Forex Frontiers: The Beginners' Booklet

8/7/2019 Forex Frontiers: The Beginners' Booklet

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FOREX FRONTIERS: The Beginners Booklet

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FOREX FRONTIERS

The Beginners' Booklet

By: IVAN CAVRIC


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FOREX FRONTIERS:

The Beginners Booklet

Copyright 2010 by Ivan Cavric

Published by:

MERRITT HOUSE PUBLISHING INC.

TORONTO, ON

CANADA

www.merritthousemedia.com

Authors Contact Information

www.ivancavric.com
http://www.merritthousemedia.com/http://www.merritthousemedia.com/http://www.ivancavric.com/http://www.ivancavric.com/http://www.ivancavric.com/http://www.merritthousemedia.com/


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Important Notice

The Author of this book has strived to be as accurate and informative aspossible with the sole intention of describing some of the key aspects of CurrencyTrading. However, this book is strictly for research and educational purposes only andthe author does not warrant or represent at any time that the contents within are to betaken as a recommendation to invest in the Forex market.

The Author will not be held responsible for any profits and losses of any sort onemay incur as a result of following the advice contained in this book. The readers

assume responsibility for use of the information found in the book.

The information in this report is not intended to convince the reader to investmoney in the Forex market nor does it guarantee that a certain amount of money can bemade trading currencies. Neither is implied by the author in any way, shape or form.The readers are advised to seek the assistance of a professional financial advisor priorto investing some money in the Forex market.

The readers may, however, reproduce and and redistribute this book. Readers

are free to give this book away to friends, family and acquaintances. Readers are

encouraged to give this away as a promotional material for blogs, websites and otheronline channels as long as the contents remain original and unedited.

This book is strictly for educational purposes only.


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Table of Contents

Chapter 1: Introduction

Chapter 2: What Is Forex All About?

Chapter 3: Understanding Forex

Chapter 4: Important Forex Terminology

Chapter 5: Some Basic Features Of Forex Trading

Chapter 6: How Currencies Are Bought And Sold

6.1 - The Role Of The Forex Broker6.2 - Lots And Mini-Lots

6.3 - Order Types6.4 Spreads

Chapter 7: What You Need To Start Trading Forex

7.1 - An Account With A Forex Broker

7.2 - Forex Charting Software

Chapter 8: Different Ways To Analyze The Forex Market

8.1 - Technical Analysis

8.2 - Fundamental Analysis

Chapter 9: You Must Learn How To Use Leverage Properly

Chapter 10: Surviving Your First Months Of Forex Trading

Chapter 11: Summary


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Chapter 1

Introduction


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Chapter 1 Introduction

Forex is an intriguing and exciting subject that attracts numerous new

traders every day. Many are enticed by the sheer daily turnover of Forex that isreputed to exceed over three trillion dollars. They hope that if they can just acquire

even a small portion of this staggering sum then they can improve their lifestyles

significantly.

Perhaps you were influenced to join the ever-swelling ranks of Forex traders

by the endless bombardment of publicity surrounding this subject proclaiming

promises of quick riches. However, you must adopt care during your early trading

days because Forex harbors a steep learning curve that you must master before

success is ensured.

For instance, you may not be aware that 95% of all Forex novices lose theirentire equity within months of startup. Why is this, you may well ask? To gain an

answer, you need to realize that the 95% of those who fail tend to be small retail

traders, while the 5% winners are institutional investors. The former tend to

underestimate the complexities of Forex and are prone to gambling while the latter

adopt a very disciplined and business-like approach to their trading.

If you are new to Forex, how can you best advance your skills from those

associated with the first group to those associated with professional traders?

Basically, you need help and you must locate quality training from experts whom

you can trust.

This booklet will definitely set you on the correct path by introducing you to

the basic concepts of Forex and then identifying methods that you can use to help

you survive your initial months of Forex trading. You are also advised to seek

additional quality information about all aspects of Forex during this period.

You can study various Forex strategies by visiting my personal blog at

www.ivancavric.com. In particular, I have successfully traded Forex since 2002

using trading strategies that I have personally developed. In addition, I have

designed a number of financial management systems which I consider to be the

cornerstone of my Forex success. I have become a well-respected figure in Forexand dearly hold a number of prominent positions in the business and Forex arena.

For instance, I am the President of the Association of Professional Forex Traders as

well as a prime member of both the Alliance of Global Forex Traders and Global

Forex Association.
http://www.ivancavric.com/http://www.ivancavric.com/http://www.ivancavric.com/


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On my blog you will find many free Forex resources such as articles, videos,

tutorials, as well as hidden strategies and tips that will enable you to not just

advance your Forex career, but to significantly increase your chances of

succeeding. In addition, many Forex tools are provided on the site such as

fundamental and technical analysis of all new Forex developments.

