Subscribe to my free Forex educationYouTube channel also press Bell icon so you never miss any new video update Welcome Forex traders this is MuhammadAzeem, Certified Elliott Wave Analyst In this video tutorial you will learnwhat is forex trading before I start I must tell you the reason of creatingthis Forex educational video I have seen many forex educational videos which onlytalk about how to make money in Forex trading or Futures Trading or Optionstrading but first traders must know what exactlyis Forex trading.
In my judgment Forex traders must have at least the basicknowledge that how Forex trading actually works before they actuallystart playing with real money.
The word Forex stands for Foreign exchange there are different names to say or write but they all means the same thing such asForex market, Rolling Spot Forex, Forex trading, Currency Trading market, Forex FX or just FX market Each country in the worldprints specific currency notes which they use to buy or sell products on anational and international level.
Now in Forex market participants buy sell andexchange currencies for the purpose of buying and selling assets and goods.
You could visit a physical money exchange dealer shop to buy sell orexchange any currency.
In Forex market there is no central location present instead money is traded through a network of banks importers and exportersinternational dealers individual traders hedge funds and Forex brokers.
Differenttype of businesses use the Forex market when they are buying services orproducts from other countries.
For instance let's say our United States ofAmerica firm wants to buy a motorcycle engine from the United Kingdom.
Themotorcycle engine is transferred from the UK to the United States of Americaand the USA company has to convert US dollars to British pounds to pay for theproduct which in this case is a motorcycle engine for the sake ofpayment the USA firm uses Forex market to convert US dollars to pounds atcurrent foreign exchange rate which is also known as money exchange rate.
Howthe profit is made in Forex market? Traders, investors and speculators wouldattempt to sell different currencies that they think will decrease in valueand buy currencies they think will increase in value in Spot Forex marketcurrencies are traded in pairs However; Forex trading is different froma stock market because currency valuation is relative to othercurrencies and that is why the price is given in relation to a second currency.
For example: GBP/USD currency pair.
Which means Great British Pound versus United States dollar.
With the help of internet a currency trader couldbuy or sell a currency in few seconds time.
In order to conduct a currencytrading transaction, there are many online Forex brokers available.
What is aForex broker? A Forex broker is a company which provides currency traders withaccess to a Forex trading platform or Forex trading terminal.
The onlinecurrency trading software allows Forex traders to buy and sell foreigncurrencies in pairs.
A currency trading broker also known as a retail Forexbroker handles a very small portion of trading volume of the overall foreignexchange market.
Currency traders use online Forex brokers to access 24-hourcurrency market.
It is a good idea to briefly talk about the three main typesof Forex trading markets.
In Spot Forex trading you mainly buy and sell currencypairs at market price and you can hold the trade open.
You could also buy andsell Spot Gold vs.
US dollar and Spot Silver vs.
In currency Futurestrading you buy and sell contracts with an expiration date set by differenttrading exchanges.
You can trade Currencies, Energies, Financials, GrainsIndices, Meats, Metals and Softs.
In currency options trading you buy calloption assets at an agreed price on or before a particular date known asexpiration date or you can sell put option assets at an agreed price on orbefore a particular date known as expiration date.
The expiration date isset by different trading exchanges.
Just a side note for those who are Muslimsonly Spot Forex trading is allowed in Islam with a swap free Islamic Account.
Soall Muslims must only open and trade with a swap free Forex trading account.
Now you may be wondering who controls the Forex market? As mentioned beforethere is no central location, instead money is traded through a network ofcentral bank's, importers and exporters, currency clearing agents, hedge funds,individual traders and Forex brokers However; state bank or central bank ofall countries play an important role in the foreign exchange market.
For examplecentral bank of United States of America try to control the money supply,interest rate, inflation rate and often have official or unofficial target ratesfor the US dollar.
They can use their often substantial foreign exchangereserves to stabilize the market.
Forex regulation and who regulates the forexmarket? Forex regulation is good for currency trading market and you mustonly do business deals with a regulated Forex broker.
You want to makeshow that your money is safe with a Forex broker.
If you face any Forextrading issues at the time of trading with the Forex broker then you can filean online complaint with a regulatory body to investigate on your behalf.
People trading Forex market from all over world and because of Forexdecentralized nature in every country there is usually a regulatory bodypresent.
A Forex regulatory body gives license to brokerage firms and moneyexchange dealers to conduct foreign exchange business in currency market.
Below are few examples of Forex regulatory bodies with country name and theirwebsite addresses.
