

Introduction
In the previous lesson, we discussed how the forex market is structured. Now, it is time to take this topic a little deeper. In this article, let’s understand the

Introduction
In the previous lesson, we discussed how the forex market is structured. Now, it is time to take this topic a little deeper. In this article, let’s understand the

Introduction

In the previous lesson, we discussed how the forex market is structured. Now, it is time to take this topic a little deeper. In this article, let’s understand the Forex market movers. The participants of the market during the late 20th century were quite less. But, as time passed by, the number of participants grew exponentially. The big players got bigger, and the small retail traders found their way into the market. And at present, the forex market is no less than an ocean.

The participants of the Forex market

The Forex is approximately a $5 trillion market. This kind of liquidity comes from several types of traders. Some of them come with large pockets, some with medium-sized capital and the rest to make a quick buck. Now, let’s get an insight into all of these participants.

Central Banks

Central Banks play a crucial role in the Forex market. The interest rate policies of the Central Banks influence the exchange rates to a large extent. They are also responsible for Forex fixing. They take action in the Forex market to stabilize and pump in the competitiveness of that country’s economy. Moreover, they participate in the currency exchange to manage the country’s foreign exchange reserves.

Commercial Banks

Many assume that commercial banks come under the central banks’ category. However, this isn’t true. The commercial banks are the most active participants in the FX market. They’ve got the biggest pockets out there and trade with considerably large quantities of lots. Due to this, they partially determine the exchange rates of the currencies as well. About 100 to 200 banks around the world assumed to ‘make’ the market. The commercial banks facilitate the services to the retail clients for conducting foreign commerce and making an international investment. The commercial banks include large, medium, and small-sized banks, and as a whole, these banks are referred to as the interbank market.

Foreign Exchange Brokers

Forex brokers also have their significance in the market. They are agents who facilitate trading between two parties. Note that these brokers are just matchmakers and are not really involved in determining the exchange rates of currencies. Brokers constantly keep an eye on the exchange rates and try matching the price of buyers and sellers to execute a trade.

Multi-National Companies

The MNCs are major participants in the FX markets, who do not come from the banking side. These companies usually participate in the forward or the futures markets. Their participation comes from the cash flow between different countries. MNCs typically set up contracts to pay or receive a fixed amount of foreign currency in the future date.

Retailers

The exponentially growing market in the Forex is the retail market. The retailers include smaller speculators and investors. Speculators, unlike the participants mentioned above, are not in genuine need of foreign currencies. Their motive from the market is simple. They buy or sell with a hope that the price will move in their favor and can end up with a profit. They get their orders placed by brokers who act as an intermediary between buyers and sellers. The power of retailers to move the market is minimal because their contribution to the volume traded in Forex is less than 6% of the total Forex volume.

These are the different participants who make up the entire Forex market. In the upcoming lesson, we shall open up more about the Forex brokers. Don’t forget to take the below quiz to check your learnings.

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20. Brief History and Introduction to The Forex Brokers

Brief History
The economy of all the nations after the end of World War II was at stake. Not a single country saw a growth in its economy during this

Brief History
The economy of all the nations after the end of World War II was at stake. Not a single country saw a growth in its economy during this

Brief History

The economy of all the nations after the end of World War II was at stake. Not a single country saw a growth in its economy during this period. So, there had to be someone to fix this all up. Hence, the major Western banks stepped in to strengthen and stabilize the economy on a global scale. They established the well-known Bretton Woods System, which got Gold into focus, as it got paired with/against the US dollar and other currencies. This system did bring the economy to balance to some extent but slowly started becoming inefficient and outdated as the major countries began to expand at a good rate.

With this under consideration, the system was abolished and was replaced by a much efficient system for the valuation of currencies. Precisely, this system was called the free-floating type system, where currency exchange rates were determined by supply and demand factors. During the final decade of the 20th century, the internet came into existence. This brought drastic changes in the way how trading in the markets works. With the facility of internet, the banks came up with their own trading platforms, and these platforms enabled traders to keep a watch on the live quotes of the currencies and also provided smooth and swift execution of trades.

Taking this forward, as the market began to grow substantially, the so-called ‘retail brokers’ made their entry to the market. With these brokerages, traders with small capital could also participate in the market. Moreover, retail brokers even offered great leverage for trading, which attracted more traders to take part in the market.

Retail Forex Brokers

Retail forex brokers are intermediaries who facilitate transactions between buyers and sellers. Based on how clients’ are fulfilled, brokers are of two types, namely, Market Makers and Electronic Communication Networks.