The blog also promotes my well-acclaimed trilogy of Forex books that have

been designed to specifically advance your Forex skills and experience from that of

a novice to those possessed by professional traders of large institutionalized

companies. Here are brief descriptions of each of my three books. You will find that

all of them achieve their objectives by utilizing straightforward explanations

supported by real live examples of trading strategies that are explicitly illustrated

by aesthetical and highly relevant charts and diagrams:

FOREX FRONTIERS: The Essentials of Currency Trading

The Essen t ia l s o f Cur rency T rad ing is the first book of this trilogy and is

designed to jumpstart anyones desire to enter the exciting world of Forex. This

book will teach you everything you need to know about how to start trading Forex

successfully using an easy-to-follow style. The Essen t ia l s o f Cur rency T rad ing

does this by initially explaining why so many beginners struggle with Forex, and

then providing you with a solid foundation on which to construct your Forex career.

The principal aim of this book is to show you how to design your own successful

trading strategies by identifying those Forex concepts of upmost importance.

FOREX FRONTI ERS: Proven Strategies for Success

Proven S t ra teg ies fo r Success is the second book of the trilogy and is

designed for those who already have a fair grasp of currency trading. This book will

improve upon what you already know and will help you take your Forex knowledge

to the next level. The focus of this book is to explain methods that you can use to

increase your Forex profitability. Proven S t ra teg ies fo r Success achieves this

objective by explaining in detail a number of Forex trading strategies. Each one is

well-presented and made easy-to-follow using straightforward explanations that areexplicitly illustrated by aesthetical and highly relevant charts and diagrams. In

particular, this book uses real test results that have been taken from recent trading

in order to show you explicitly what you can expect from trading each of the

strategies as well as providing you with a means of comparing their merits.


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FOREX Frontiers: What the Pros Won't Tell You

What the P ros Won ' t T e l l You is the final book in this trilogy and is

designed to train you to think like a Forex professional. The main aim of this book is

to help you evolve your trading psychology and abilities from that of a standard

Forex retail trader to those utilized by top institutional experts who trade billions ofdollars for their clients. You will learn how this latter group views important Forex

topics such as leverage, risks and brokerage fees, etc. Wh at th e Pros Won ' t Te l l

You will leave you in no doubt about how you should trade Forex so that you

always attain consistent profits.


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Chapter 2

What Is Forex All About?


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Chapter 2 What I s Forex All About?

Forex stands for FOReign EXchange and is also known as FX . Today, Forex

has grown into probably the biggest fiscal market in the world involving thecurrency transactions of corporations, governments, large banks, central banks and

currency speculators.

Forex has a daily turnover that is reputed to be in excess of three trillion US

dollars. The daily turnovers of all the US equity markets combined do not reach 3%

of the volume traded on Forex. One of the principal purposes of the Forex is to

facilitate international trade and investment.

Forex allows the simultaneous buying of one currency and the selling of

another and is simply a marketplace in which different currencies are traded against

one another. As countries have their own currencies, Forex exists to makeinternational business possible.

In a similar way to the Stock Market, currencies can be considered to be the

commodities that are traded on Forex. For instance, when you buy shares in a

particular company you are, in effect, investing your money in its future

performance. You hope that it will grow and prosper so that the value of your

shares will appreciate.

In just the same way, when you buy the currency of a particular country, you

are investing your money in the economy of that nation. If the economy of your

host country is healthy and prospers then the value of your Forex trade will

increase and you will profit.

When you trade the Forex, you must realize that you are, in fact, making two

trades when you back a currency pair. For example, if you trade the EUR/USD long,

you are buying the EUR and selling the USD. As such, you would be making a

mistake if you viewed this trade just as a single operation. Instead, you must

appreciate that you have activated commercial relationships with two currencies.

This is important to understand so that you can evaluate the correlation and

relationship of each of these two currencies to others.

As currencies are traded against each other on Forex in real time, you can

profit from making transactions if you can correctly identify which currency will

increase in value against the other. To achieve this objective, you must first

purchase a currency and then sell it after it appreciates in value. However, you

must realize that the time required to achieve your targeted profit may range from

a very short period to a very long one.


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The Forex is the worlds most traded market and is active 24 hours a day

from Sunday 5pm EST to Friday 5pm EST. During each day, Forex trading

commences in Sydney and then moves around the globe passing through Tokyo,

London and New York.

During this time, investors have the unique opportunity to react immediatelyto currency fluctuations as they arise. In fact, you could even regard Forex as a

huge melting pot of global developments because no other institution embraces the

current worlds events at any given time more than Forex.

The Forex market is a unique market and it is without a doubt one of the

most liquid and largest financial markets anywhere in the world. Governments,

corporations, speculators, central banks, large banks, and various other institutions

all trade on the Forex Market. Most of these organizations also use Forex to hedge

their risks and invest in currencies in order to increase their profits.

Forex trading can sound very confusing especially if you know nothing about

it. However, even if you do not have any experience or knowledge of economic

affairs, you can still enjoy and profit from Forex trading. As already discussed, one

of your best ways forward is to seek good educational sources on Forex that are

well regarded by this industry. You can do no better than to make use of all the free

Forex articles, tips on various strategies, and Beginners to Advance courses that

you will find by visitingwww.ivancavric.com.