What effects the price of a currency pair? Forex is a trueglobal marketplace with buyers and sellers from all corners of the globeparticipating in trillions of dollars of trades each day.
There are many importantelements that contribute to a change in currency exchange rate of any country.
Here is a list of fundamental events: Natural disasters such as earthquake andhurricane.
Gross domestic product GDP numbers.
Import andexport numbers.
Political stability Interest rate decisions.
Consumer price index CPI.
Producer price index PPI.
Purchasing managers index PMI.
Now we have learned some important things about Forex market.
Let me nowprovide you more details about Forex trading and how it actually works? My focus will be Spot Forex trading.
How to open anonline Spot Forex trading account? There are two main types of Forex tradingaccounts.
Live Forex trading account.
Demonstration Forex trading accountdemonstration Forex trading account is also known as Demo Forex trading accountor virtual money Forex trading account.
Live Forex trading account is also knownas real Forex trading account or real money Forex trading account.
We are nowgoing to do practical work and we will learn the following: How to find aregulated Forex broker? How to download and install online Forex tradingterminal software? How to open an online demo Forex trading account? You willlearn how to open a buy trade in Forex market? You will learn how to place apending buy stop order? You will learn how to place a pending buy limit order?You will learn how to place a sell trade in Forex market? You will learn how toplace a pending sell stop order in Forex market? You will learn how to place apending sell limit order? Once the trade is open you need to control risk.
So, youwill learn how to place a stop loss.
You will also learn how to place aprotective trailing stop to lock in profit? You will learn how to place atake profit level? In case Forex market does not movein the favor of your trade direction then you may want to close the trademanually instead of waiting for the price action to actually hit yourstop-loss or take profit level.
So, you will learn how to manually exit a Forextrade I will be using MetaTrader 4 trading terminal software by MetaQuotesSoftware Corporation.
So let's get started.
How to find a regulated Forex broker? Visit ready forex.
Com next click onForex brokers.
Next you will see a list of online Forex brokers.
For example letme click on FXCL.
You see this Forex broker is online since year 2006 and youcould see rest of their details such as payment options, Forex trading platformname, Regulated by, Customer support available in which languages, Supportmethods.
They also offer Swap Free Islamic account and they also allow mobiletrading.
Now click on their web site link So, this is how you find a regulatedForex broker and there are number of Forex brokers listed on ReadyForex.
You may be interested to check out ECN Forex brokers, Metatrader4 onlyForex brokers.
If you live in UK or USA then you can check these Forex broker links.
How to download and install online Forex trading terminal from a Forex brokersweb site? Before you start doing Forex trading itis mandatory to first download and install online Forex trading terminalsoftware from the Forex broker's web site Just a side note for those traders whowant to open a live Forex trading account need to click over here and thenyou need to fill an online account opening form.
Comwill ask you to upload and submit your scanned documents such as copy of yourpassport or national identity card and proof of address such as your bankaccount statement which shows your home address.
Every Forex broker always askdocuments for account verification before allows a Forex trader to starttrading with real money.
For more details you can check out their web site andterms.
Go over to platform next click on Download MT4.
Now, I am usingMicrosoft Windows operating system click on download MT4, save file and itwill take few seconds.
Now open file click on run.
Here is the EULA; End UserLicense Agreement.
Click Next now just wait for the software to complete theinstallation process.
Click on finish.
How to open an online demonstration Forextrading account? Now we are going to open FXCL demonstration Forex tradingaccount.
So you may need to select it if this option is not selected.
Click Next we are going to open a new demo account click Next.
Now this window is asking to input my personal details let me just fill all ofthese input fields next check mark, I agreed to subscribe to your newsletters.
Click Next and now wait.
Click on finish.
Bottom right hand side corner you willsee connection status.
Right now; it says no connection.
Once it connects to theMetaTrader 4 server computer then we will see kilobytes over here.
Click on tradetab and you see right now I have a five thousand US dollar virtual money tradingaccount.
On the top of the title bar you could also see the Forex account numberand the trading server address which is FX EO dash demo- demo account.
So, it means if I open a buy or a sell trade the order opens atFxClearing.
Com demonstration Meta Trader 4 server and it does not executethe trades in Forex market.
I'm going to customize my charts because I alwayslike to customize my charts and I am going to close some unnecessary windowsas well.
So, click on file new chart I'm going to open a chart of GBP/USD currency pair.
Right now; this chart looks pretty ugly in my judgement.
