Watch Me Learn for Ex

8/8/2019 Watch Me Learn for Ex

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I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to

trade like a professional.

The contents of this eBook are for informational purposes only. NoPart of this publication is a solicitation nor an offer to buy or sell anyfinancial market.

Examples are provided for illustration purposes and should not beconstructed as investment advise or stratergy.

All trade examples are hypothetical.

No representation is made that any account or trader will or likely toachieve profits or loses similar to those discussed in this eBook.

By purchasing this eBook, and/or subscribing to our mailing list youwill be deemed to have accepted these and all other terms found onour web page www.watchmelearnforex.com in full.

The information found in this eBook is not intended for distribution to,or use by any person or entity in any jurisdiction or country wheresuch distribution or use would be contrary to the law or regulation orwhich would subject us to any registration requirement within such

jurisdiction or country.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCERESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUALPERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENTACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEENEXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATEDFOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH ASLACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL AREALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THEBENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THATANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES

SIMILAR TO THOSE SHOWN.






ContentsForex Trading - What Is Forex Trading? .................................................................................................. 2

Understanding Currency Prices .............................................................................................................. 3

Market, Limit and Stop Orders ............................................................................................................... 4

Trader Psychology ................................................................................................................................... 6

Sample Trade .......................................................................................................................................... 7

Forex Trading - What Is Forex Trading?If your thinking that Forex is a the new wonder cleaning product, you have come to the wrong site,

Forex or FX is simply short for foreign exchange. So when you hear someone talking about forexthey are not wanting to clen your sink, but they are specifically talking about currency trading.

Currency trading is exchanging dollars for pounds, or euros for yen and so on. It has one thing in

common with a household cleaning product, though - if you are not careful you can get cleaned out

in a hurry trading currencies.

The currency exchange markets are the largest, most volatile and among the most risky forms of

trade in the world. Amounts exchanged are large, magnifying small price changes, and the total daily

volume is in the range of two trillion dollars. Yes, that's 'trillion'... a two followed by twelve zeros!

There are dozens of markets, with the largest centered in New York, London and Tokyo. Although,

'centered' is slightly misleading, since there's no physical exchange that trades currency - unlike the

New York or London Stock Exchanges for equities (stocks).

Instead, the playground primarily of large institutions - international banks, insurance companies

and governments via their central banks - currency exchange is carried out by phone and via

computer networks, formerly all private or government but now including the Internet.

And that latter means of communication, along with changes in trading methods, is what makes

possible the opportunity for the individual investor with less than a few million dollars to participate

in the fast-paced, highly speculative game of trading one country's money for another's.

In order to play that game without getting immediately run over, the investor will need to learn

some new terminology, do some research in new areas, find a broker who trades currency and stock

up on some courage pills. Enormous sums are traded in forex and only commodities trading offers

similar ease in feeling dumb and getting poor fast.

But losing money isn't inevitable for the prepared investor.

An investor will need to become familiar with new phrases and quoting methods - pips, spreads,

cable and the like. Calculations formerly carried out with ease will now need a little more thought.






Everyone is used to their own currency and seeing a $10 stock go up by a dollar one immediately

sees a 10% gain. Trading currencies requires a little more knowledge.

The prepared investor will need to expand the scope of his research. Finding out the likely future of a home-based business is complicated, but straight forward. Conditions in one or two sectors and a

few economic indicators can be grasped without requiring a PhD in finance. Learning about the

factors influencing the currencies of two or more countries is an order of magnitude more difficult.

If you really want to learn to trade forex, have a look at my review of Forex Mentor Pro at

www.watchmelearnforex.comto learn to trade like a professional.

Understanding Currency Prices

Forex trading is always about buying one currency and selling another one simultaneously. The

world of currency exchange, Forex (Foreign Exchange), employs terminology not used elsewhere in

the investment world. Defining those terms, and providing a sample trade, will go a long way toward

taking the 'foreign' element out of foreign exchange.