Market Makers

As the name pretty much suggests, these brokers ‘make’ the market. A market maker acts as a bookie who takes the opposite side of its customers’ trades. So, basically, the trades here are between a retail trader and the broker. Since the broker takes the opposite position of his customers, he is actually trading against them. In layman terms, market makers need losers to profit from. Trading with this kind of brokers, customers don’t really reach the real market, as they’re placing bets on the quotes provided by the broker.

Electronic Communication Network

Trading with an ECN broker is different from that of market makers. Here, the interest of the customer is aligned with that of the broker. An ECN broker passes on its customers’ orders through to liquidity providers or the interbank market. So, unlike the case of market makers, their trades are actually matched with the real market. And as far as revenue of these brokers is concerned, they always make a profit from the spreads (bid/ask price) or trading fees. Since they connect the clients to deal with the interbank market, they form the network where communication takes place electronically.

That’s about the introduction to Forex brokers. Take the below quiz to know if you have understood the lesson correctly.

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19. Decentralized Forex market and its hierarchy

Introduction
It is a known fact that the forex market is the market for trading currencies, and the stock market is for trading shares of a company. This being the

Introduction
It is a known fact that the forex market is the market for trading currencies, and the stock market is for trading shares of a company. This being the

Introduction

It is a known fact that the forex market is the market for trading currencies, and the stock market is for trading shares of a company. This being the major difference between the two, there is another significant difference you must know. The stock market is fully centralized, while the forex market is decentralized. In this lesson, let us discuss how different a decentralized market is to a centralized one. Apart from that, let us also understand the structure of the forex market.

The Centralized Market

In a centralized market (stock market), there exists an intermediary between the buyer and seller to trade in the market. There is an entity called the central exchange, which facilitates the transactions between the two parties. In the present day, ECNs on stock markets have brought this to an end as they connect both the parties directly, which ensures the bid and ask prices are unified. Also, the competition between ECNs and direct traders tighten spreads and increments the available volume, making harder the manipulation of the prices.

The Decentralized Market

In a decentralized market, there is no concept of centralized exchanges. With the absence of a central intermediary, there is direct trading between buyers and sellers among top institutions. However, by default, retail traders will have to approach a broker to facilitate their transactions. Depending on the liquidity provider, the quotes of the currencies typically vary from broker to broker. That makes accounts open on non-ECN brokers suitable for price and spread manipulation. There is a possibility that a retail trader won’t be guaranteed the real bid and ask prices in the market. However, though there is manipulation, the volume of traders in the forex market is much higher when compared to the stock market. This could be due to the fact that the leverage in the forex market is considerably higher than the stock market.

Hierarchy of the forex market

Banks and retail traders are not the only ones who contribute to the Forex Market. In fact, there is a linear organization in the contributors to the forex. The hierarchy for the same is given below based on their significance in the market.

  • Major Banks ( Central banks + Top Commercial Banks)
  • Electronic broking services (EBS) | Reuters dealing
  • Medium-sized banks and small-sized banks
  • Hedge funds and commercial companies | retail ECNs
  • Retail traders

From the above hierarchy, it is clear that the major banks are the largest contributors in the market. Major Banks consist of the largest banks around the world. The uniqueness of the major banks is that they trade directly with each other or via the EBSs or the Reuters dealing. Hence, it is also referred to as the interbank market. And this interbank market includes the medium-sized banks as well as the small-sized banks.

Next up in the line come the hedge funds, commercial companies, and retail ECNs. These sets of traders don’t make the transactions with the interbank market, but, instead, they get it done via commercial banks. Typically, the quotes offered here are much higher than that of the interbank market.

Finally, last up in the line stand the retail traders. Retail traders are the ones who place their trades via forex brokers. The number of traders in this hierarchy is extremely high. However, when it comes to the volume they trade, it is significantly lesser when compared to banks and hedge funds. Back in the day, it was not possible for small retail traders to enter the market. But, nowadays, anyone can trade the Forex market by depositing as low as $100 into their account.

Hence, this completes the lesson on the forex market hierarchy. In the following lesson, we shall take this topic forward by as we’ll be covering the different types of players in the forex market in detail.

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18. What Should You Know About Trading The New York Session

Introduction
After the Asian and the London session, the big fishes enter into the market, i.e., the New York market. When London’s session is halfway through its trading, the New

Introduction
After the Asian and the London session, the big fishes enter into the market, i.e., the New York market. When London’s session is halfway through its trading, the New

Introduction

After the Asian and the London session, the big fishes enter into the market, i.e., the New York market. When London’s session is halfway through its trading, the New York markets make an entry into the market. Precisely, the New York session begins at 8:00 AM EST. This session is also referred to as the North American session. The liquidity during this session is pretty high.