So, I am goingto customize the chart and background layout color scheme.
Just right click,switch off grid.
Right click again go to properties under the common tab I amgoing to check mark show period separators and thisshows me basically the start of the day and the end of the day.
There are 24individual candlesticks present inside 1 hour time frame.
Let me switch over tocandlesticks, the chart looks good but I need more customization.
So, just rightclick go to properties black on white looks much better clearly visiblecandles.
Right click again, go to properties; for bear candle I am going touse a red color for bull candle I am going to use a green color.
I am going toswitch over to a 5 minutes time frame because I am interested to do short-termtrading.
So, this is how you open an online demo Forex trading account.
How toopen a buy trade in Forex market? Let me teach you how to open a buy trade inForex market.
Just right click go to trading and new order.
Now this is thevolume.
Right now; the lot size is one standard lot if you want, you can reduceor increase the lot size.
Depending upon your trading account balance.
I willtalk more about lot sizes in few minutes time.
Just for the sake ofexample I am just going to leave it one standard lot.
Next part is to place astop loss and take profit level which I will talk later.
So, I want to open a buytrade, type is instant execution.
So, if you want to open a buy trade just clickon the Buy button and it will allows you to open a buy.
In a fast moving marketyou may need to enable maximum deviation from quoted price.
You could select maybe up to two pips three or four or five or ten that's upto you I like to use two pips.
In a fast moving market it may not going to work.
We want to buy at the market.
So, what you see is what you get in other words 1.
2947 or 1.
Once I hit a Buy button I will get this price.
Now, sometimes market moves fast and sometimes market moves slow.
To make iteasy for new traders, just click on enable maximum deviation from quotedprice and select two pips.
So, it means once I hit the Buy button if marketprice changes up to two pips I will still get a fill.
If it moves away morethan two pips then I won't get a fill.
So, let me click on buy.
The brokerage firmexecuted my buy order in the Forex market but as I have already told youit's a virtual money trading account so profit and loss isn't real.
If you wantto print the ticket number which is right over here 37358232 – then youcould.
I am just going to click on OK because you could also see the ticketnumber or order number right over here as well.
So, just click on OK.
So, this ishow you open a buy trade in Forex market How to place our pending buy stop order? Now, let me teach you how to place apending buy stop order but first let me tell you the reason behind placing apending buy stop order.
Let me zoom out.
Everyday there is one high of the dayand one low of the day.
Just draw a trend line.
Let me also fix this trend line.
This isthe high of the day and this is the low of the day.
Now, we want to open a buy trade once market breaks above the high of the day.
So, I want to open a by trade but I have a trading criteria.
I want the market to come at my terms.
I don't want to face the market atmarket terms.
So, I want the market to first move up and then secondly breaksabove the high of the day which is currently 1.
2974 then I want to go intothe market with my buy entry.
Instead of just sitting in front of computer screenand waiting and waiting I just place a buy stop pending order.
Just right click,go to trading, go to new order.
Now the price of this high of the day is 1.
Go to type, place buy stop and type in 1.
2974 and this will place a buy stoppending order.
Just click on place button So, I just placed a buy stop pendingorder.
You can see inside the trade tab, buy stop.
this is the lot size, the tradingsymbol at which price I want to get into the market in this case 1.
2974I haven't placed stop loss and take profit level and this is the price thatyou see right now 1.
So, now I am going to just wait for the market tomove up and fill my buy stop pending order.
If market is really going to moveup then fine, the brokerage firm will automatically execute the pending order.
Even if I loses my internet connection still this order is now parked at FxClearing MetaTrader 4 server.
So, if I loses my internet connection thebrokerage firm will execute my pending order.
How to place a pendingbuy limit order? Let's say you want to get into the market but you don't want to doa breakout trading.
You want to do swing trading.
Maybe market is going to drop alittle bit more and then price is going to rise up in GBP/USD currency pair.
Insuch a market scenario, you may want to place a pending order at this pricelevel which in this case is 1.
So, just right click go to trading, goto new order then click on pending order Next select buy limit 1.
2929 andclick on place.
Now the trading condition is; if market is going to drop all theway down to 1.
2929 then brokerage firm will execute my buy entryand this is known as buy limit.
How to open a sell trade in Forex market? Let me teach you how to open a selltrade at the market? Just right click go to trading, new order and once I hit thesell button the brokerage firm will open a sell trade in market.
Click on sell.
