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Introduction to Forex Trading
What is Forex Trading?
Forex trading is when you attempt to generate a profit by speculating on the value of one currency compared to another. Foreign currencies can be traded because the value of a currency will fluctuate, or its exchange rate value will change, when compared to other currencies.
Forex trading is normally conducted through 'margin trading', where a small collateral deposit worth a percentage of a total trade's value, is required to trade.
Is Forex Trading Right for You?
To successfully trade in forex, you will need to have good knowledge of foreign exchange, leverage, volatility and the conditions of each country whose currency you are trading.
You will need to predict how these conditions affect the relative value of those currencies. This is difficult as so many factors come into play, including politics, economics and market confidence. Some of these can be unexpected and even random events.
You will also need to:
- Know how forex works in detail
- Have time to do research and monitor your trades
- Understand the online platforms used for trading and their functionality
- Read the product disclosure statement and discuss the risks with your financial adviser
- Be able to afford to lose more than the amount you invested.
Should I Buy or Sell?
Buying a currency pair, for example GBP/USD, means that you buy the first currency in the pair (GBP) while simultaneously selling the second currency in the pair (USD) on expectations that the cross rate price will rise in value and your profits will rise in line with any increase in that price.
Conversely, selling a currency pair means that you sell the first currency in the pair (GBP) while simultaneously buying the second currency in the pair (USD) on expectations that the price will fall and your profits rise.
Forex Trading Examples
Going Long on GBP/USD (Sterling/US Dollar)
It is the first Friday of the month and let’s assume that GBP/USD is currently trading at 1.6286/1.6288.
Traders are concerned about the employment situation in the US. They expect the level of actual non-farm payrolls to come in worse than economist estimates.
You expect that the US dollar will weaken and the British pound will strengthen against the US dollar, and decide to buy (go long) £10,000 on GBP/USD at 1.6288.
The trade size is in units of the first, or base, currency in the pair. For the purpose of this example, let's say your account leverage is 50:1.
This requires an initial deposit of (£10,000*1.6288/50) $325.76.
As you anticipated, the pound strengthens against the dollar, and when it reaches 1.6350 you decide to cash in your profits. Our new price is 1.6350/1.6352 and you sell to close at 1.6350.
Result: You bought at 1.6288 and sold at 1.6350, a rise of 62 pips. This gives you a profit of:
(1.6350 – 1.6288) x 10,000 = $62.
Profit/Loss is calculated (and denominated) in the second, or counter currency of the pair.
Profit/Loss calculation: The difference between the closing price and opening price x size of trade.
Alternative scenario: If however, the actual non-farm payroll data had come in better-than-expected, the US dollar would have strengthened against the pound.
If GBP/USD would have gone down, say, to 1.6230 you would lose (1.6288 - 1.6230) x 10,000 = $58.
Profit/Loss Conversion: To help simplify the trading process, IFS Markets automatically converts trading PL into the client's denominated account currency at the prevailing market rate at the time that the trade is closed.
Going long on AUD/USD (Aussie/Dollar)
Let’s say AUD/USD is trading at 1.0500/1.0501 at the moment.
Traders are bracing themselves for the worst, ahead of the release of US Q2 GDP figures.
You expect the Australian dollar will appreciate against the US dollar, i.e. the Aussie dollar will strengthen against the US dollar, and decide to buy (go long) AUD10,000 on AUD/USD at 1.0501.
For this trade, you choose a leverage scale of 20:1. This requires an initial deposit of (AUD10,000*1.0501/20) $525.05.
As anticipated, the Aussie dollar strengthens against the US dollar. AUD/USD rises to 1.0591 and you decide to cash in your profits. Our new price is 1.0591/1.0592. You sell to close at 1.0591.
Result: You bought at 1.0501 and sold at 1.0591, an increase of 90 pips. This gives you a profit of: (1.0591-1.0501) x 10,000 = $90.
Alternative scenario: The actual US Q2 growth rate meets expectations, thus pushing the US dollar up against the Aussie dollar. AUD/USD declines to 1.0411. In this case, you would lose (1.0501-1.0411) x 10,000 = $90.
Going short on EUR/USD (Euro/US Dollar)
It is mid-July, and let’s say that EUR/USD is trading at 1.4360/1.4361.
Investors remain worried about the impact of the sovereign debt crisis and you expect the euro will fall against the US dollar. You decide to sell (go short) €10,000 on EUR/USD at 1.4360.
For this trade, you choose a leverage scale of 20:1. This requires an initial deposit of (€10,000*1.4360/20) $718.00.
You were right. Euro depreciates against the dollar to 1.4251 and you decide to close your trade and take your profits. Our new price is 1.4250/1.4251 and you buy to close at 1.4251.
Result: You sold at 1.4360 and bought at 1.4251, a fall of 109 pips, giving you a profit of: (1.4360 - 1.4251) x 10,000 = $109.
