The Beginners

Guide to Forex Trading

EUR/USD

SELL BUY

GBP/USD
AUD/USD
SELL BUY USD/JPY

Blue Capital Markets Limited 2016 All rights reserved. 1

 Content

Introduction to Forex Trading________________________________________________________ 2

Trading Hours_______________________________________________________________________ 2
How to Start Forex Trading__________________________________________________________ 3
Placing Trades_______________________________________________________________________ 4
Understanding Spreads______________________________________________________________ 4
Pips_________________________________________________________________________________ 6
Leverage and Margin________________________________________________________________ 7
Technical and Fundamental Analysis_________________________________________________ 8
Risk Management___________________________________________________________________ 9
10 Trading Tips_____________________________________________________________________10
Conclusion_________________________________________________________________________12

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a sub-
stantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you under-
stand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its
subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License
Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by
ASIC (Easy Markets Pty Ltd -AFS license No. 246566).

Blue Capital Markets Limited 2016 All rights reserved. 2

 The Beginners Guide to Forex Trading
The foreign exchange (forex for short) is the worlds largest and most liquid financial market.
Each day, multinational banks, investment firms, hedge funds, corporations and retail traders
buy and sell currencies on the foreign exchange to facilitate trade and capitalize on price move-
ments. Over the past decade forex trading has grown in popularity due to its accessibility and
relatively few assets compared with other financial markets. As a result, there are now more
than 4 million retail forex traders worldwide looking to make money in the $5.3 trillion per day
forex market.

You read that correctly; forex is a $5.3 trillion per day market. Thats the value of daily turnover in
the foreign exchange market as of April 2013.

$5.3
TRILLION
TRADED DAILY

Blue Capital Markets Limited 2016 All rights reserved. 1

 Introduction to Forex Trading

In the forex market, the main instrument that is traded is the currency pair, which is the value
of one national or regional currency (i.e. base currency) against another currency (i.e. quote
currency). For example, the EUR/USD currency pair shows how many US dollars (USD) are
needed to buy one euro (EUR). The EUR is the base currency and the USD is the quote currency.
The same holds true for the USD/JPY currency pair, which signifies how many Japanese yen
(JPY) are needed to buy one US dollar (USD).

The two currency pairs highlighted above are part of a

special group of currency pairs called the Majors. The
Majors are the four most actively traded currency pairs in
the forex market. They include:

EUR/USD (euro vs. US dollar)

USD/JPY (US dollar vs. Japanese yen)
GBP/USD (British pound vs. US dollar) US DOLLAR
USD/CHF (US dollar vs. Swiss franc)

Other commonly traded currency pairs include: USD/CAD ACCOUNTS

(US dollar vs. Canadian dollar), AUD/USD (Australian dollar FOR ROUGHLY
vs. US dollar) and NZD/USD (New Zealand dollar vs. US
dollar).
90%
You probably noticed that all of these tradeable currency OF ALL CURRENCY
pairs have the US dollar as either the base currency or the TRANSACTIONS
quote currency. This is no coincidence, as the US dollar
WORLDWIDE
accounts for roughly 90% of all currency transactions
worldwide.
$

Trading Hours

The flexibility of the foreign exchange market is one of its most attractive
features. Given the global nature of the market, currency trading is available
24 hours a day between Monday and Friday. This 24-hour period is broken
down into four overlapping sessions: Sydney (Australia), Tokyo (Japan),
London (England) and New York (United States). The vast majority of global currency trading
is concentrated in these financial centres. As of 2013 sales desks in the US, UK, Japan and
Singapore intermediated nearly three-quarters of all forex trades in the world.

Blue Capital Markets Limited 2016 All rights reserved. 2

 How to Start Forex Trading

Now that you have a better understanding of the forex market, its time to open a trading account.
The easiest and most affordable way of doing this is by joining one of the hundreds of online
forex brokers. Put simply, a forex broker is a firm that provides access to a common trading
platform allowing you to buy and sell foreign currencies in real time. Because forex brokers
vary greatly in terms of quality, service and features, its important to do your homework before
opening up a trading account. In general, you should only do business with a broker thats
regulated by a governmental or independent supervisory body. Choosing a broker that has a
long track record (i.e. more than ten years) in the market will also help you narrow down high
quality service providers.

For example, easyMarkets (www.easymarkets.com) fits all of the criteria of a trusted, established
broker. It is fully regulated by the Cyprus Securities and Exchange Commission (CySec) and
the Australian Securities and Investment Commission (ASIC). It has been in operation for more
than 13 years, a very rare feat in the retail forex market. If youre thinking about becoming a
serious trader, youll quickly learn that picking a quality forex broker is one of the most important
decisions you will ever make.