As we have discussed the average pip movement in the Tokyo session and the London session, let us compare the pip movement by considering all the three sessions. The London session tops the table, which is then followed by the New York session and, finally, the Tokyo session.

Average Pip Movement

London session > New York session > Tokyo session

Now, let us see the average pip movement for some of the extensively traded currencies in the market.

How to trade the New York session

The New York session opens at 8:00 AM EST, which is during the London session. That is, there is an overlap between the two sessions. Since the world’s two largest markets are trading in the forex market, one can expect a high volume of orders flowing into the markets. Hence, this is an ideal time to enter the market as the spreads are quite low during this phase of time.

During the New York session, the economic news begins to drop. And as a matter of fact, 85% of the news is related to the US Dollar. So, news traders can keep a close watch on all the US Dollar pairs as the news typically moves the market drastically.

During the market open, the liquidity of the market is excellent, but as the noon approaches, it begins to drop. That is, during lunch hours, the market goes into a consolidation phase.

Another interesting fact to consider is, the market loses its momentum on Friday afternoon as the weekend begins for the Asian and the European markets. Hence, it is not a good idea to trade on Friday afternoons. Apart from momentum, it is possible for the markets to reverse its direction as the traders might look to square their positions off.

Which pairs should you have on your watchlist

The liquidity during the start of the session is excellent, as the London markets are open as well. So, during this time, you can choose to trade any pair. However, it is recommended to concentrate more on the major and minor currency pairs.

Several news events come in during this session. So, a news trader can take advantage of them, although a novice trader should stay away from pairs affected by such events, as it requires abilities unrelated to technical analysis.

Therefore, all in all, the New York session is a session that can be profitable for all types of traders. The volatility of the market during this session stands in between the London session and the Asian session. Hence, if you’re a novice trader, it is a good idea to start off with the New York session.

We have completed this short tutorial in the New York session. And in the next lesson, we shall go more precisely into when exactly to trade the Forex market. Let’s see if you have understood this lesson correctly by answering the questions below.

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17. What Is The Best Time To Trade The Forex Market?

Introduction
The Forex market is open 24 hours daily and is traded from Monday to Friday. This feature makes it feasible for traders all around the world to trade it.

Introduction
The Forex market is open 24 hours daily and is traded from Monday to Friday. This feature makes it feasible for traders all around the world to trade it.

Introduction

The Forex market is open 24 hours daily and is traded from Monday to Friday. This feature makes it feasible for traders all around the world to trade it. However, it is not quite ideal to trade anytime in Forex. There are specific times of the day and week that offer greater liquidity. These are the times when the professional traders step into the market as well. So, let’s dive right into the topic.

The preferable time to enter the forex market

Liquidity and volatility are the two vital factors a trader must consider before choosing the best time to trade. Because, with the absence of liquidity and volatility, it is not possible to grab big moves in the market. Hence, one must look out for the times when there is a high volume of trading happening in Forex.

As far as liquidity is concerned, liquidity is excellent (as well as volatility) when two sessions overlap. During these times, the volume of orders double, making significant movements on major pairs. Hence, getting in-depth knowledge about how pairs behave during session overlaps is very important.

The overlapping sessions

The Tokyo-London Overlap

During the Asian session, there is not much movement in the market. But, when the London market opens, the Tokyo markets are still running. Hence the volume during the overlap time segment increases as both the markets are actively traded. Having said that, most of the volume comes from London, which ends up suppressing the Tokyo market. Hence, trading this overlap session is highly recommended.

The London-New York session

The London market and the New York market alone bring in considerable volatility. And when both these markets combine, the liquidity rises significantly. Hence, this becomes the ideal time to trade the forex market. Moreover, due to the high liquidity, the spreads during this time are incredibly tight.

Now that we’re clear with the preferable time to trade the markets let us discuss the preferred weekdays to engage in trading.

What are the days of the week best to trade?

Let us answer this question by considering the average pip movement of currencies pairs on all trading days of the week.

From the above table, we can ascertain that the pip movement on Monday is lesser when compared from Tuesday – Friday. Also, on Friday, once the afternoon sets off, the liquidity reduces considerably. Hence, to get the best from the Forex pairs, it is best to work during the middle of the week and near the time of the market openings.

This brings us to the end of this lesson. To get a recap of the above lesson, you can take up the quiz given below.

