FOREX TRADER VIP GROUP

Welcome to the first lesson of our Forex Basic course

In this lesson you will learn:
 what Forex is and how you can earn on it
 what liquidity is and why is it an important feature of Forex
 how a broker helps you enter the Forex market
 what volatility is and how to benefit from it.
What Forex is
Forex is an abbreviation of FOReign EXchange. It describes the conversion of one
currency into another currency, and also refers to the global financial market,
where currencies are traded online around the clock. There is a misconception that
to start trading Forex you need either be a millionaire or Harvard graduate. Let’s
dispel it. Thousands of people buy and sell currencies without notice while
professional traders consciously benefit from it. Think about when you’ve travelled
abroad on holiday. To pay for local goods and services you needed to exchange
your money. If while you were on holiday the unemployment rate in the US fell
and the dollar increased in value by 5%, then when you exchanged your surplus
foreign currency back, you’d make a 5% profit in your local currency. In this way
you’ve earned on a difference of currency rates by buying and selling currencies.
The same process applies even with corporations. For example, an American
company needs to buy machinery in Germany. To pay for them they need to obtain
the local currency first, just like you do when going on holiday. The only
difference is that companies exchange much larger amounts and create supply and
demand on a particular currency. Supply and demand can move market prices.
When the world needs more euros, the price of the euro increases, and when there
are too many dollars circulating, the price drops. To balance the market, central
banks regulate the overall volume of their national currencies by adjusting the
refinancing rate. That's why traders constantly monitor world news.
Liquidity
Assume you hold two currencies - dollars and tenge - which one is more liquid, or
which one will be sold faster? You will surely find a buyer for a dollar
immediately, as it is the most exchanged currency in the world. However tenge
will stay with you for a while, until you find a buyer who needs such an exotic
currency. What if you need to sell 1 million of dollars as soon as possible? That
would not be a challenge on Forex. In Forex, liquidity means the possibility to buy
or sell significant volumes of currency at market price without any delays. The
Forex market is so liquid because the main Forex players such as banks, central
banks, hedge funds and corporations constantly buy and sell huge amounts. This
creates another question: How you can enter the market without having such huge
amounts of currency?
Meet a broker
A broker is an intermediary between traders and other Forex market players.
Exness/Ig.com broker helps people to enter the market with smaller amounts of
currency. Exness/Ig.com provides its traders with the most beneficial quotes by
combining price quotations from several market participants and liquidity
providers. That is possible because of electronic communications network (ECN)
technology. Such networks allow instant order execution, cooperation with trading
platforms, automated trading processes and secure transactions. Exness/Ig.com
provides you with a leverage which allows you to multiply your profit. With up-to-
date trading apps you can trade online 24/5, and from anywhere you wish.
How you can earn on Forex
If you look at the EURUSD chart, you can see that the price of the euro against the
dollar is constantly changing. Economic news and market events influence the
price all the time. Assume you know in advance that according to the ‘National
Statistics Service report’ the unemployment rate in Europe has decreased, then the
price of the euro will increase and you should buy euros. Or if you know that due
to the latest records of ‘Statistics Portugal’ there is a deficit in the trade balance
and that will make the value of euro fall, you should sell your euros.
Volatility
Volatility measures price variations over a specified period of time. It increases
when macroeconomic factors such as inflation, unemployment and GDP become
more variable. Higher volatility creates trading opportunities you can benefit from
by keeping up with financial news. For example, if you know from news that the
inflation rate in Europe will decrease then you can earn by buying EURUSD at the
lowest point, and selling at the highest point.
Let’s summarise what we’ve learned from this lesson:
 1. Forex is the global financial market where currencies are traded online
around the clock.
2. Even if you’re not trading on the Forex market you can earn on a difference
of currency rates by buying and selling currencies.
3. Liquidity means the possibility to buy or sell any volume of currency
instantly at the market price. It is the main positive feature of Forex.
4. Exness/Ig.com helps people to trade Forex providing the most beneficial
quotes with the help of ECN technology and up-to-date trading applications.
5. Volatility is a measurement of price variations over a specified period of
time. A volatile market gives an opportunity to earn more profit, but to
benefit from it you need to monitor market news. In the next lesson you will
learn how to calculate the potential profit and risks of your order and how to
control huge amounts of currency without investing heavily.