Alternative scenario: If however, a weaker dollar across the board overnight had pushed the Euro up by 130 points to 1.4490, you would have lost (1.4490 – 1.4360) x 10,000 = $130.
Going long on USD/JPY (US dollar/Japanese Yen)
It is mid-March 2011 and USD/JPY is trading at 76.39/76.40.
The Japanese yen has surged since its worst earthquake in history due to high demand for yen as international businesses attempt to redevelop the devastated areas.
You believe that the yen is too strong and will fall back against the US dollar, i.e. the US dollar will strengthen against the yen. You decide to buy (go long) $10,000 on USD/JPY at 76.40.
For this trade, you choose a leverage scale of 25:1. This requires an initial deposit of ($10,000*76.40/25) 30,560 yen. As you predicted, USD/ JPY bounces back to 78.66 and you decide to take your profits. Our new price is 78.66/ 78.68. You sell to close at 78.66.
Result: You bought at 76.40 and sold at 78.66, a rise of 226 pips, giving you a profit of: (78.66 – 76.27) x 10,000 = 22600 yen.
Alternative scenario: If the dollar had continued to weaken against the yen, falling further to a record low of, say, 76.25, you would lose (76.40 – 76.25) x 10,000 = 1500 yen.
Going short on USD/CAD (US dollar/Canadian dollar)
It is mid-summer and let’s say USD/CAD is trading at 0.9520/0.9524.
A lack of progress in talks aimed at raising the US debt ceiling has weighed down on the US currency.
You expect USD/CAD will decline further and decide to sell (go short) $10,000 on USD/CAD at 0.9520.
You were right. The US dollar continues to weaken against the Canadian dollar and reaches a low of 0.9434. You decided to take your profits at this point. Our new price is 0.9430/0.9434 and you can therefore buy to close at 0.9434.
Result: You sold at 0.9520 and bought at 0.9434, a drop of 86 pips. This gives you a profit of: (0.9520 – 0.9434) x 10,000 = CAD86.
Alternative scenario: If the dollar had bounced back against the Canadian dollar to 0.9600, you would have lost (0.9600 – 0.9520) x 10,000 = CAD80.
- Go to our website www.ifsmarkets.com and choose your computer device.
Run the downloaded software
Click the "next" to begin install
Wait for the installation to finish
- To change your password login to your MetaTrader 4 platform and proceed to the menus which run across the top left of the platform.
Click Tools then scroll down to the Options tab.
In the Options window, select the Server tab, enter your password if it's not already there, then click on the Change button.
The Change Password window will appear. Enter the current password in field marked
- Enter then ew password in the field marked
- Confirm your new password in the field marked
- Click OK
Please note that your password must be at least 5 symbols long and must consist of a mix of lower and uppercase letters as well as at least 1 digit.
Finish by clicking the OK button in the Options window.
- To open a market order click on Tools then select New Order.
- You will need to select the Symbol you wish to trade, the Volume in terms of lot size. 1.0 is equal to 1 lot, or 100,000 units. Click either Sell by Market or Buy by Market. You will not be able to set the Stop Loss and Take Profit at the moment of placing the order under Market Execution. Please execute your order first, you will then be able to apply Stop Loss and Take Profit levels. To find out more about setting a Pending Order please see the tutorial How to Set a Pending Order
- To open a Pending order click on Tools then select New Order.
- You will need to select the Symbol you wish to trade, the Volume in terms of lot size. 1.0 is equal to 1 lot, or 100,000 units. Under Type select Pending Order. Under a Pending Order Type select one of:
- Buy Stop - an order to open a Buy position at a price higher than the price at the moment of placing the order.
- Sell Stop - an order to open a Sell position at a price lower than the price at the moment of placing the order.
- Buy Limit - an order to open a Buy position at a lower price than the price at the moment of placing the order.
- Sell Limit - an order to open a Sell position at a price higher than the price at the moment of placing the order.
- To modify an order, select the Trade tab in the Terminal window. Next Right Click on the trade you wish to modify and select Modify or Delete Order.
- In the Market Order are make the changes you want to the order. The Copy As buttons can be clicked to populate the stop loss and take profit fields with the current market price adjusted by number of points indicated in the field title “Level”. You can also change the desired Stop Loss and Take Profit levels by typing it into the fields titled “Stop Loss” and “Take Profit”. Once valid levels are specified, the trade can be entered by clicking on Modify (the long, horizontal bar at the bottom of the screen).
- Go to the Terminal window, navigate to the Trade tab then right click on the trade row which you wish to close.
- Select Close Order in the menu that appears.
- Go to the Terminal window, navigate to the Trade tab then right click on the order row for which you wish to set a Trailing Stop.
- Select Trailing Stop in the menu that appears. This will display a drop-down menu where you can select the number of points you want to set (10 points = 1 pip).
- The Trailing Stop drop-down menu also contains the Custom… menu option. When you select this, you can enter a specific number of points in the Custom window.