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16. Trading The London Session

Introduction 
The London session, also referred to as the European session, is the session where a significantly high amount of trading happens. The London session opens at 3:00 AM

Introduction 
The London session, also referred to as the European session, is the session where a significantly high amount of trading happens. The London session opens at 3:00 AM

Introduction 

The London session, also referred to as the European session, is the session where a significantly high amount of trading happens. The London session opens at 3:00 AM EST and is rigorously traded for eight hours straight.

There are several big financial institutions in Europe. So, the trading volume in the FX market during this session is extremely high. Due to this, many retail traders also show massive participation during this session. Hence, the London session was named the forex capital of the world.

There are thousands of transactions every minute during this session. As per sources, 30% of all forex transactions are executed during the European session.

In the previous lesson, we saw the average pip movement in the Tokyo session for some majorly traded currencies. The average there came to around 53. Now, coming to the London session, the average is much higher than the Tokyo session. The number stands at 72. During this session, the FX majors, as well as minors, tend to move by large amounts.

The below table gives you an idea of the average pip movement for some intensively traded currencies.

More about the London Session

As mentioned, London is considered as the Forex capital of the world. The majority of the volume in the market comes during the London session. Hence, there is high liquidity during this session.

The London session opens during the closing time of the Asian market. During the Asian session, the market usually goes through a consolidation phase. But, when London opens its shops, the consolidation comes to an end, and the market begins to move in a trend state. However, during the middle of this session, the market slows down and begins to consolidate. This could perhaps be due to the fact that the traders are waiting for the New York market to open. It has also been observed that the market reverses its direction at the end of the session. This could mean that the large players are booking their profits.

As far as trading in this lesson is concerned, this is the ideal session for the trend traders. A trend trader can analyze the markets during the Asian session and gear up to take trades when the London market opens.

The best currencies to trade during the London session

It is clear from the table that we can trade any pair in the market. There is sufficient liquidity in most of the currency pairs. Specifically speaking, one can keep a close eye on pairs such as EURUSD, GBPUSD, USDCHF, USDCHF, GBPJPY, EURJPY, etc. Moreover, as there is a heavy volume of trading in these pairs, the spreads here are very tight.

Thus, this brings us to the end of this lesson. In the next lesson, we shall discuss the New York session. For now, test your learning by taking up the quiz below.

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15. All About Trading The Tokyo Session!

Introduction
Japan’s capital Tokyo, is the most majorly traded market in the Asian continent. That is, in Asia, the highest volume comes from the Tokyo market. In fact, it is

Introduction
Japan’s capital Tokyo, is the most majorly traded market in the Asian continent. That is, in Asia, the highest volume comes from the Tokyo market. In fact, it is

Introduction

Japan’s capital Tokyo, is the most majorly traded market in the Asian continent. That is, in Asia, the highest volume comes from the Tokyo market. In fact, it is considered the financial capital of Asia. Moreover, it is the third-largest trading center in the world.

The Tokyo session, also referred to as the Asia session, opens at 8:00 PM EST and is traded until 5:00 AM EST. In terms of Japan’s local time, the trading happens between 9:00 AM to 6:00 PM. As ‘Yen’ is the currency of Japan, 16.50% of all the Yen transactions take place during this time. And as far as all currency transactions are concerned, the value lies at 21%.

The one that matters the most during any session is the pip movement in different pairs. Below is a table which represents the average pip movement for some of the major currency pair.

Now, the average of the above currency pairs turns out to be around 53 pips. This number is less when compared to the New York session and the London session.

Some facts about trading the Tokyo session

During this session, the market is seen to fade away its momentum. That is, the market is seen to be quite flat. In technical terms, the market usually goes through a consolidation state. This session might not be the ideal session for the ones looking for large pip movement. However, this session can be great for scalpers.

Tokyo market typically is known to correct the overbuying and selling in the New York session. The market makes drastic moves during the NY session and comes to slows down its pace during the Tokyo session. Therefore, the liquidity during this session is quite feeble.

It is not just the central banks and hedge funds that move the market. Since Japan is the largest exporter in the world, a large number of transactions come from the exporters as well.

Also, the Bank of Japan is an active participant in the forex market during the Tokyo session. This is because it intervenes the curb appreciation in the Yen regularly.

Which currency pairs should you focus on?

The market conditions and situations tend to change from time to time, so it becomes uncertain to predict the exact movement of pairs. However, if we were to consider the average rates, we can keep an eye on the news from countries like Australia, New Zealand, China, and Japan. The news from these countries comes during the Tokyo session or just before its open. And the news usually pumps up the volatility and liquidity of the market. Hence, one can have a focus on AUD, NZD, and JPY pairs.