Welcome to the second lesson of our Forex Basic course.
In this lesson you will learn:
 what currency pairs and quotes are
 what pips and points are
 what a lot is and how to calculate the profit on your order
 how to operate huge amounts without investing them
Currency pairs
In the Forex market, currencies are quoted in pairs. In these pairs, the first currency
is named ‘base currency’ and the second one is named ‘quote currency’. The price
of a pair indicates the amount of the quote currency required to buy or sell one unit
of the base currency. For instance, if the price of EUR/USD is 1.18165, then to buy
1 EUR you need to spend 1.18165 USD.
Pip and point
Prices constantly change in the Forex market. However, they usually tend to only
vary by a very small percentage. These tiny changes are represented by changing
of the last two digits in quotes. The fourth digit after the point is called a pip, and
the fifth digit after the point is called a point. To see, how it appears in a live
example, take a look at the quote EUR/USD amounting 1.18165: ‘5’ stands for
points and ‘6’ for pips. Let’s presume that the price for this example has changed
from 1.18165 to 1.18175 it means that it has increased by 1 pip or 10 points.
Quotes generally have five-digit pricing, except some currency pairs. The most
widely-spread are the pairs with Japanese yen. They have three-digit pricing, for
example, USD/JPY. In this case, the last digit in the quote also stands for a point
and the second last stands for a pip. Therefore we have an example: a change in
USD/JPY quote from 109.455 to 109.462 means that the price has increased by 0.7
pips or 7 points.
What is a lot, mini lot, and micro lot?
The main market players are constantly exchanging hundreds of millions of
currencies. To make calculations faster and easier, they measure these amounts in
lots. One standard lot equals 100,000 units of base currency. For a long time, the
lot size was a minimum order volume, which is indeed an overwhelming amount.
This barrier to entry made Forex an exclusive playground for central banks and
financial institutions. Most individual traders couldn’t trade such vast amounts of
currency.
Later on, brokers opened the doors of the Forex market to all comers. The
Exness/Ig.com broker makes Forex accessible by offering two important options. It
is introduced reduced order volumes called mini lots and micro lots. While one lot
equals 100,000 units of a base currency, a mini lot equals 10,000 units of a base
currency, and a micro lot equals 1,000 units of base currency. For example, if
EUR/USD quote amounts 1.18165, this means one lot costs 118,165 USD;
accordingly, one mini lot costs 11816.5 USD and one micro lot costs 1181.65
USD.
What is leverage?
Leverage is an individual loan extended to a trader at the time when he or she
opens an order. Let’s say you are applying leverage of 1:500. This means you can
trade one lot of EUR/USD by only investing $236.38 of your own money.
Accordingly, to trade one mini lot, you need $23.64. And to trade one micro lot of
EUR/USD, you can invest as low as $2.36 of your funds.
In summary, the leverage of 1:500 allows you to open orders that are 500 times
bigger than your investment. So you only lay an insignificantly low amount of
your money at stake. That is how Exness/Ig.com allows you to build an effective
strategy without taking excessive risks.
How to calculate your potential profit
To calculate an outcome of your order, you need to know the cost of one pip. This
will also help you to forecast possible risks. A pip’s value is expressed in the
currency of your trading account: this may be either USD or EUR. If you open a
USD trading account, it makes it easier for you to measure pip prices for pairs that
include USD as a quote currency. For example, if we take the EUR/USD pair, the
monetary expression of one pip for a standard lot on your account is calculated as
follows:
100,000 units of base currency × $0.0001 = $10
Hence, the pip’s price for a mini lot is $1, and the pip’s price for a micro lot is
$0.1.
In such a manner, you can calculate that if you buy one lot of EUR/USD, and the
price increases by ten pips, you earn $100. If you trade a currency pair where USD
is not the quote currency, the pip price will firstly be counted in the quote currency
and then converted into USD according to the Forex exchange rate.
To determine the potential profit of your order before placing one, you can
conveniently use the profit calculator on the Exness/Ig.com website. View it,
choose a currency pair, and fill in the details of your order—that’s all you need to
do to get approximate numbers. Here is how it works: if you buy one lot of
USDJPY, and price increases by ten pips, your profit amounts $89.95.