This website also promotes my book FOREX FRONTIERS: The Essent ia ls

o f Cur rency T rad ing . By reading the The Essen t ia l s o f Cur ren cy T rad ing you

will discover that it expounds upon all the concepts introduced in this book. Itjumpstarts your Forex career by teaching you how to trade Forex wisely and safely.
http://www.ivancavric.com/http://www.ivancavric.com/http://www.ivancavric.com/http://www.ivancavric.com/


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Chapter 3

Understanding Forex


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Chapter 3 Understanding Forex

Before you can start to trade Forex, you need to understand how it works.

Although this task may seem complicated at first, after a few trades you will findthat it will become second nature.

Forex is unique because of its following features:

- Trading volumes

- Extreme liquidity

- Number and variety of traders

- Geographical dispersion

- Trading hours are 24 hours a day except weekends

- The variety of factors that affect the exchange rates

- The use of leverage

Some of the basic rules for trading currency pairs are as follows:

- The first currency of a pair is termed the base. In most major

currency pairs, the US Dollar is usually the base

- This second currency of a pair is called the counter or quote.

- The currencies are always quoted in pairs. For example, the USD is the

base and the YEN is the counter in the USD/JPY currency pair. If the

value of the USD/JPY is 2.5 then you can exchange $1 for 2.5.

- If the value of a currency appreciates, it means that the base currency

has increased in value compared to the counter. For instance, if the

USD/JPY climbed to 2.6 then you would now be able to purchase 2.6

for each of your one US dollars.


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One of the main reasons why people want to trade Forex is to improve their

earning power and, ultimately, achieve financial freedom. With these objectives in

mind, is trading the Forex Market a really good choice? Yes it is, because this type

of trading presents serious opportunities for achieving good profits.

Fundamentally, there are two main trading sources that generate the dailyForex turnover. The Foreign trade represents only five percent of the total value

and results from companies buying and selling products overseas as well as

converting foreign revenue into domestic currency. This group of traders includes

governments, companies (exporters and importers) and some investors who have

foreign exchange exposure.

Consequently, you may be surprised to discover that the remaining 95% of

all other Forex trading is done purely for speculative reasons or, in other words, for

the sole purpose of investing to profit from potential currency movements. This

implies that only a small percentage of Forex activity emulates from the currencyconversion needs of governments and international companies.

This is, without doubt, a very exciting opportunity for you to increase your

earning power substantially. However, in order to do so you must learn how to treat

Forex with the respect it deserves and trade in a business-like and professional

manner right from start.

Again, you can achieve this objective by visiting www.ivancavric.com

where you can enroll in a totally free Forex training course. You will then be able to

access easy to understand lessons that will advance your Forex skills and

knowledge from those of novices to ones of professionals.


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Chapter 4

Important ForexTerminology


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Chapter 4 Important Forex Terminology

Similar to other subjects, you must gain an understanding and feel for the

many terms that are utilized in Forex trading in order to achieve consistent profits.Some of the most commonly used Forex terms are as follows:

Base Currency

The first currency quoted in a Forex currency pair which is sometimes referred to as

the primary. For example, in the USD/CAD currency pair, the US dollar would be

the base currency

Bear

A bearish investor anticipates that a currency pair will decline in value.

Bid/Ask Spread

The spread of a currency pair is the difference between its bid and offer prices.

Bull

A bullish investor expects that a currency pair will appreciate in value.

Charting

Forex investors utilize trading charts in an attempt to determine trends and future

projections of currency pairs.

Commissions

This is the cost that a Forex broker will charge clients for the buying and selling of

currency pairs.


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Currency

This is a monetary commodity used by its host nation as the basis for trading

internationally with other countries

Exchange rate

An exchange rate states the worth of one currency against that of another country

Forex

Forex is the over-the-counter market used for the simultaneous buying of one

currency and selling of another

Hedging

A strategy designed to reduce investment risk by investing in alternative

instruments that offset the risk of the primary portfolio

Initial margin

This is the amount of cash deposit that is required to trade a currency pair

Leverage

Leverage involves the use of various financial instruments or borrowed capital to

increase the potential return of an investment

Long Position

A long position is entered with the expectation that a profit can be achieved

because the value of the selected currency pair is expected to appreciate


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Lot

A standard lot is the smallest unit used in a Forex transaction and is the equivalent

to 100,000 units of the base currency

Maintenance Margin

This is the dollar amount of your equity that is required in order to keep your

positions open throughout their lifetime

Margin

This is the funds that you must deposit as collateral in order to cover any potential

losses from adverse movements in prices

Noise

Price and volume fluctuations in the Forex market can produce noise which can

confuse your evaluation of the price direction of your chosen currency pairs

Open Position

This is a currency pair that has been either bought or sold and that has not yet

been settled by closure

PIP

A PIP (Percentage in Points) is the smallest price unit of a Forex currency pair and

is the minimum amount by which the value of a currency pair can change

Resistance

This is the effective upper bound on price that is created by the many willing sellers

at that value


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Short Position

A short position is entered with the expectation that a profit can be achieved

because the selected currency pair is expected to depreciate in value

Support

This is the effective lower bound on price that is created by the many willing buyers

at that value

Technical Analysis

This is a method used to evaluate currency pairs by analyzing statistics generated

by historical market activity such as past prices and volume. Technical analysts donot attempt to measure a currency pair's intrinsic value but instead use charts to

identify patterns that can suggest future activity.