After you narrow down a reputable

broker and register for their service, CHOOSE A
you may consider trading on a demo REGULATED BROKER
account before you deposit real money.
A demo account is essentially a practice
trading account that allows traders to
REGULATED
review and test a trading platform before ?

depositing real money. Demo accounts

provide real market conditions, allowing
traders to place fictitious trades using
virtual or simulated money. This is a
great way to not only familiarize yourself
with the available tools, but to also test
your trading strategies in a real market
environment.

After you trade on demo for a while, you

might consider depositing real money
and start trading. Some brokers offer
bonuses based on your first deposit.
Check out easyMarkets bonuses on
GET YOUR DEMO ACCOUNT
their promotions page.

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 Placing Trades

Like any other commodity bought and sold on the open market, currency pairs are traded either
for investment, speculation or as a medium of exchange. In this sense, currencies rise and fall
because of basic supply and demand. For example, the EUR/USD rises in value when demand
for the euro rises and/or supply falls. Likewise, the EUR/USD declines in value when demand for
the euro falls and/or supply rises. No matter what other factors are in play, the forces of supply
and demand will ultimately dictate the direction of a currency.

To place a trade, you need to determine whether to buy or sell a currency pair. When you buy a
currency pair, you are essentially buying the base currency and selling the quote currency. For
example, buying the EUR/USD is buying the euro and selling the US dollar. Buying a currency
pair is also referred to as going long. When entering a long position, you want the value of the
currency pair to rise after you bought it so that you can sell it at a higher price in the future.

On the flipside, selling a currency pair means you want to sell the base currency and buy the
quote currency. This is called a short position. When shorting a currency pair, you want the
price to fall so that you can buy it at a lower price.

THE FORCES OF SUPPLY AND DEMAND

DICTATE THE DIRECTION OF A CURRENCY

SUPP DEMAND
LY
GBP

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 Understanding Spreads

Every financial market has a cost of trading and so

does forex. A spread, which is common to all
financial markets, is simply defined as the price
difference between the bid price and ask price of
a currency pair. Put simply, the bid is the price at
which a trader wants to buy a currency, whereas
the ask is the price at which someone is willing
to sell the currency. In forex, this is called a bid-
ask spread; it can be thought of as the difference
between the highest price that a buyer is willing to
pay for a currency and the lowest price for which a
seller is willing to sell it. Therefore, when buying a
currency, traders will be quoted two prices the bid A
and the ask. The difference between those prices is FIXED SPREAD
the spread. This is generally how brokers make money. REMAINS
CONSTANT
For example, if a trader wants to buy the USD/CAD at
REGARDLESS
1.3530, your broker will quote two prices 1.3530 and
1.3533. In this case, your long position will be filled at
OF MARKET
1.3533. In this particular example, the trader has been
VOLATILITY
charged 3 pips for the spread.

On the flipside, if a trader were to sell the USD/CAD at 1.3530, the broker would execute the trade
at that level but still charge the spread when the trader buys back the short position.

Ultimately, spreads can be influenced by a number of factors, including supply, demand and total
trading activity of the currency pair. When trading with a broker, spreads usually appear in one
of two forms: variable and fixed. As the name implies, a variable spread fluctuates throughout
the day due to changes in market conditions and overall liquidity. A fixed spread, on the other
hand, remains constant and unchanged regardless of market conditions. Many brokers like to
promise tight (i.e. small) spreads, but this rarely pans out the way traders expect. Thats why
its usually better to go with a fixed spread system. At the very least, you will be able to predict
trading costs, which may help you develop a consistently profitable trading strategy.

TRADE WITH FIXED SPREADS

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 Pips
PIPS ARE THE
The price difference we talked about in the previous SMALLEST
section was broken down into pips, which are the
UNITS OF
smallest units of measurement in the forex market,
usually quoted to four decimal places (i.e. 0.0001). In
MEASUREMENT
the case of the USD/CAD example above, the spread
IN THE FOREX
between 1.3530 and 1.3533 is three pips. MARKET

In forex trading, the pip is the smallest price change

that a currency can make. For example, if the GBP/
USD opened at 1.5450 and closed at 1.5400, the
pair lost 50 pips on the day (1.5450 1.5400 = 50).

For the most part, calculating pips is as easy as

adding and subtracting since the smallest move
in most major currency pairs is one basis point.
However, this isnt always the case. For example,
in all pairs involving the Japanese yen (JPY) the
smallest pip is two places to the right of the decimal
(i.e. 0.01) as opposed to four.

Calculating Pips and Profits

Lets look at a EUR/USD example. If the price moves from 1.2853 to 1.2873, it has
gone up by 20 pips. If it goes from 1.2853 down to 1.2792, its gone down by 61
pips. Pips provide an easy way to calculate the profit or loss (also known as the
P&L) on a trade. To turn that pip movement into a profit or loss, all you need to know
is the size of your deal. For a 100,000 EUR/USD position, a 20-pip move equates
to $200 (100,000 0.0020 = $200). For a 50,000 EUR/USD position, the 61-point
move translates into $305 (50,000 0.0061 = $305). Depending on which direction
you decide to trade in (either to buy or to sell) you could make or lose the calculated
corresponding amount.