Now let’s summarise what we’ve learned from this lesson:
 Currencies are quoted in pairs. You can buy or sell the base currency for the
quote currency.
 Each pair has five-digit pricing except USD/JPY, which has three-digit
pricing. The last digit called a point and the second to last, a pip.
 The standard volume for trading on Forex is called a lot and equals to
100,000 units of base currency. Exness allows you to divide a lot into mini
lots and micro lots.
  Exness/Ig.com provides you with leverage to trade Forex without vast
amounts of personal investment. It allows you to open orders 500 times
bigger than your initial investment.

Welcome to the third lesson of our Forex Basic course.

In this lesson you will learn:
 how to use a leverage and earn 500 times more than with your regular
investments
 what a margin is and why a margin call and stop out are not the things you’d
like to experience
 how to calculate your equity and why it is so important.
How to use leverage
During the last decade there have been several major economic events that had a
massive effect on the Forex market. For instance, the surprise move by the SNB in
January 2015—aka ‘francogeddon’—that caused the Swiss franc to soar by around
30 per cent in value against the euro within minutes.
In October 2016, the British Pound dropped 9% against the US dollar within
seconds in overnight trading. The incident was described as a ‘flash crash’.
Such events allow traders to achieve large revenues in a short period of time.
But usually, currency quotes tend to change in a very small percentage.
To earn a tangible amount on Forex, you might have to wait for a next major
economic event, invest a huge amount of your personal funds, and ignore all rules
of money management.
Luckily, there exists such thing as leverage, and your broker is ready to offer it to
you any time you open an order.
Leverage is a loan that multiplies your initial investment and is provided at the
moment you open an order.
Leverage is expressed in ratios.
If the leverage is 1:2, it means that you can hold a position twice bigger than your
initial investment.
The leverage 1:100 allows you to open positions 100 bigger.
Exness/Ig.com offers a wide range of leverage: you can set its amount up to 1:500
depending on your skills and asset you’re trading.
Let’s see how leverage works
Assume you have $2,000 on your trading balance and you wish to invest it in
USDJPY without leverage. That enables you to trade 2 micro lots of the pair. You
have made a market analysis, checked economic news, and expect the price to raise
significantly in the next few days. You open a buy order at the price 110.872 and
hold the trade about 37 hours till you close it at 112.482. During that time, the
price has increased by 161 pips. The price of a pip, in this case, is $0.09. This way
you have earned $28.98. 1.5% of profit is a satisfactory outcome considering the
time and funds you’ve put in the trade.
But let’s see what you can get from this trade using the leverage of 1:50.
Your $2,000 allows you to hold $100,000 of capital. That enables you to trade a
full-size lot of USD/JPY. Each pip in the pair is now worth $9.09. If you make
161 pips, you earn $1,463. Hence, you have increased your balance by 75%,
lifting it to $3,463. You can only achieve such an impressive outcome on the Forex
market by applying leverage.
Leverage strengths
Using leverage can be advantageous in two ways:
1. It can help a trader maximise profits per trade.
2. A leveraged trader with limited resources can trade in expensive assets. Without
leverage, it would not be viable for a trader with a $1,000 account to trade in gold,
which is currently trading at $1,200.
The size of leverage a trader uses is very important in determining the success.
When trades go well, a highly leveraged trader can make more money than a trader
with lower leverage.
Managing leverage risk
However, do not forget about risks. If you lose 161 pips in your USD/JPY trade,
you lose $1,463, and your balance goes down to $537.
Using high levels of leverage, you can quickly double your account, but you can
equally fast do the opposite and reduce your account to zero.
That is why you should not invest a substantial part of your balance in one trade no
matter how much you could potentially earn. In the trading world, you often hear
that leverage is a double-edged sword.
Proper distribution of funds on your balance is called risk management and you
will learn about it in our next lessons.
Margin and margin call
To offer you leverage, your broker needs a guarantee that you’re able to cover a
potential loss of the trade.
In Forex, this is called a margin, and it is an amount of money required to open and
maintain open positions.
Once you open an order, the margin used will be held by a broker until you close
your order.