- Click on the Tools menu in the top menu panel and select Options in the drop down panel. Alternatively, simply press Ctrl+O on your keyboard.
- Select the Trade tab in the popup window and tick the box next to One Click Trading.
- Read the Disclaimer then tick the box to Accept the Terms and Conditions. Next click OK. Click OK again in the Options window to close the window and start trading.
- To create a report or account statement login to your MetaTrader 4 platform and proceed to the menus which run across the top left of the platform.
Click on the Account History tab (bottom left hand corner of the MT4 platform).
Right click on your mouse anywhere within the terminal window.
Select Custom Period.
Add your reporting period dates.
Again, Right click on your mouse anywhere within the terminal window.
Select Save As Report.
- First check what version of the platform you currently have as it may have already auto updated.
To check the platform version click “Help” then “About”
- The Build and Version of your software will appear below the IFS Markets logo
- If your platform is note up-to-date:Ensure all MT4 Platforms are completely turned off then Right click on the MT4 platform icon and select “Run as administrator”.The update should take place automatically. To check that the update has worked, click “Help” then “About”
- The Build and Version of your software will appear below the IFS Markets logo
- Create New Folder
- First create a new folder at your new chosen location
- For Example: Computer\Local Disk (C:)\Users\Public\Public Documents
- Name the folder something along the lines of MT4 – Instance 2
- Find the original MT4 folder and copy contents
- Find the original MT4 folder that you wish to copy. In this case you will be looking for IFS Markets – MetaTrader
- If you did not change the location setting with the initial setup of your original MT4 platform, you should find this folder in the following location:
Computer\Local Disk (C:)\Program Files\IFS Markets – MetaTrader
- Once this folder has been located, you will have to copy its entire contents
- Paste contents to created folder
- Return to the location of the folder you created earlier titled MT4 – Instance 2
- Paste the contents that you copied in the previous step into this folder
- Create desktop shortcut for second instance
- Locate the terminal application file (the largest file) in the new folder
- Right click and select send to desktop
- Name desktop icon
- Rename your new instance of the MT4 terminal e.g. IFS MT4 Instance 2
- Repeat it as many times as necessary, ensuring you name each instance with a different name
- First install the new version of MT4 on your computer by following this link:
Ensure you save the new instance of the program in a clearly marked folder. For example “MT4 Instance 2”.
- Next you will need to run your old MT4 instance in administrator mode. Ensure all MT4 Platforms are completely turned off then right click on the old MT4 platform icon and select “Run as administrator”.
- Now you will need to save your MT4 profile. Save your profile in the MT4 platform by clicking on “File” --> “Profiles” --> “Save As”.
- The final step is to move the entire Profiles folder from your original installation of MetaTrader to the location of your new installation of MetaTrader.
To do this right click on Profiles in the original installation folder and click “Copy”.
Once the download of fxfs4multisetup.exe file is complete, open the file and run the installation by following the instructions on the screen.
- Open the History Center by clicking on Tools, then select History Center. Alternatively, simply click F2 on your keyboard.
- Double-click the chart pair in the left column that you plan to backtest for. A list of time periods will appear below. Double-click on the time period to load the history data for that period. Note: The backtester uses 1 Minute data to generate ticks, so it is important that your M1 data is available.
- If you need to test your strategy for a longer period than what is available on the platform, click Download to download the full history. Please be aware that this data will be downloaded from the MetaQuotes Server which will override the available Forex FS history. Note: You may receive a Download Warning message - hit OK to continue. The History Center will commence downloading. Repeat this process for every other time period and pair that you plan to test with. Your history data should be complete and accurate. If you see "mismatch chart" errors on your journal or if your modelling quality is less than 90%, it mean that your history data is insufficient.
- After you have downloaded the history data, open the Strategy Tester, by clicking on the View menu and selecting Strategy Tester. Alternatively, click Ctrl + R on your keyboard.
- Select your Expert Advisor, Symbol, Time Frame and Model, select the Every tick model for the most precise result. Then click the Start button to begin the backtesting.
- The Optimization feature in the Strategy Tester allows you to test combinations of your EA setting to help you find the most profitable parameters. To perform optimization, click the Expert Properties button. Select the testing, input and limitation settings that you want to optimize. Then click OK.
- In the Inputs tab, there are 3 important columns. "Start" is the lowest value for your indicator setting. "Stop" is the highest indicator setting. "Step" is how many increment you want between the lowest and highest value.
- Click OK to go back to the Strategy Tester menu. Tick the Optimization check box, then click the Start button to begin the process.
- Click on the Help menu in the top menu panel and select Help Topics in the drop down panel. Alternatively, simply click F1 on your keyboard.
- The Client Terminal – User Guide window will appear.
- Click on the Contents tab to see all the available topics.
- Alternatively, click on the Search tab to search for a specific word or topic. Type in the word in the Search box and click Display. The search results will appear below.