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 Leverage and Margin

One of the biggest draws of forex trading is the ability to control a large amount of capital using
very little of your own money. In forex this is called leverage, and involves borrowing a certain
amount of trading capital needed to buy a currency. For example, if a broker offers 100:1 leverage,
traders can control a $100,000 position on a mere $1,000 deposit. As you can easily tell, leverage
may be an incredible way to amplify your earnings. After all, if your position rose to $101,000,
your return is $1,000 (thats a gain of $1,000 on an initial investment of $1,000). Sounds great,
doesnt it? Well, it also works in reverse. Leverage can also amplify your losses. If that $100,000
position were to fall by $1,000, your initial deposit would be wiped out, leaving you with zero.

Remember that $1,000 initial deposit you put down to control the $100,000 pot of money? Thats
called margin. You need margin to use leverage. Simple as that.

Keep in mind that some brokers offer crazy leverage opportunities from 500:1 or even greater.
Remember, leverage is a two-way street, a double-edged sword and insert any other clich that
works for you. New traders are strongly advised to stay away from leverage or use it sparingly
until they learn the ropes.

WITH
LEVERAGE
YOU CONTROL
A LARGE AMOUNT
OF CAPITAL
USING LITTLE
OF YOUR OWN
MONEY

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 Technical and Fundamental Analysis
TECHNICAL
ANALYSIS
In one of our previous sections we talked about the forces of
supply and demand involved in moving currency prices one
way or another. But what about the techniques that traders
IS THE USE OF
use to analyze which direction prices are moving? Thats where
technical and fundamental analysis come into play. PAST
MARKET DATA
Technical analysis is the use of past market data, such as
price and volume, to predict future price movements. Technical
analysis is the single-most powerful method for evaluating
currency prices and is relied upon by the vast majority of traders.
Its important to keep in mind that technical analysis doesnt try
FUNDAMENTAL
to measure a currencys intrinsic value (i.e. what the currency ANALYSIS
is really worth). Instead, it helps traders identify price patterns
STUDIES
that may predict future activity, thereby improving entry and exit
points.

ECONOMIC
Honestly, there are so many technical analysis methods and AND FINANCIAL
techniques out there that it would be impossible to name them FACTORS
all, let alone cover them in depth. What you need to know is
that technical analysis is mostly used to identify trends and
determine breakouts and reversals. As you start playing around
with charts and looking at things like trend lines, oscillators and moving averages, youll slowly
begin to appreciate technical analysis. You will also develop a newfound appreciation for charts
with squiggly lines. The forex market is essentially a club for chart enthusiasts.

Fundamental analysis, on the other hand, does attempt to measure the intrinsic value of a
currency. It involves studying related economic, financial and other qualitative and quantitative
factors that may be influencing a currencys price. Many forex traders who dont have a
background in economics or monetary policy dont like fundamental analysis and choose to
ignore it all together. Thats probably not a good idea. Things like central bank statements,
interest rates, economic growth indicators and insights about future government policies all
have a direct impact on currency rates. Traders absolutely need to pay attention to these if they
want to succeed. After all, trading doesnt occur in a vacuum, but in a dynamic market with lots
of influencers.

In fact, some of the biggest price movements occur immediately after a fundamental news
release. Take for example the Swiss National Banks removal of its three-year old peg on the
EUR/CHF (euro vs. Swiss franc) exchange rate in January 2015. This move not only caused
absolutely staggering losses for the euro, it put many forex brokers out of business altogether.

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 Risk Management

Risk management refers to the set of tools and methods

traders use to minimize or remove financial risks
from their decision-making. It is widely regarded
as one of the most important aspects of trading
in any financial market, be it forex or otherwise.
Although its impossible to know what will happen
in the future, there are certain steps traders may
take to minimize their exposure and ensure they
dont blow out their account on one or two really bad
positions.

The following four strategies should be part of any

forex traders risk management plan:
TRADE WITH
Risk-Reward Ratio: Based on your analysis, the risks A SOUND RISK
of entering a trade should be well below the potential MANAGEMENT
rewards. The minimum risk-reward ratio a trader PLAN IN PLACE
should use is 1:2 (i.e. potentially risking 10 pips to
make 20 pips).

2% Rule: If you really want to minimize downside risks and have the opportunity to make more
trades, you may consider not allocating more than 2% of your entire trading capital on a single
position. If you have $1,000 in your account, no more than $20 should go toward one trade.