When you open a 1-lot size order with the leverage 1:50 your margin equals
$2,000, which amounts to your balance total. Hence, you cannot open new orders
until you close this one.
But if you trade 1 mini lot ($10,000) with 1:50 leverage, then, to control that size,
you will only need $200.
This way you will have $1,800 left for trading.
Leverage is expressed as a ratio (such as 1:50), while margin is expressed in
percentage terms. Your margin makes 2% of the order volume if you apply 1:50
leverage. And your margin only makes 1% of the order volume if your apply 1:100
leverage. Like the leverage ratios, margin requirements vary for different currency
pairs.
Equity
Assume, you decide to trade mini and micro lots and open many orders.
Good: some of them are profitable and you can get that profit if you close the
orders right now.
However, some fruitless order may bring you losses.
If you look at your balance, you will see it still equals $2,000, as it will not change
until you close all your open orders.
But how can you track the total outcome of open orders?
For this matter, you need to monitor your account equity.
It represents what your account balance would be if all orders were closed at that
time.
Account equity includes your initial investment and floating profit or loss that your
open positions have accrued.
Let’s see what you’ve got. It looks like you’ve picked a strategy that works well
for you, and the profit that you got from winning orders is bigger than expenses
from your lost deals.
Always track your equity. If it gets less than the margin required for all your open
orders, you will get a margin call.
Margin call is triggered when the amount of money in your account will soon be
not enough to cover your potential loss.
Once it happens, you need either to top up your account balance and increase your
equity or to close the position and fix the loss.
If you do not increase your balance after the margin call, stop out will be triggered
and your orders will be closed automatically. This way your broker protects you
from potential losses that you cannot cover with your own investments.
Exness/Ig.com uses balance protection so that you cannot lose more than your
initial deposit, even when trading in a highly volatile market.
Using the trading calculator on Exness/Ig.com , you can see your required margin
based on the currency pair you are trading and the amount of leverage you are
using. It also shows the pip value for each currency pair.
For example, if you are trading 1 full-size lot in EUR/USD using 1:50 leverage,
your required margin is $2,355. In the case of EUR/USD, the calculator shows the
value of 1 pip on a full-size lot of EUR/USD, which is $10.
Let’s summarise what we’ve learned from this lesson:
 Leverage allows you to trade several times larger volumes than you could
with your initial deposit. It can multiply your profits but it also multiplies
your risks. Leverage is expressed in ratios.
 A margin is a deposit required to maintain your orders open with leverage.
Margin covers potential losses of your trade to a broker.
 A margin call is a message from a broker, triggered when your losses are
about to become bigger than your margin. When you get a margin call you
should either close your trade with a loss or add extra funds to your account
to support your margin.
 Stop out is the automatic close of your trade when your losses become equal
to your margin. It is required to provide the negative balance protection of
your account.
Welcome to the fourth lesson of our Forex Basic Course.
In this lesson, you will learn:
 what the most common types of charts are
 how to read a Japanese Candlestick chart
 what timeframe to choose to understand market movements better and make
more realistic forecasts.
Types of charts
Charts of different types are used for analysing changes of the price and
forecasting future trends in Forex. The charts are created Y-axis of the chart
represents a price and X-axis of the chart represents a timespan. Line charts and
Japanese Candlesticks are the most commonly used in Forex. Let’s have a closer
look at them both.
Line charts
Line Charts are the simplest, as they only connect closing prices over a given time
period and depict the general price trend.
You can use this type of chart as an overlay or for comparing charts when
performing an intermarket analysis. For example, you might compare the prices of
the Australian dollar and gold using a line chart.
Line charts can additionally be used for determining support and resistance levels
and searching out various patterns.
Candle charts
Japanese Candlesticks offer the most popular form of charting. The candle chart
bears much more information than the line chart. Japanese candlestick explicitly
represents the market environment.
Japanese Candlesticks include two parts: a body and a shadow. The body marks
the area between the open and the close price. If price closes above the open, the
body is hollow. If price ends up closing lower, the body is solid.
The narrow line - called a shadow - shows the price range for the set time period.
The hollow candle is referred to as white, and the solid candle is called black,
though in reality, the chart can be shown in any color.
One Japanese candlestick is basically a linear chart representing a price for a
selected timeframe but shown in a more compact form.