Volatility

This is a statistical measure of the tendency of a Forex currency pair to rise or fall

sharply within a period of time

You can obtain a better understanding of these important terms as well as

the best ways to utilize them in your Forex trading by spending some time at

www.ivancavric.com. This is because this website provides you with many free

facilities such as Forex articles and tools to get you acquainted with the forex lingo.

In addition, you will discover that the book FOREX FRONTIERS: The Essent ia ls

o f Cur rency T rad ing , is an easy to read manual that is written with no

assumption that the readers have prior exposure to Forex education. In short, you

will be introduced to most of the terms used in Forex and while learning their uses

at the same time. The book will also show you how to merge such terms into a

process for developing your own profitable Forex trading strategy from scratch.


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Chapter 5

Some Basic Features OfForex Trading


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Chapter 5 Some Basic Features Of Forex Trading

Currencies are all traded in pairs and the rate at which they can be

exchanged for one another is known as the exchange rate. Most currency pairsuse the USD as their base unit. The majority of trades are focused on the biggest

and most liquid currency pairs, which are termed the Majors.

This important group includes US Dollar (USD), Japanese Yen (YEN ), Euro

(EUR), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD) and

Australian Dollar (AUD). In fact, more than 85% of all Forex transactions involve

these major currency pairs i.e. EUR/ USD, YEN/ USD, GBP/ USD, USD/ CHF,

AUD/ USD and USD/ CAD.

Some currencies are more popular than others on Forex. The Dollar has

traditionally been very important but what other currencies are traded regularly?The top eight traded currencies are identified in the following table:

Currency Code and Symbol % daily share (approx.)

1 United States Dollars USD $ 86%

2 Euros EUR 37%

3 Japanese Yen JPY 17%

4 Pound Sterling GBP 15%

5 Swiss Franc CHF Fr 7%

6 Australian Dollar AUD $ 7%

7 Canadian Dollar CAD $ 4%

8 Swedish Krona SEK kr 3%


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As such, you can confirm the importance of the USD by studying the above

table. In order to make trading currencies easier, they have been organized into

pairs. This is because in every Forex transaction, one currency must be sold while a

second is purchased. Abbreviations or nicknames are used to refer to currency pairs

especially if they are majors as shown in the following table.

Currency Pair Nickname

AUD/USD Aussie

USD/CAD Beaver

USD/JPY Gopher

USD/CHF Swissy

USD/CAD Loonie

NZD/USD Kiwi

GBP/JPY Geppy

EUR/USD Euro

Even though the majority of currency transactions involve the US Dollar,

there are many cross currency pairs such as the following: EUR/GBP, GBP/YEN,

EUR/YEN, EUR/CHF, AUD/YEN

Although these currency pairs are quoted independently, you must

appreciate that their values are still determined by utilizing the applicable USD

pairs. However, crosses have been designed to make it possible for investors to

trade in currencies of their choice.


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In order for you to trade Forex successfully, you must achieve an

understanding of important terms as explained in the last chapter. For instance,

here is a very important one with some examples of its usage.

A PIP (Percentage in Points) is the smallest price unit of a Forex currency

pair and is the minimum amount by which the value of a currency pair can change.For example, when the EUR/USD climbs by one pip then its value will rise from

1.2345 to 1.2346.

An important guideline for new traders is to always measure their success or

failure in pips as opposed to a monetary value. This is because a one pip gain in a

$10 account is equal, in terms of the traders skill, to a 1 pip gain in a $1,000

account although the actual dollar amounts are quite different.

Some examples of pip movements using some of the major currency pairs

are as follows:

EUR/ USD

Imagine that this pair is presently posting a value of 1.4850. If the pair should now

rise to 1.4900, then it would have increased in value by 50 pips.

GBP/ USD

Assume the value of this pair is 1.5960. Should the pair now fall to 1.5930 then it

would have decreased in value by 30 pips.

USD/JPY

This pair is presently recording a value of 89.00. If it suddenly experiences a crash

with its value plunging to 88.70, then it would have depreciated in value by 30 pips.

The information presented in this chapter is just a small portion of that

contained in the FOREX FRONTIERS: The Essen t ia l s o f Cur rency T rad ing .