Stop Loss / Take Profit: A stop loss is an order to sell a currency when it reaches a certain price,
allowing a trader to limit losses in the event of a bad trade. A take profit works in the opposite
direction, allowing traders to lock in profits by closing a trade once it reaches a certain price.
Dont be foolish and dont be greedy utilize stops and take profits whenever you can. When
looking for a broker to trade with, ensure they guarantee their stops this means that if the
market moves against you, you will never lose more than your initial investment, your margin.

Diversification: Dont put all your eggs in one basket. Consider trading more than one currency
in order to minimize the negative impact that any one position can have on your profitability. As
you progress as a trader, consider adding other assets to your portfolio, such as stock indices
or commodities. Despite being a forex platform first, easyMarkets offers access to over 300
markets in the currency, commodities, indices and options markets.

TRADE WITH GUARANTEED STOPS

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 10 Trading Tips

Now that you have a basic understanding of the ins and outs of the forex market, these ten tips
might help you start your trading career on the right foot.

1. Define your goals

Identify the reasons you are trading and what you hope to achieve from it. Most people who
trade the financial markets do so with an end goal in mind. The trading itself isnt the goal, but
a means to that end that traders hope to achieve. Identify precisely what you want to achieve in
forex. This will not only help you stay motivated, but ensure you adopt the right trading approach
for your personality.

2. Choose a high quality broker

The importance of choosing the right broker cannot be stressed enough. This should be on your
immediate to-do list. To narrow down the field, ensure that the broker is (1) regulated, (2) has
been in business for more than ten years, (3) has good risk management options available to
you and (4) offers a good mix of products to trade. This will ensure that you dont outgrow your
broker as you progress as a trader.

3. Start slowly

Most new traders make the mistake of opening too many trades, which not only makes it hard
to track them all, but also exposes them to unwanted risks. New traders should focus on fewer
trades at first and spend more time researching the best position to take. Like everything else in
life, slow and steady is the best approach when starting out.

4. Research every trade you make

Becoming a successful trader requires patience, hard work and a lot of research. Before you
take any position on a currency, make sure you research the market thoroughly. It simply
doesnt make sense to throw your money on a trade that cannot be backed up by technical and
fundamental analysis.

5. Look for trends

Forex traders spend a lot of time analyzing charts so that they can determine the underlying

Blue Capital Markets Limited 2016 All rights reserved. 10

 trend. This is extremely important, as it helps you to predict future price behaviour. Analyzing
price behaviour may also allow you to see price reversals and breakouts, which provide huge
opportunity for profit making. Reputable brokers should offer you free trading signals and
technical analysis to assist you in your trading.

6. Preserve your capital

As a forex trader, your strategy should involve not only making profit, but preserving it as well.
After all, profit that cannot be kept is of little use to you. So let profitable trades run, cut losses
quickly and utilize stops and take profits.

7. Build and refine your trading system

Theres a reason why there are so many trading strategies out there: they all work to a certain
degree. The success of any one system will depend on the skill of the trader, the amount of
time they can devote to trading and their ability to respond to changing market conditions. New
traders often find themselves constantly refining and adjusting their trading strategy. You should
do the same as you build more experience in the market.

8. Dont overreact to a loss

Losses in forex trading are expected. Dont let anyone else tell you otherwise. This is why some
traders only allocate up to 2% of their trading capital to any one trade. With this kind of risk
management strategy in play, you may afford small losses. A loss shouldnt make you lose
confidence in your trading strategy, especially if it has been thoroughly researched. Its only
when you are running multiple big losses on a weekly or monthly basis that you may consider
adopting a new strategy.

9. Always review the financial calendar

One of the first things you should do at the start of each week is review the financial calendar for
key events that could impact your currency trading. Things like economic data and central bank
meetings may have a big impact on a currency. Always review the financial calendar so that you
can plan your trades accordingly.

10. Monitor your performance

Its extremely important that you monitor your profitability over time, preferably with a
spreadsheet or pen and paper. This not only helps you see whether youre progressing toward
your goals, it can help you identify shortcomings so that you can fix your strategy or adopt a
whole new approach altogether. Forex trading should be a long-term endeavour. Monitoring your
performance is one of the best ways to ensure that you are making progress.

Blue Capital Markets Limited 2016 All rights reserved. 11

 Conclusion

As you can imagine, this short introduction only scratched the surface of the $5.3 trillion per day
forex market. However, it provides you with all of the basic concepts and information you need
to learn before deciding whether to open up a live trading account.

If youre interested in delving deeper into this exciting market, the following resources will give
you everything you need to know about getting started.

ARE YOU READY TO TRADE?

OPEN AN ACCOUNT

Trading could lead to a loss of your invested capital

cs@easyMarkets.com
www.easymarkets.com/about/contact-us
easyMarkets.com

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a sub-
stantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you under-
stand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its
subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License
Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by
ASIC (Easy Markets Pty Ltd -AFS license No. 246566).

Blue Capital Markets Limited 2016 All rights reserved. 12