Currency trading is always done in pairs. In other trading, such as stocks and bonds, cash is

exchanged for something else (a percentage of ownership, a promise to pay interest).

In Forex, cash is traded for cash. Euros are traded for dollars, dollars for yen, yen for euros and so

on. There are dozens of trading pairs, just as there are dozens of currencies around the world that

participate in the currency exchange markets.

The major players are US Dollar (USD), Euro (EUR), Australian Dollar (AUD), British Pound (GBP),

Canadian Dollar (CAD), Japanese Yen (JPY) and Swiss Franc (CHF). Most of all daily transactions

involve trading of these major currencies.

So, when reading quotes, investors will see prices listed as:

Name Bid Ask Change %Change High Low Time

EUR/USD 1.1901 1.1903 -0.0091 -0.76% 1.2024 1.1891 15:26

GBP/USD 1.7439 1.7442 -0.0004 -0.02% 1.7573 1.7410 07:01

The currency listed on the left is called the 'base currency' (EUR & GBP) and the second is the 'quote

currency' (USD).

The 'bid' is the price at which brokers are willing to buy the base currency. The 'ask' price is that at

which brokers are willing to sell the base currency. The quotes are always listed from the brokers'

point of view. So if you (the trader) wants to buy the base currency the ask price will apply. If you

(the trader) wants to sell the base currency the bid price will apply.






EUR/USD 1.1901/03 means

If you buy 1 EUR you will pay 1.1903 USD

If you sell 1 EUR you will receive 1.1901 USD

GBP/USD 1.7439/42 means

If you buy 1 GBP you will pay 1.7442 USD

If you sell 1 GBP you will receive 1.7439 USD

The difference between bid price and ask price at a single specific time is called 'the spread'. The

spread is measured in pips (price interest points). The 'pip' is often said to be the smallest incrementby which the price changes.

If the bid price of the EUR/USD pair changes from, say, 1.1901 to 1.1902 that's a single pip. That's a

(bid or ask) price at two different times. Remember not to confuse this difference with the spread,

which is a difference between the bid and ask price at a single, specific time.

If you really want to learn to trade forex, have a look at my review of Forex Mentor Pro at

www.watchmelearnforex.comto learn to trade like a professional.

Market, Limit and Stop OrdersTo understand limit and stop orders it's best to contrast these with the ordinary (and still extremely

common) market order. A market order is one that is placed by the investor to execute at the

current market price whatever that is at the time it's filled. It's very important to keep in mind that in

Forex, 'current' changes even faster than in the stock market.

As a result of the inherent high (relative) volatility of Forex, any market order can be expected to

deviate from the price shown on the investor's screen some of the time. When a stock trader

requests a market order right this instant to sell Microsoft at, say, $28.25, he or she can expect to

get that price very often. The odds of selling at exactly the price shown on the screen right now is

smaller in Forex trading.

As a result, other order types are more common in Forex trading. The most common are limit orders

and stop orders.

In essence, a limit order is a request to guarantee you will not sell for less, or buy for more than the

limit price, or nearly so. No broker will guarantee execution at an exact price, though this is often

achieved.






Suppose, for example, that you bought euros at $1.1905. The market then rises to, say, $1.1955.

Placing a limit sell order on your euros at, say $1.1945 would allow you to lock in a minimum profit

of 40 pips or better.

Alternatively, you may want to buy in at no more than a specified price. Suppose the market for

British pounds (GPB) is currently at $1.7750, which seems too high to you. You could place a limit

buy order to buy GBP at $1.7705. In other words you are telling the broker you don't want to pay

more for GBP than $1.7705 per pound.

If the time limit expires before the price drops or rises to the limit price, the limit order simply

expires unfulfilled.

A stop order used to be more commonly called a stop-loss order. That type is still used, by that

name, incidentally. That gives a clue to what stop orders are primarily for: to stop losses.

It's what can or does happen before and after that makes the difference between a limit order and

stop order. A limit order is an order to buy or sell AT a specified price or better. A stop order is an

order to buy or sell ONCE a specified price is reached. After that it becomes a market order and is

subject to fluctuation.