Consequently, you will be able to obtain greater insights and knowledge of Forex

trading by undertaking a study of this important book. The Essent ia ls o f

Cur rency T rad ing is designed to teach Forex students and researchers the

fundamentals of Forex in an easily digestible and illustrative format.


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Chapter 6

How Currencies AreBought And Sold


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Chapter 6 - How Currencies Are Bought And Sold

6.1. The Ro le of the Forex Broker

Forex is accessible through a number of pricing levels. The Inter-Bank Market

provides the highest level of access but is reserved for the big players, such as

Central Banks, Corporations, Hedge Funds and other large financial institutions.

With the rise of online trading, the Retail Market allowed Forex Brokers to

connect smaller players to Forex using their trading platforms. Basically, there are

two types of such brokers which are those with dealer desks called Market Makers

and those that employ Electronic Communication Networks (ECN). Each has

pros and cons.

Market Makers are the most common type of broker functioning asintermediaries to the inter-bank market as opposed to providing direct access. They

perform this task by first trading significant amounts of currency on the Inter-bank

market in blocks and then supplying divisible units to the smaller Forex traders.

Electronic Communication Networks offer direct access to the Inter-bank

Market by connecting its clients to multiple banking sources that offer competitive

price quotes. ECNs have a number of major differences from Market Makers which

are:

1. ECNs offer you real-time quotes from a number of large banks although

the prices may not be as stable as those offered by a Market Maker.

2. ECNs provide more competitive prices and spreads because of multi-

sourcing. In addition, the ECN broker is not competing against its clients

and therefore has no vested interest in the trade results. As such, there is

less reason for this type of broker to apply unethical price manipulation

tactics.

6.2. Lots and Mini -Lots

A standard lot is the main measurement of currency used in a Forex

transaction and is the equivalent of 100,000 units of the base currency. In other

words, when you enter a trade using a standard Forex account, the smallest

amount of currency that you can buy or sell is 100K.


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A mini lot is equal to one tenth of a standard lot or 10,000 units whilst a

micro lot is the equivalent of 1,000 units. If you are able to acquire leverage of

100 to 1, then you will be able to purchase or sell a standard lot costing $100k for

only $1k. For example, if you decide to purchase eight standard USD lots then you

must realize that this transaction will cost you $8,000 if you have a leverage facility

of 100:1.

6.3. Order Types

There are many types of orders that you can use to activate a Forex trade.

Here are a few of the most common ones:

Entry Limit Order

You can utilize this order to close a new long position if price rises or exit a

short position should price fall. Basically, you are anticipating that price will

reverse direction at the level of the order.

Example: The EUR/USD is rising and has a present value of 1.4700. As you

expect it to climb and then retract, you set an Entry Limit Order at 1.4750. Should

the EURUSD now achieve 1.4750, then your open trade would be closed.

Entry Order

You can use this order to open a new position once a currency pair achieves

a pre-determined price level.

Example: The EURUSD is rising and has a present value of 1.4540. You

expect it to continue to rise so you set an Entry Order at 1.4550. Should the

EURUSD eventually hit 1.4550, then your new LONG position would be activated.

Market Order

You can utilize this type of order to immediately purchase or sell currency

pairs at the best available price.

Example: If the EURUSD is at 1.4860, you can open a trade immediately at

this value by using a Market Order.


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Stop-Loss Orders

You can use this type of order to protect your equity from a substantial loss

in the eventuality that price should move against your position. All stop-loss orders

will remain active until they are either canceled by the trader or the position is

liquidated.

For example, image that you have opened a new long EUR/USD position at

1.4600 with a protective 100 pip stop at 1.4500. If price should suddenly reverse,

plunging downwards and hitting your stop, your position will be automatically

closed. Consequently, you would have preserved your account balance from a

significant loss by accepting one of just 100 pips.

6.4. Spreads

The spread represents the difference in value between the bid and the offer

prices of a currency pair. The bid price is that at which Forex traders buy their base

currency. The bid price appears to the left of the currency quote.

For example, if the EUR/USD is 1.4750/052 then the bid price is 1.4750.

The ask price is the price at which traders buy their quote currency and

appears to the right of the Forex quote.

Example: If the EUR/USD is at 1.4400/04, then the ask price 1s 1.4404.

For example, imagine that you are quoted EUR/USD at 1.4450/55 and you

decide to buy at 1.4455. However, you must understand that after you have

completed this transaction your EUR/USD will only be worth 1.4450. Consequently,

if you close your new position immediately you would incur a loss of 5 pips.

This is because your broker has charged you a spread commission of 5 pips.

This example clearly demonstrates why you need to seek a broker offering the

lowest spreads possible.

If you visit www.ivancavric.com, you will find a library of free articles

explaining the above concepts in greater detail. For instance, you will be able tolocate ones that will advise you on the best procedures for performing important

tasks, such as selecting a Forex broker. In addition, you will find others that will

educate you fully in the best operational methods of dealing with Forex items such

as lots, order types and spreads.