What timeframe to choose to understand market movements better and make
more realistic forecasts
Traders use monthly, weekly, daily, 4-hour, hourly, 15-minute, and even 1-minute
timeframes.
Ideally, traders pick the main timeframe they are interested in, and then choose a
longer and a shorter timeframe to complement the main one.
The longer timeframes typically contain fewer and more reliable signals.
The shorter timeframes usually contain more signals with less accuracy.
There are several types of traders, and they have different trading styles.
Swing or position traders prefer holding trades for days or weeks. They mainly
focus on the daily charts for their trades. They can also make use of a weekly chart
when defining the long-term trend. They track a 4-hour chart when defining the
immediate short-term trend.
Intraday traders, who enter and exit the market the same day, pay more attention to
shorter timeframes such as the hourly and 4-hour charts for entry signals, and the
daily chart for the broader trend.
Let’s summarise what we’ve learned from this lesson:
 You can use the line chart to make an intermarket analysis, but to analyse
the price of the symbol you’re trading you should use the candle chart.
 The candles can be of two colours: white (bullish) where the closing price is
higher than the opening price, and black (bearish) where the closing price is
lower than the opening price.
 Use bigger timeframes to find strong support and resistance lines or a trend
and smaller ones to make your final decision.
Welcome to the fifth lesson of our Forex Basic course.
In this lesson, you will learn about:
 the costs that a trader may incur when trading Forex
 the remuneration that brokers charge for their services, and how the spread is
related to it
  the swap, and how to avoid paying it when you trade overnight
 tricks dishonest brokers use, and what fees you don’t need to pay.
When trading the Forex market, a trader can face two types of costs:
 losses caused by unprofitable orders
 expenses associated with trading itself
Have a good look at this equation:
Trader’s profit = % of your profitable orders × your average profit – % of
your losing orders × your average loss – trading costs
you’ll need it when you start testing trading strategies on your OctaFX demo
trading account.
Losses caused by unprofitable orders
In order to minimise the effect of loss-making orders, stick to two simple rules:
 Regularly optimise your trading strategy and increase the success rate of
your orders.
 Estimate your possible risk to be no more than ⅓ of your expected profit
when planning a trade.
You can lock particular order in a loss using a Stop Loss order. We’ll explain how
that works in our lesson ‘How to trade Forex in just 20 minutes a day’.
Expenses associated with trading
Expenses associated with trades are generally an inevitable part of accessing Forex
trading.
By the way, Exness/Ig.com is the kind of broker that does not charge commission
for trading on MetaTrader, or for making deposits and withdrawals.
Further on, we’ll have a closer look at what spreads and swaps are.
Spread
Spread is the difference between the bid and ask prices.
A currency quotation is represented by two prices: ask price and bid price. Ask
price is a price for opening a buy order or closing a sell order. Bid price is a price
for opening a sell order or closing a buy order.
The chart that you can see in the MetaTrader window always represents the bid
price.
You pay the first part of the spread when you open an order and the second part
when you close it.
Spread usually amounts from 1 to 2 pips or from 0.0001 to 0.0002 of the base
currency.
This is a small quantity for a trader, but a real broker makes money on traded
volumes. Exness/Ig.com and other major brokers conduct hundreds of orders with
an aggregated volume of tens of million dollars every minute.
Spread encourages cooperation between the trader and the broker.
The more a trader earns, the greater the trading volume, and the higher the brokers’
income. Thanks to the spread, the broker is always interested in the success of his
traders and always works on providing help to them.
However, always bear in mind that you cannot open an order and immediately
close it at the same price.
When important news breaks, spread tends to grow. This happens because prices
may experience acute fluctuations during this time. The broker is risking to open
an order for a loss: for instance, to open an order at a below-market price.
Swap
Swap is charged when you open an order using leverage and hold it for several
days. It may amount from 0.01 to 2.46 pips a day (or approximately from $0.1 to
$18 per lot).
Swap appears because of a standard Forex order, named SPOT. You can see how it
works on your screen.
According to the SPOT order conditions, you need to provide the full amount of
the currency on the second business day.
When the broker provides leverage for your order, he borrows money from a bank.
Therefore you can’t make an actual delivery of the currency against your order.