Suppose you bought euros, using dollars in your account, at the then current exchange rate of

$1.1903. Now suppose, as often happens in Forex trading, the exchange rate changes to, say,

$1.1888. The market appears to be on the way down. In order to protect yourself from either a)

having to input more cash to cover the equivalent of a margin call, or b) enduring an even larger loss,

you wisely put in a stop order.

You tell your broker you want to sell those euros once the exchange rate reaches $1.1803, for

example. If during the trading period, the price reaches $1.1803, your euros will be sold at the

market price saving you from incurring further losses.

Note that the price used for executing the order is the market price! This is the most current

exchange rate at the time the order is executed and not necessarily the threshold specified in the

stop order ($1.1803). This means you may only get $1.1802, or 1.1801, or 1.1800 or lower

depending on what the market price is at the moment your order is executed.

To prevent this from happening the stop-limit order may be your best friend. It's a combination of a

stop order and limit order. Like stop orders, your order will be executed once the market reaches a

specific price. Once that price is reached, it becomes a limit order, so your order will only get filled at

the chosen limit price, or a better price if there is one available.

These are techniques every investor should very quickly adopt as a habit, most especially novice

investors. Forex trading is a roller coaster ride. Don't get thrown out of the car. Use a seat belt... Use

limit orders and stop orders liberally in your trading strategy. Market orders are simpler, but much

more risky.






Unless you have something that brokers are now beginning to offer called a 'mini' account, all trades

are done in standard lots of 100,000 units. So, to get in the game, you (theoretically) have to shell

out $119,030 to purchase one standard lot of 100,000 euros.

To professional currency traders, that's a tiny amount of cash. To the average investor interested in

Forex trading it's enormous. That's one of the reasons some brokers are beginning to offer 'mini'

accounts. Mini accounts have much smaller standard lots, such as 10,000 units.

Even at 1/10th the standard size, that's still a substantial investment for many investors. Even

professionals will balk at having to come up with the full cash amount for large trades. Forex brokers

deal with this problem by offering something called 'leverage'.

Leverage is the ability to control much more than you own. Forex brokers 'loan' an investor typically

up to 90% or more. It isn't technically a loan. The 10% or less actually invested is regarded, in the

industry and in law, as a 'good faith deposit'. The investor is technically on the hook for the other

90% or more, but it's very rare to press an investor for the money.

Instead, if the price direction moves in an unfavorable direction (for the investor) by a large enough

amount, the broker simply liquidates the position and the investor loses! It's important to realise

this! A good broker will usually give the client a call and give him or her the option to input enough

fresh cash to cover the shortfall.

Currency prices can change by significant amounts very quickly (that's called 'volatility'), though, so

be prepared.

What might that look like in a realistic scenario?

Let's look at the above example EUR/USD 1.1901/03. Bid price is 1.1901 and ask price is 1.1903 and

suppose trades are done at 1:100 (1%) leverage. You decide to buy EUR. In the case of 1 standard lot

of 100,000 units, you put up 1% of $119,030, or $1,190.30.

Let's take a look at the profit potential.

Suppose the market moves to EUR/USD 1.1907/09. If you sell the euros at this point, the bid price

will apply. In this case you make a profit of ...

$119,070 - $119,030 = $40.

That doesn't sound like much, but observe two things.

One, the initial investment 'out of pocket' was only $1,190.30, and 1% of $119,070 = $1,190.70, only

a 40 cent! difference ($0.4). Yet the actual profit was 100 times that, $40. That multiplier effect on

the actual profit is the result of leverage.

Second, price changes of a few pips can (and often do) happen in minutes in the Forex markets, and

getting in and out doesn't cost a formal commission. Brokers make money off the spread. Investors






can get in and out quickly and accumulate large amounts of profit (or loss) in one day. Or, they can

wait for wider swings - which also often happens in relatively short periods.

Welcome to the roller coaster world of investing: Forex, if you want to learn how to trade Forex Iwould look at Forex Mentor Pro to learn how to trade like a professional.

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