You will also discover that FOREX FRONTIERS: The Essent ia ls o f

Cur rency T rad ing is an ocean of knowledge about these topics. This is because it


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addresses subjects such as these and shows you how to merge them into Forex

trading strategies possessing both positive win-to-loss ratios and expectancy

values. Real live strategies are also presented that have produced profits during

recent times.


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Chapter 7

What You Need ToStart Trading Forex


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Chapter 7 - What You Need To Start Trading Forex

7.1. An Account with a Forex Broker

First you need to open an account with a Forex Broker. As you will be faced

with a wide choice, here are some guidelines to help you make a selection:

1. The spread of a currency pair represents the difference between the

price at which it can be bought and the one at which it can be sold.

Consequently, you must locate Forex Brokers who offer the lowest spreads

as possible because this will save you money over the long haul.

For instance, the following diagram displays the spreads for both the

USD/YEN and the GBP/USD. You can locate these values as the numbers

shown to the immediate right of the currency pair identifier, i.e. theUSD/YEN has a spread of 3.0 whilst the one for the GBP/USD is 3.1.

2. Ensure that your Broker is backed by a quality financial institution and

that he or she is fully registered with the appropriate authorities.

3. Select a Forex broker who provides a trading platform featuring real-

time charts, technical analysis tools, real-time news and strong support

facilities. In addition, good Forex Brokers normally provide technical and

fundamental commentaries, economic calendars and other research tools as

displayed by the following menu bar:

4. Find a Forex Broker who can provide you with a healthy leverage

facility. This is necessary because Forex price movements represent only

fractions of a cent. Leverage counters this problem by allowing you to trade

sizeable positions with just a small deposit. For example, if you could obtain

a leverage facility of 100:1, then your Forex broker will lend you $100

against each of your own $1. You would then be able to open a $100,000

position, for example, backed by just $1000 of your own account balance.


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7.2. Forex Charting Software

You must ensure that your Forex Broker will provide you with an excellent

Forex Charting Software. You will then be able to use this analytical tool to perform

technical analysis on those currency pairs that interest you. Consequently, you will

then be in a better position to predict their potential directions. You should seek theanswers to the following types of questions when evaluating a charting software:

What technical indicators are available?

Is the software internet (HTML or Java), Macintosh or Windows or

based?

Can you trade from the charts?

Is historical data made available through the software?

Do you find that the Graphical User Interface (GUI) is visually

pleasing?

Does the GUI allow you to monitor many trading parameters at the

same time?

Most Forex brokers permit their potential clients to open demo trading

accounts so that they can experiment with their software facilities. The following

diagram is a good example of charting software in action showing how technical

indicators, such as candlesticks, pivot points and the exponential moving averages

can be utilized to track and predict the price direction of currency pairs. Thesetechnical indicators are defined in free articles onwww.ivancavric.com.
http://www.ivancavric.com/http://www.ivancavric.com/http://www.ivancavric.com/http://www.ivancavric.com/


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If you are a novice and this is your first time performing the above tasks

then you must seek expert advice in helping you make the best selections.

Fundamentally, you need to locate a Forex specialist with whom you can place your

full trust.


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Chapter 8

Different Ways ToAnalyze The Forex Market


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Chapter 8 - Different Ways To Analyze The Forex Market

Forex Analysis is used to design trading strategies and consists of two

elements which are fundamental and technical analysis. Ideally, you should useboth to some degree or another when constructing a Forex trading strategy.

8.1. Technical Analys is

This is a method used to evaluate currency pairs by analyzing their historical

data generated by their market activity. Technical analysts do not attempt to

determine the intrinsic value of a currency pair but instead use trading charts to

help identify patterns that can suggest future directions.

This technique assumes that currency pairs produce non-random price

formations and trends which can be defined and exploited. While many different

strategies are utilized, the central theme of technical analysis is based on the study

of trading charts portraying historical price and trading activity.

In addition, you will discover that the emotional responses of Forex traders

to price movements tend to generate recognizable price formations and patterns.

When you use technical analysis, you will not be concerned about the exact

monetary value of a currency pair but that its potential price direction is only an

extrapolation from its historical price patterns.

There are a large number of technical indicators that can be used to help you

achieve these tasks including Stochastic, RSI , Bollinger Bands, MACD, Moving

averages plus many more. However, you must understand that not one of them

can always predict the Forex Market accurately all of the time.

The following diagram shows how the Relative Strength Index is used to

forecast future price trends.


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You can dramatically improve your prospects of achieving consistent profits if

you design a Forex trading strategy using fundamental and technical analysis. The

FOREX FRONTIERS: The Essen t ia l s o f Cur rency T rad ing shows you exactly

how to achieve this objective by utilizing straightforward explanations supported by

real live examples of trading strategies that are explicitly illustrated by aesthetical

and highly relevant charts and diagrams.


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Chapter 9

You Must Learn How ToUse Leverage Properly


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Chapter 9 You Must Learn How To Use Leverage Properly

As already stated, you will need to be able to use leverage in order to acquire

worthwhile profits. However, you must proceed with caution because the poorutilization of leverage could expose your account balance to excessive levels of risk.