So how can you earn money on a difference in rates without an actual delivery?
To avoid actual delivery of the currency, the broker closes the position at the end
of the day and reopens it again at its current rate.
This order is called a swap.
But why does this mean the trader is obliged to pay?
When a swap order is executed, the bank charges commission for using leverage
and deducts the difference between the interest rates of the currency pairs you
trade.
If you bought a currency with a lower interest rate, you owe the difference to the
bank. If you bought a currency with a much higher interest rate, the bank pays you.
Special conditions for swaps
If you trade with Exness/Ig.com , you can set a tariff where swaps are only charged
on a three-day basis .You won’t pay any commission if you close your deals within
three days.In this way, Exness/Ig.com allows you to hold deals open overnight
without a swap.
Another option for dealing with swaps is a swap-free account. Whenever you open
an order within this account, you pay a fixed fee instead of a swap. The fee is not
interest and depends on the direction of your order.
Let’s take Exness/Ig.com as an example and have a look at the actual costs of
a trader.
Imagine you’ve opened a Buy order for EUR/USD amounting 1 lot and closed it
on the next day with a 70 pips profit. To open such an order with a leverage ratio
of 1:500, you need $200.
1 pip in this order is 0.0001 multiplied by 100,000 and equals $10.
The profit is 70 pips multiplied by $10 and equals $700.
The expenses are:
 payment of the first half of the spread upon the order opening, which
amounts to 0.4 pips or $12
 $0 swap payment for holding a position overnight, as one is not due
  payment of the second half of the spread upon the order closing, which
amounts to 0.5 pips or $15.
In total, the net income amounts to $673.
Note: you should never pay commission to a broker for depositing or withdrawing
funds. We recommend you avoid brokers who charge either of these.
Let’s summarise what we’ve learnt from this lesson:
 For traders, spread is the most profitable kind of broker remuneration.
Spread is the slight difference between Buy and Sell prices. It ordinarily
amounts to 1 pip but may increase during highly volatile markets.
 Swap is a technical order in the course of which the broker closes and
reopens the position you opened, in order to release you from an obligation
to deliver actual currency against your order.
Every time a swap is made, the trader pays a commission for one day of the
leverage use. This commission is also called a swap.
 Exness/Ig.com charges swap once per three days, which means you can
avoid paying a swap for a deal you hold overnight.
 Some brokers may charge additional commissions to their traders. Be
vigilant and do not pay more than necessary.
In this lesson you will learn:
 What the difference is between orders opened by market price and pending
orders.
 How Stop Loss and Take Profit work.
 How to place pending buy and sell orders.
Orders opened and closed by market price
The ability to work with pending orders will save you dozens of hours every day.
You can go about your business and benefit from market movements that you have
pre-calculated.
In the previous lesson, you learnt how to open and close orders in MetaTrader 4.
At that stage, you opened and closed your orders by market price. Opening and
closing an order by market price means executing it at current Ask and Bid prices.
Whenever you open and close your orders by market price, you need to constantly
be in front of your computer to track market movement, keep control of your
losses, and lock in your profits.
Pending execution for Open Order and Close Order
Every time you open an order via the MetaTrader platform, you can specify upper
and lower price levels at which this order will be automatically closed. These
thresholds are called ‘Take Profit’ and ‘Stop Loss’. We recommend you specify
them both for every order.
You can also create pending orders. These open automatically when the price hits
the level you specified. These orders are called ‘Limit Order’ and ‘Stop Order’.
Take Profit and Stop Loss
Whenever you open an order, remember that you can always arrive at two possible
outcomes:
1. Your prediction will be correct, and you will make a profit.
2. The market will go in the opposite direction, and your order will make a loss.
Stop Loss marks the maximum level of loss you can bear for the order, if the price
goes against your prediction.
Take Profit marks the price level at which you agree to close your order and fix the
profit.
Why do you need Stop Loss?
You may not have the MetaTrader charts in front of you at the moment the market
starts moving against your forecast.
Stop Loss will help you keep the majority of your account balance.
Sometimes emotions may take over and you will be tempted to wait for the price
trend to reverse, thus losing more and more money. Stop Loss will help you stay
cool headed and close the losing trade.