Sell is open and right now you can see the sell entry inside the trade tab.
Ifaccidentally you closes the terminal windowyou can always reopen it by going over to view and then terminal.
So, this is howyou open a sell trade in Forex market.
How to place a pending sell stop order? Let's say you are a breakout trader andwant to take a sell trade but first you want to wait for the market to breaksbelow the most recent swing low which in this case is low of the day over here.
Sofar low of the day is 1.
So, just right click go to trading, new order1.
2921 go over to pending, sell stop 1.
2921 and hit the place button.
So, we have just placed a sell stop.
The tradingcriteria is if market is really going down then it should breaks belowprominent swing low which in this case is 1.
If market isn't going to drop, if market goes up then the brokerage firm is notgoing to execute my pending sell stop order.
So, this is how you place a pendingsell stop order.
How to place a pending sell limitorder? Let's say you are a swing trader and wegot this nice decline in market now you're waiting for a pullback or theprice to move up a little bit and then you expect the market to drop again.
So,you want to get in but you do not want to get in now using the instantexecution sell entry.
You want to sell at 1.
2958 in such a market scenarioyou use a pending sell limit order at 1.
Just right click, go totrading, new order.
Go over to pending order sell limit next type in the entry price1.
2958 and click on place.
Now, the brokerage firm has placed a sell limitpending order.
The trading criteria is market should go up and then starts thedecline.
Now, let us say price isn't going to move up and it just keep going downand down and down then obviously we will not get a fill.
In such case; we may needto adjust our sell limit sell limit is written over here as well at theleft-hand side of the screen.
You may want to drag it down a little close.
Nowonce the market reaches near your pending order, you could see a greencolor over here.
So, this is how you place a pending sell limit order.
How to placea stop loss to control risk in Forex trading? Now, let me open a sell trade.
Just go totrading, new order and click on sell.
Now, once the trade is open you need tocontrol risk.
So, what we are going to do is we're going to place a stop loss.
So, Iwould like to place a stop loss at one point twenty nine seventy four which isa prominent swing high.
So, let me teach you how to place a stop loss just rightclick go to modify and type in 1.
click on modify.
By placinga stop loss I am telling my Forex broker that I am only willing to risk29 pips.
I do not want to lose more than 29 pips if market movesagainst my sell trade.
I took a sell trade in GBP/USDcurrency pair few minutes ago and right now market is going down in the favor ofmy sell trade.
You can see the sell trade over here.
Here is my sell entry 1.
2944 and I have also placed a stop loss at 1.
Now, once we are inside the market and market startsmoving in the favor of the trade then we want to control the risk as much as wecan.
A good currency trader always think about how to control the loss.
How toplace a protective trailing stop? So, what we are going to do is we are goingto place a protective trailing stop to lock in few pips profit.
In this waywe will remove the stop loss completely and we will make sure that now we arenot going to lose this trade no matter which way market is going to move.
So,just right click over here, go to modify.
So, we took a sell entry at 1.
So, what we're going to do is we're going tomove this stop-loss down below over sell entry.
So I am going to place my stop-lossbelow 1.
I would like to place my stop loss at 1.
In this way I am locking in two pips profit and I have completely removed thestop-loss.
Same stop-loss is going to act as a protective trailing stop.
Theworst-case scenario is, market is going to fire up and it will hit my protectivetrailing stop and I will get out of a market with two pips profit which isstill fine.
At least; I am not going to lose money.
How to place a take profitlevel? Let me teach you how to place a takeprofit level.
The reason behind placing a take profit level is we want to exitthis trade at a predetermined take profit level.
As a human being I can notsit and watch this trade for 24 hours time.
So, what I am going to do is I am justgoing to place my take profit level.
So, let's say I place my take profit levelat 1.
Just right click over here go to modify, 1.
This means I am telling my Forex broker thatif market reaches 1.
2924 then automatically close thetrade.
So, this is how you place a take profit level.
Now even if I loses myinternet connection I don't need to worry about because all of these ordersthe stop loss which is now acting as a protective trailing stop and they takeprofit level all these orders are now pending orders and they are parked atthe brokerage server.
How to manually exit a Forex trade? Incase Forex market does not move in the favor of your trade direction then youmay want to close the trade, manually.
Instead of waiting for the price actionto actually hit your stop-loss or take profit level.
So, you will learn how tomanually exit a Forex trade.
All you need to do is you just right-click over hereand then select close order and this will close the trade at the market.
End of part 1, continue by watching part2.