For instance, some Forex Brokers offer leverage as high as 400:1. Although this

sounds impressive and very desirable, you must appreciate how to exploit such a

facility accurately before trying to use it in full earnest. Here are some important

features about leverage that you must be fully aware of:

1. You must crucially remember that using larger levels of leverage also

increases your risks significantly. You must always monitor your account

balance regularly and utilize stop-loss orders on all your open positions in

order to restrict your risk exposure.

2. Although using stops is good practice, you must still understand that you will

increase your risk exposure significantly if you start leveraging in a recklessly

manner.

You must always know exactly how much you are risking with all of your

trades. Very importantly, when you determine your risk exposure for each trade

that you intend to open then you must base this calculation on your own account

balance and not on your leverage facility. You may be surprised to know that many

Forex novices use the latter and then wonder why they lose their equity so quickly.

For example, if you have $5,000 in equity and your Forex broker provides

you with a 100:1 leverage facility then you will have a leveraged balance of

$500,000. Consequently, if you use your own $5,000 to determine your risk per

trade then you will be able to provide the optimum protection for equity. However,

if you were to foolishly use your leveraged account of $500,000 for this purpose

then you could expose your account to unsubstantiated levels of risk.

For instance, suppose your money management policy sensibly advises that

you should only risk 1% of your account per trade. However, you could still incur

serious problems if you attempt to determine your risk exposure by utilizing your

full leveraged facility to support this action. This is because you would risk $5,000

on just one trade. In other words, you will be gambling all your equity on one

position! You must agree that such an action could be the equivalent of committing

financial suicide.


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Chapter 10

Surviving Your FirstMonths Of Forex Trading


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Chapter 10 Surviving Your First Months Of Forex Trading

One of the main reasons why Forex trading has become so popular is the

availability of leverage, as just discussed, which provides traders with financialresources that are multiple times bigger than their own account balances. Without

such facilities, Forex trading would be out of reach for most small players because

the fiscal amounts required to realize reasonable profits would be too great.

As such, after you open a Forex account you will then be able to invest your

brokers money to leverage your own balance so that your chances of achieving

worthwhile profits are substantially improved. However, there are serious risks

involved as explained in the last chapter.

In order to commence Forex trading, you must open a margin account with a

Forex broker. You must then deposit a sum into your Forex account which is equalto the margin percentage agreed upon with your broker. For example, if you want

to trade a $100,000 currency position and you have a 1% margin account, then

you will need to deposit $1,000. The remaining 99% is provided by your broker.

You must realize that you will not have to pay any interest directly on this

borrowed amount and that your broker will use your deposit as security. The

amount of borrowing power your Forex margin account provides you is known as

leverage. If you are new to Forex then it is vital that you understand that trading

on margin increases both your profit and loss potential significantly.

You should realize that one of the biggest differences between the way Forex

novices and experts trade is as follows. Novices have a tendency to focus on how

much profit that they can gain while experts evaluate, as their primary objective,

how much they could potentially lose. As such, these two groups approach their

Forex trading with two completely different mindsets and philosophies. You must be

aware that when you are utilizing leverage and margin accounts then you must

assess your risks as your top priority. If you fail to do so then you could just add to

the depressing statistic stating that almost 90% of all Forex novices lose their

entire equity within months from startup.

However, although the potential exists for you to experience serious losses

you can restrict your risk exposure and protect your account balance by taking

sensible safeguards. You should also understand that your Forex broker will

terminate your open Forex positions if their losses become so great that they

extend beyond your margin deposit.


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As already mentioned, trading using a Forex margin account provides you

with increased buying power and the potential for more profits although at higher

risk. How does this work exactly? This is because a 1% margin account allows you

to open a Forex position worth $100,000 for $1,000. As such, you must now

realize that just small changes in the price of a $100,000 currency block can

generate significant profits or losses.

For example, when you trade the EUR/USD currency pair, the value of each

pip is equal to $0.0001. This means that if you were to trade just your own deposit

of $1,000, then a pip would be worth only 10 cents. However, if instead you use a

leverage facility of 100:1, you then will be trade currency worth $100,000 which

will provide you with a pip value of $10.

Consequently, should the value of the EUR/USD appreciate from 1.3256 to

1.3356 then you will record a profit of 100 pips. As a result, your leveraged account

would produce for you a $1,000 profit if you had gone long. In comparison, if youdid not utilize a leverage facility, then the same pip movement would only have

produced for you a profit of $10. As you must admit, this second result is not so

exciting. In conclusion, this example should confirm to you that the great benefit of

a margin account is that it provides you with leverage that can greatly increase

your profit potential.

However, you must focus on the fact and as already been advised there are

significant downsides to using a margin account because its leverage facility also

increases your risk exposure. If you are not cautious then you could lose your

entire equity very quickly. For example, if you have a 1% margin account and price

moves against your traded currency by just one cent, you would lose $1,000.