When the Tokyo session comes to an end, the London markets open, which causes overlap between the two sessions. So, to be part of the significant movements, keep an eye on GBP, EUR, and CHF along with AUD, NZD, JPY, and USD.

This is a brief review of the Tokyo session. We shall discuss the other sessions as well in the upcoming lessons. Take the below quiz to know if you have learned the concepts right.

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14.The Different Sessions In The Forex Market

Introduction
The forex market is traded all across the world. In fact, it is open 24 hours. And these markets are traded in countries when their national markets are

Introduction
The forex market is traded all across the world. In fact, it is open 24 hours. And these markets are traded in countries when their national markets are

Introduction

The forex market is traded all across the world. In fact, it is open 24 hours. And these markets are traded in countries when their national markets are open. There are about four major countries where vast lumps of cash flow in and out of the forex market and thereby keeping it very liquid and volatile. To trade professionally, having an idea of the different markets open and close is vital. Hence, in this lesson, we shall be going over the various sessions in the forex market.

Forex market trading sessions

Though all countries trade in the forex market, there are a few countries where the massive volume of trading takes place. The 24 hours trading in the forex market is divided into four sessions. These four sessions are given as follows:

• The Sydney Session 

• The Tokyo Session

• The London Session

• The New York Session

Moreover, the open and close of these sessions vary based on the season as well. One session falls between March/April to October/November, and the other starts from October/November and goes up to March/April. The former is the spring/summer session, and the latter is the Fall/Winter session.

Trade timings during Spring/Summer (in the US)

Trade timings during the Fall/Winter (in the US)

Note that the time represented is the local time (US) and the EST, and is different from every country’s standard time. However, the standard market timings for most countries lie within 7:00 AM and 6:00 PM.

Furthermore, there is an overlap between sessions. That is, during the overlap, the Forex market is traded by two regions simultaneously. For example,

The New York and the London session has an overlap between 8:00 AM – 12:00 PM EST

The Sydney and the Tokyo session overlaps between 7:00 AM and 2:00 AM

And the London and the Tokyo session overlaps between 3:00 AM to 4:00 AM.

These overlapping sessions are essential for traders because at that time is when more liquidity and volatility are created in currency pairs. This is so because traders from two markets operate simultaneously.

Hence, this completes the lesson on the different sessions in the forex market. And in further lessons, we shall discuss each one of the sessions in detail. For now, test your learning of this lesson by taking up the quiz below.

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13. General Myths In The Forex Market Every Trader Must Be Aware Of

Introduction
Forex is the market for trading currency pairs. It is a real business that happens over the internet. However, many new traders do not take it seriously and often

Introduction
Forex is the market for trading currency pairs. It is a real business that happens over the internet. However, many new traders do not take it seriously and often

Introduction

Forex is the market for trading currency pairs. It is a real business that happens over the internet. However, many new traders do not take it seriously and often associate it with gambling. And this misconception still exists in the minds of people. Hence, it is necessary to fade these thoughts away as it could lead to significant losses in the long term.

Having that said, in this lesson, we shall discuss some of the myths and facts about the forex market, which are vital for traders to know.

Myths about the Forex Market

✗ Forex is a get-rich-quick scheme

Many traders enter into this market with the assumption that they can make quick profits consistently. They start off with a small capital do make quite a good amount of money. This entices them, and they begin to maximize their lot sizes. In the end, they lose all of their profits, including their capital in just one trade. So, do not ever enter the forex market, considering it to be a game of gambling as it can completely blow away your account within no time.

✗ Professional traders have an accuracy of 100% profitability

Whosoever be the trader, when they trade in the forex market, it is almost impossible to have only profitable trades. This is because; sometimes, there are events that happen to occur without the knowledge of the trader. And during these times, there is a high probability for the trade to go against your direction. So, the consistency of a successful trader is around 80-90%.

✗ Stop-losses are purposefully triggered by the broker

Many traders believe that their stop-losses are hunted by their broker. But, this is just a misconception in the minds of people. Note that brokers have absolutely nothing to do with your stop-loss. It is the market itself that hunts for your stop-loss.

✗ There exists ‘THE best strategy’ in trading

Many novice traders, in fact, all novice traders, go in search of the best strategy to trade. But, the truth is that the best strategy is not an absolute term. There are a countless number of strategies out there, and it all depends on you on how you adapt to it. Hence, there the concept of  ‘best strategy’ is just a myth.

✗ You need to have a financial degree to trade in forex

Well, a great fact to know about the forex market is that you do not need any degree to qualify to trade. However, as we always say, education is definitely required for you to succeed in the market even though it is not a formal one.