This is where an important rule of successful trading comes into the picture:
Never move your Stop Loss level further from the price level of the order you’ve
already opened.
Why do you need Take Profit?
The price often hits its maximum level quicker than you expect. Then it turns
around, and you are too late to close the order at the most profitable price level.
Take Profit helps you close orders at the moment the price reaches the level you
predicted.
If you have something more entertaining to do rather than gazing at the chart and
waiting the priсe to reach the level you want, use Take Profit to switch off from
MetaTrader.
How to set Stop Loss and Take Profit thresholds
If you open a buy order:
Set the Take Profit value above the opening price.
Set the Stop Loss value below the opening price.
If you open a sell order:
Set the Take Profit value below the opening price.
Set the Stop Loss value above the opening price.
The second important rule of successful trading:
Whenever you open an order, your expected profit should be three times bigger
than your estimated loss. Remember the formula for profit that we introduced in
the lesson ‘How to avoid paying extra to a broker’.
It follows that your Stop Loss level should be three times closer to the initial order
price than your Take Profit level.
How to set Stop Loss and Take Profit in MetaTrader 4
For desktop and web versions of MetaTrader 4:
Enter the price levels in the corresponding fields and confirm opening the order.
For the Android version of MetaTrader 4:
Enter the Stop Loss level in the field underlined with red and the Take Profit level
in the field underlined with green.
For iOS version of MetaTrader 4:
Enter the Stop Loss and Take Profit levels in the fields with the corresponding
labels.
Pending orders
There are two types of pending orders:
Limit Order
Stop Order
To open a pending Buy order, you need to do the following:
Open a Buy Stop Order if you want to set the price above the current price.
Open a Buy Limit Order if you want to set the price below the current price.
To open a pending Sell order, you need to do the following:
Open a Sell Stop Order if you want to set the price below the current price.
Open a Sell Limit Order if you want to set the price above the current price.
How you can use pending orders in trading
Limit Order
A price tends to reverse its direction after hitting its limit. Limit Order triggers at
that point, allowing you to open an order at the most advantageous price
automatically.
Stop Order
A Stop Order is applied when the price is about to surpass a specific level, at which
point it is likely to start growing. Imagine that the ‘stop’ in Stop Order prompts
you to stop waiting: when it triggers, we stop waiting and open an order.
Now let’s summarise what we’ve learned from this lesson:
 You can open and close orders by market price. This kind of Forex trading
requires you track the price in MetaTrader continuously.
 Setting a Stop Loss limits your losses. It closes a loss-making orders at a
predefined price. Stop Loss helps you stick to your initial strategy and
protects your nerves in the case of uncertainty.
 Take Profit allows you to get the most out of the deal. It closes your
profitable orders at the set price.
 If you want an order to open automatically at a certain price level, apply
pending Limit and Stop Orders.
 If you create a pending Sell order, apply a Sell Stop Order for the prices
above the current price and a Sell Limit Order for the prices below the
current price.
 If you create a pending Buy order, apply a Buy Stop Order for the prices
below the current price and a Buy Limit Order above the current price.
Welcome to the eighth lesson of our Forex Basic course.
In this lesson you’ll learn:
 If it is possible to trade successfully without managing your risks.
 What a series of drawdowns and a floating drawdown are.
 What the problem is with replenishing your equity.
 Three basic rules of risk management that will help you make a profit on
Forex.
Can you make money on Forex without risk management?
Only 15% of Forex traders manage their risks. However, ignoring risk
management makes the whole process a Forex gamble instead of Forex trading.
 10% of all traders earn money steadily in Forex, while 90% of traders
eventually lose all their investments.
 The traders who make steady income in Forex are all among the 15% of
traders who apply risk management.
Conclusion:Risk management does not guarantee you a success in Forex, but
without risk management, you will lose your investment for sure. Let’s take a
closer look at how this happens.
Series of drawdowns
Drawdown is a decrease of the equity in your trading account caused by a losing
order.
Without managing risks, a trader usually loses the majority of their investment
after a series of drawdowns. However, a series of drawdowns is quite common in
the Forex market. Even if you use a highly effective strategy that has an 80%
success rate, at some point you can run into a series of losing trades.
You’ll be able to preserve a significant part of your investment even after a series
of drawdowns if you are prepared for it. That’s where you need risk management.