There are a number of different Forex order types that you can utilize that

can limit these losses as explained in Section 6.3. For instance, a stop-loss order

can automatically close your position if price advances against it by a pre-

determined number of pips. Stop-loss orders allow you to limit your losses by a

specified amount while still allowing potential for profits.

You must also appreciate that your broker could close your position if your

potential losses equal or exceed the balance of your margin account. For instance,

you may be trying to ride out a downtrend with the expectations of a marketreversal. However, should this event not happen then you could find that your

position has been automatically closed because your margin balance has become

exhausted.


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For example, imagine that you have shorted a 1 standard EUR/USD lot at

1.4700 with the expectation that the euro will fall in value. This means your

100,000 Euro is worth $147,000. Also, assume that you have a 1% margin account

which means that your own required margin is $1,470.00. If you have only $1570

in your Forex account, then your available margin would now be $100.00 should

you have been so reckless as to open such a position.

Now imagine that in this state of complete insanity, you also did not set a

stop-loss order and the euro suddenly rallied to 1.5600. As your 100,000 Euros

would now have appreciated to US$156,000, your 1% margin requirement would

have risen to $1,560.00. Under such circumstances, your Forex broker would have

issued a margin call causing your position to be automatically closed down and you

would have incurred a loss of $100.

You must also be aware of the spreads that Forex brokers charge when you

use a margin account because they can affect your profits over the long haul. Forexample, imagine that Broker 1 charges 2 pip spreads on its 1% margin accounts

while Broker 2 charges 10 pips. Broker 1 could provide you with a quote on the

EURUSD, for example, of 1.4500/02. In comparison, Broker 2 would only offer a

quote of 1.4500/10.

As such, if you buy from Broker 1 then you would incur just a loss of 2 pips

or $20 whereas if you buy from Broker 2 you would be charged a 10 pip spread or

$100. Your leveraged facility of 100:1means that each pip is worth $10. As such,

spread charges can accumulate easily if you are not on your guard.

As this chapter illustrates, you must make the protection of your equity yourtop priority in order that you can survive your first few months of Forex trading.

Again, you will find great advice and strategies for achieving this objective by

spending some time at www.ivancavric.comand studying FOREX FRONTIERS:

The Essen t ia l s o f Cur ren cy T rad ing .


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Chapter 11

Summary


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Chapter 11 Summary

Although Forex offers some remarkable opportunities for achieving serious

profits, this booklet has tried to advise against the gung-ho approach that is

normally adopted by Forex novices. It has attempted to achieve this objective by

initially introducing you to a number of key Forex topics and then advising you

about methods that can help you survive your first few months of trading.

In particular, you have also been informed that FOREX FRONTIERS: Th e

Essen t ia l s o f Cur rency T rad ing is the book that the Forex world has been

desperately awaiting. This is because it states precisely why you could experience

so much difficulty trading Forex as so many have done before you. However, this

books easy-to-understand format then proceeds to state exactly how you should

develop your Forex career by identifying all the crucial aspects of this subject. As a

consequence, The Essen t ia l s o f Cur rency T rad ing will definitely have you saying

Now I understand.

One of the prime features ofThe Essen t ia l s o f Cur rency Trad ing is that it

presents a step-by-step guide about how to design your own Forex trading strategy

by using all the concepts explained in its previous chapters. Whats more is that the

book also provides examples of real trading strategies that was developed using the

exact process outlined and backed by live data results.

If you are new to Forex then you should definitely read the Essentials of

Currency Trading because it will certainly place you on the right road to Forex

enlightenment by helping you safeguard your equity and ensuring that you adopt

the best trading practices from the outset.

This book is the first of a trilogy. The full set comprises the following titles:

Book 1 FOREX FRONTIERS: The Essen t ia l s o f Cur rency T rad ing

Book 2 FOREX FRONTIERS: Proven S t ra t eg ies fo r Success

Book 3 FOREX FRONTIERS: What th e Pros Won ' t T e l l You

The last two books will complete your Forex education with the prime aim of

improving both your trading skills and profits significantly.

I have been in the Forex business since it first began. If you are in search of

good materials to teach yourself the ins and outs of Forex, then I suggest you visit

my personal blog www.ivancavric.com and get yourself a copy of my book


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FOREX FRONTIERS: The Essen t ia l s o f Cur rency T rad ing , which is available

at Amazon. The first two sources will supply you with excellent quality and free

information about the above Forex topics, as well as many others. The book will

discuss in-depth the Forex topics outlined in this booklet and provide you with a

solid foundation on which to launch your Forex career.

I wish you all luck on your journey to the exciting and breathtaking world of

Forex. But before you dive head on, please remember to study and do your

research and, most importantly, learn from those who have spent a great deal of

time learning the art and science of currency trading.

Forex Frontiers: The Beginners' Booklet

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Transcript of Forex Frontiers: The Beginners' Booklet