✗ The price movements in the forex market are entirely random

Even though the forex market is extremely hard to predict, the price movements are not entirely random. There are different ways through which a trader can assess the conditions of these prices. With the help of Technical Analysis or statistical (quant) methods, a trader can moderately anticipate the price action of currency pairs and thereby they can have an edge in the market.

This brings us to the end of this lesson. We hope we’ve cleared out some of the misconceptions you had about the forex market. To have a recap to this lesson, we have a quiz set up for you below.

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12. The First Step In Your Trading Journey

Introduction
Trading the forex market involves high risk. As per statistics, 95% of the traders fail in this domain. Hence, having expertise and experience in trading is very necessary for

Introduction
Trading the forex market involves high risk. As per statistics, 95% of the traders fail in this domain. Hence, having expertise and experience in trading is very necessary for

Introduction

Trading the forex market involves high risk. As per statistics, 95% of the traders fail in this domain. Hence, having expertise and experience in trading is very necessary for staying away from the 95%. And in this course, we’re here to guide you on how to be a successful trader. So let’s discuss what your first step should be in your trading journey.

Demo Trading

As mentioned, forex is a very risky business. One must never enter the live market during their initially early stages. So, brokers help the novice traders by providing a facility to demo trade. With a demo trading account, one can place live trades in the market just like a real trading account. In this account, you get virtual cash to place trades on the live charts. Moreover, in this platform, you get all the features and tools that are available on a real trading platform. And the best part is that this platform is provided by brokers for free of cost.

Advantage of Demo Trading

Helps test your strategies and techniques

There is no strategy that will work with 100% certainty. So, testing a new strategy on the real account can cause damage to your account balance. But, with a demo account, you can test your strategies without any risk.

Gives you a hands-on experience on placing orders

In forex, there are different types of orders. With a demo account, one can test the working of all these orders without the fear of losing money.

Helps concentrate on analysis rather than emotions

Emotions play a major role when it comes to trading. Emotions in trading can lead to huge losses as it takes over the actual analysis. One can reduce emotions entering into them while trading, only when they start gaining experience. Hence, trading in a demo account can help you focus on your analysis rather than emotions taking over.

How to create a trading plan

Well, having experience in demo trading is insufficient to start trading the live markets. A systematic plan for trading plays a vital role, as well. Below is an example of how you can create a perfect plan for yourself.

Choose your time zone: Though the forex market is a 24 hours market, it is not ideal to trade anytime in the day. Hence, you must choose those zones which bring in great liquidity and volatility in the market.

Fix your timeframe: You must be firm on one set of timeframes because switching over timeframes is a clumsy way of trading.

Choose the right currency pairs: There are about 28 majorly traded currencies. Keeping track of all these is a challenging task. So, you must select only a few currencies and analyze them deeply.

Have one fixed strategy: Novice traders look for new strategies every trading day. But, this is completely the wrong way to trade as it becomes more like gambling than real trading. So, you must have one standard strategy in which you can keep optimizing with experience.

Maintain a trading journal: This can be the most vital plan in your trading plan. However, many take this for granted. With a journal, one can keep track of their past transactions and get a statement on the number of loss & win trades. It will give you a clear picture of your consistency. This can help you improve your trading by learning from past mistakes.

By following these steps, you can be sure that you are up to a great start on your trading journey. Take the below quiz to check your learnings.

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11. The Different Order Types In The Forex Market

Introduction
In the world of trading, the order types are identical, irrespective of the market you’re trading. The type of the ‘Order’ refers to how you wish to enter or

Introduction
In the world of trading, the order types are identical, irrespective of the market you’re trading. The type of the ‘Order’ refers to how you wish to enter or

Introduction

In the world of trading, the order types are identical, irrespective of the market you’re trading. The type of the ‘Order’ refers to how you wish to enter or exit a trade. If you’re new to the world of trading, you might only know two order types – Buy and Sell. But there are other order types that serve different purposes, and improve the way you trade. In this lesson, we will be discussing some of the most used orders in the forex market.

Types of Orders

There are about four order types widely used by traders. These are

  • Market Order
  • Limit Entry Order (Buy Limit, Sell Limit)
  • Stop Entry Order (Buy Stop, Sell Stop)
  • Stop Loss Order

Apart from the above, there are other orders that are exclusively offered by specific brokers like ‘Trailing Stop-Loss’ and ‘Profit Booking Order’ but in this article, we shall confine only to these four types.

Understanding the Bid and Ask prices

Let us first discuss these two terms as they form the base for understanding the order types.

Bid price

The bid price is the price at which the broker is willing to buy the currency pair from you. So, when you short sell a currency pair, you will be executed at the bid price.