Drawdown may be fixed or floating.
Fixed drawdown is a loss on an order that you’ve already closed.
 You have fixed your losses, and their amount stops increasing.
 Your account balance has decreased by the drawdown amount.
Floating drawdown is a loss on an order that is still open.
 If the market persists against your prediction, your losses continue to grow.
 Your account balance remains unchanged as the order is still open.
Floating drawdown is the most dangerous one because many traders continue to
estimate the success of their trading activity by their balance amount and ignore
their equity.
An issue of replenishing your equity
The most important issue with a series of drawdowns is that the more you lose, the
harder it is to make it back to your original account volume. That the percent of the
equity you need to return to recover your balance grows drastically.
Risk management
Three basic rules of risk management:
 Set a Stop Loss level for each order to limit your floating drawdown.
 Open orders only when your potential income is three times larger than your
possible loss.
 Set the tolerable losses of your orders at 2% of your equity or lower (a Two-
Percent Rule).
Limiting your floating drawdown
Whenever you open an order, always set Stop Loss. In this case, the drawdown of
your order will never exceed the level that you preset.
It is often not that easy to convince yourself to close a losing order. MetaTrader’s
Stop Loss will make that decision for you.
Important! Do not adjust the Stop Loss level of an order you’ve already opened!
This would mean you deviate from your strategy in the emotion of the moment.
You now set your maximum tolerable losses for all your orders. But how can you
determine their level? To calculate it, apply the rule Stop Loss = ⅓ Take Profit.
Stop Loss = ⅓ Take Profit
Remember the formula for profit that we introduced in the lesson ‘How to avoid
paying extra to a broker’. We’ll now take a closer look at its core section. You can
increase your profit by either increasing the percentage of your profitable orders or
managing your average profit and average loss.
Increasing the percentage of your profitable orders
It is not as simple as one might think. 80% of traders make less than a half of their
trades profitable. Yet this is enough to gain when trading Forex. Your trading
strategy is actually successful even if slightly more than 50% of the orders you
open are profitable. Surviving through certain events on the Forex market with a
success rate that is slightly below 50% may also be acceptable.
Managing your average profit and loss
To increase your average profit and decrease your average loss, apply the rule:
Stop Loss = ⅓ Take Profit.
Calculate your potential profit before opening an order. Set your Take Profit at this
price level. Your maximum tolerable loss should not exceed ⅓ of your potential
profit. Set Stop Loss at the corresponding price level. If your strategy does not
allow you to set Stop Loss at that level, do not open the order.
Two-Percent Rule
Maximum allowable losses on your new order may not exceed 2% of your current
equity. If you can see that the maximum level of losses on the order you are about
to open may amount more than 2% of your equity, you need to decrease this
order’s volume (lower the number of lots).
The Two-Percent Rule allows you to preserve the major part of your investment
and keep to your strategy even after a series of drawdowns.
How Two-Percent Rule works:
Let’s suppose that you have $2,000 in your trading account.
If you make 5 losing orders in a row, you’ll have $1,807 in your account.
If your losing streak grows to 10 orders, you’ll have $1,634 in your account.
After 20 losing orders, you will have $1,335 remaining.
After 30 losing orders, you will still have $1,090 in your account balance—55% of
your initial investment.
If you violate the Two-Percent Rule and risk 10% of your equity for every order,
you will face the following:
After a series of just 5 losing orders, you will have $1,181 remaining in your
account.
After 10 losing orders, you will have your balance decreased to $697.
After 20 losing orders, you will only have $243 in your account.
In the end, 30 losing orders will reduce your investment almost to zero.
Let’s repeat what we’ve learnt in this lesson:
1. You won’t succeed in trading without risk management.
2. You may face multiple drawdowns with any strategy. They sometimes may
last for quite a long time. You need to learn how to overcome them when
you trade.
3. You may face multiple drawdowns with any strategy. They sometimes may
last for quite a long time. You need to learn how to overcome them when
you trade.
4. Apply the Two-Percent Rule every time you open an order: the maximum
amount of loss on the order should not exceed 2% of your trading account
equity.
5. Open an order only if your potential profit is three times your possible loss.
Stop Loss = ⅓ Take Profit.