Ask price

Ask price is the price at which the broker is willing to sell the currency pair to you. So, if you go long (buy) on a currency pair, you will be filled at the ask price.

With this under consideration, let us continue our discussion on different order types.

Market Order

This is the most basic form of order. In a market order, you get filled at the current market price. It is basically the best price available in the market to buy/sell a currency pair.

For example, let’s say the bid price of EURUSD is 1.2150, and the ask price is 1.2152. Now, if you execute a market buy order on this one, you will get filled at the ask price, i.e., at 1.2152. Similarly, if you go short on this pair, you will get filed at 1.2150.

Market orders are fast. A trader uses that order to enter a marker no matter what. That speed and fill guarantee comes at the cost of the slippage is the market has moved from the instant the trader pulls the trigger to when the order is filled.

Limit Entry Order

Limit entry order is an order where a buy order is placed less than the current market price, and a sell order is placed above the current market price.

For example, let’s say the current market price of AUDUSD is 0.6750. Now, if you want to buy it at 0.6725, you will have to place a Buy Limit order at this price. And if you want to short it at 0.6790, you will need to place a Sell Limit order at this price.

Limit orders can be used as entry or as exit orders.

As entry orders, you are applying the logic of buy low and sell high (on short-sell limit orders). A limit order is handy to spot a support area while the price moves back and get filled as the price approaches support.

As exit orders, they are handy to take profits. You place a limit to sell at your profit-taking level on long trades and you place a buy limit order at your profit target level on short trades.

Stop Entry Order

A stop entry order is the reverse of a limit entry order. Here, you can place a buy order above the current market price and a short sell order below the current market price.

For example, let’s say the current market price of GBPJPY 1.6570. Now, if you think the market will head up only if the price breaks above 1.6590, you must place a Buy Stop at the price you wish to buy. So, when the price goes up to 1.6590, your buy order will be executed.

Stop-Loss Order

A stop-loss order is special order for closing a trade. This order is placed against the price at which you bought/sold the currency pair. This is done to avoid further losses from trade. Since this order ‘stops’ the losses, it is called a ‘stop-loss’ order.

For example, let’s say you bought a currency pair at 1.1320. Now, for this trade, if you place a stop-loss at 1.1250, the positions will be closed when the market touches this price, hence, protecting you from further losses.

This completes the lesson on basic order types in the forex market. We will discuss the more premium broker specific orders in our future lessons. For now, take the below quiz and check what you have learned the concepts right.

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10. Understanding Lots & Different Types Involved

Introduction
In the stock market, securities are traded in a number of shares. Similarly, in the Forex market, currencies are traded in units of the currency. And these units are

Introduction
In the stock market, securities are traded in a number of shares. Similarly, in the Forex market, currencies are traded in units of the currency. And these units are

Introduction

In the stock market, securities are traded in a number of shares. Similarly, in the Forex market, currencies are traded in units of the currency. And these units are combines into different tradable sizes, and they are called as ‘Lots.’ Hence, to buy and sell currency pairs, you must trade in the form of lots. There are different lot sizes depending on the number of units you trade. For example, 10,000 units are referred to as a mini lot and 100,000 units as a standard lot. Now, in this lesson, we shall understand other lot sizes along with some examples.

What is a lot in Forex?

A lot in Forex is the number of units of a currency pair. Note that one unit is not equal to one lot. Instead, a collection of units of a currency pairs make a lot. And depending on the number of units that are involved in making up a lot, there are different lot sizes in the market.

Different Types of Lots in Forex

Depending on the number of units, we can classify Lots in four types.

Standard Lot

The size of this lot is 1 and is made up of 1000,000 units of a currency pair. So, buying 100,000 units of EURUSD is as good as saying you have bought 1 lot of EURUSD.

Mini Lot

In terms of lot size, the quantity of ‘lots’ in a mini lot is 0.1. And one mini lot consists of 10,000 units of a currency pair.

Micro Lot

The quantity of lots in a micro lot is 0.01. And this lot is made up of 1,000 units. So, buying is 1 micro lot means, buying 0.01 lots or 1,000 units.

Nano Lot

0.001 lots make up one nano lot, and it consists of 100 units of a currency pair.

Now, let us take some examples and clear out the differences in these types.

Examples

E.g., 1: Buying 5 standard lots.

Lot size distribution = 5 * 1 standard lot

Number of units = 5 * 100,000 = 500,000 units

E.g., 2: Selling 1.5 standard lots

Lot size distribution = 1 * 1 standard lot + 5 * mini lots

Number of units = 1.5 * 100,000 = 150,000

E.g., 3: Buying 3.2 mini lots

Lot size distribution = 3 mini lots + 2 micro lots

Number of units = 3.2 * 10,000 = 32,000

Leverage trading

You must have seen brokers who let traders trade with as low as $100. In fact, they let you trade mini lots with it. Now, you must be wondering how one can trade 10,000 units with just $100 in their account. Well, this is facilitated by the brokers as they offer to trade with ‘leverage.’

In leverage trading, brokers let you take positions larger than the capital you possess. And as far as the mechanism of this is concerned, a broker lends you with the required money to take a position. And for this, they keep some amount of your capital as deposits. This deposit stays with them until your trade is open. When the trade is closed, the complete deposit is returned back to you. Leverage, also referred to as margin, is usually measured in ratios or in percentages. A detailed explanation of this shall be discussed in further lessons.

Hence, this completes the lesson on Forex lots and its types. And below is a quiz to help you check if you have grasped the concept better.

[wp_quiz id=”45130″]
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Forex Course

9. Understanding The Concept Of ‘Pip’ In Detail

Introduction
‘Pip,’ the word sounds pretty familiar, right? Well, that’s because this is a fundamental term when it comes to trading in the forex market. Pip forms the base

Introduction
‘Pip,’ the word sounds pretty familiar, right? Well, that’s because this is a fundamental term when it comes to trading in the forex market. Pip forms the base

Introduction

‘Pip,’ the word sounds pretty familiar, right? Well, that’s because this is a fundamental term when it comes to trading in the forex market. Pip forms the base for reading the price changes in the currencies. Hence, understanding this lesson is very important. So, let’s begin by defining what a pip is.

What is a pip?

Pip is a unit of movement in currency pairs. It basically tells, by how many values the price of the currency pair has changed. A pip is the same for all the pairs except for the currencies paired with JPY. One pip for every JPY pairs is 0.01 while it is 0.0001 for the rest. Hence, the fourth decimal place in the price of the currency pair represents a pip for non-JPY pairs, and the second decimal place in the price represents a pip for JPY pairs. Now, let us comprehend this with an example.

Let’s say the current market price of EURUSD is 1.1000. We say a currency price has moved by one pip when the price rises to 1.1001. Similarly, when the price goes up to 1.1008, we say the price has moved to by 8 pips (w.r.t 1.1000). Taking it further, if the price goes up even higher until 1.1010, we say the market has risen by 10 pips. From these three examples, we can come up with the formula for pip as follows:

Pip = current market price – initial price under consideration (For long position)

Pip = initial price under consideration – current market price (For short position)

Let’ say the CMP of USDCAD is 1.3230. Later, the price shoots to1.3293. Let us calculate how many pips have this pair increased.

Pip = 1.3293 – 1.3230

Pip = 0.0063

Hence, the currency has risen by 63 pips.

Pips extended

The change in the value of the price on the fourth decimal point represents the pip change between 0-9.

The change in the value of the price on the third decimal point represents the pip change between 10 and 99.

The change in the value of the price on the second decimal point represents the pip change between 100 and 999.

The change in the value of the price on the first decimal point represents the pip change between 1000 and 9999.

Let us understand this by an example. Let’s say the current market price of a currency pair is 0.5829.

Here, 9 indicates 9 pips,

2 indicates 20 pips,

8 indicates 800 pips, and

5 indicates 5000 pips.

What is Pip a value?

The pip value adds value to the pip by determining its ‘worth’ in terms of the base currency. Pip value for a currency pair can be calculated using the below formula.

Pip value = change in the value of counter currency * exchange rate ratio

Example: Let’s say the price of GBPUSD is 1.2450. That is, 1 GBP is equal to 1.2450 USD. Now, if price moved by one pip, i.e., to 1.245. The pip value for this can be calculated as follows.

Pip value = 0.0001 USD * (1 GBP/1.2450 USD)

Pip value = 0.00008032 GBP

Hence, by trading one unit GBPUSD, you will make 0.00008032 GBP. Similarly, trading 100,000 units of this pair, you will get 8.032 GBP.

What is Pipette?

Apart from pips, brokers represent quotes in pipettes, as well. An increase in the decimal place of a pip will get you the pipette value. So, the 5th decimal and 3rd decimal place represents pipettes for non-JPY pairs and JPY pairs, respectively.

For example, if the price of EURUSD increases from 1.21001 to 1.21002, we say the price has risen by 2 pipettes.

That’s all about Pips. If you have any more questions, let us know by commenting below. Don’t forget to check your learning by answering the below questions.

[wp_quiz id=”44951″]