English English

YMFL Fundamentals

The only good luck many great men ever had was being born with the ability and determination to overcome bad luck.

Foundation Class

"The only good luck many great men ever had was being born with the ability and determination to overcome bad luck."

Channing Polluck

What Is the Forex Exchange Market

The Foreign Exchange Market is a global financial market in which foreign currencies are traded Usually abbreviated as FX is the largest financial market in the world with a volume of beyond $1.5 trillion in transactions a day.

What is traded?

Herein currencies of different countries are traded.Examples are the US dollar, South African Rand, British Pound.

Forex Market History

The origin of the forex market traces its history to the 18th centuries. It was established in Paris in 1867 so we are told.

Every foreign currency note could freely be converted into an amount of gold specified on the banknote. The exchange rate was fixed. The British Pound served as the reserve currency at the time

In 1944 the Brettonwood system was developed. Now all foreign currencies were pegged to the US Dollar, which in turn was pegged to gold. The new order resulted in what we now know as a floating rate exchange

Which Currencies Can Be traded

Currencies are usually denoted by the letters with the first two letters identifying the name of the country and the third letter the name of the currency 

Currencies

Symbol

Country

Currency

Nickname

USD

United States

Dollar

Buck

GBP

Great Britain

Pound

Cable

EUR

European Members

Euro

Fiber

JPY

Japan

Yen

Yen

CHF

Switzerland

Franc

Swissy

NZD

New Zealand

Dollar

Kiwi

CAD

Canada

Dollar

Loonie

 When Can One Trade

The spot FX market is unique within the world markets. It’s like a 24 hr KFC joint where the market is open 24-hours a day. At any time, somewhere around the world a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend.

#We will put a video here

The foreign exchange markets follow the sun around the world, so you can trade late at night (if you’re a vampire) or in the morning (if you’re an early bird). Keep in mind though, the early bird doesn’t necessarily get the worm in this market you might get the worm but a bigger, nastier bird of prey can sneak up and eat

Major Markets Open and Close Times

Time Zone                              

New York                           

GMT

Tokyo         Open                     

                7:00 pm                             

0:00

Tokyo         Close                      

              4:00 am                             

9:00

London      Open                      

              3:00 am                             

8:00

London      Close                    

            12:00 pm                           

17:00

New York   Open                      

               8:00 am                            

13:00

New York   Close                      

                5:00 pm                           

22:00

               

  • Why Trade Foreign Currencies?

No commissions.

No clearing fees, no exchange fees, no government fees, no brokerage fees.Brokers are compensated for their services through something called the bid-ask spread.

No middlemen.

Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular

Low transaction costs.

The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later.

A 24-hour market.

There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want totrade--morning, noon or night.

No one can corner the market.

The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.

High Liquidity.

Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).

Free “Demo” Accounts, News, Charts, and Analysis.

Most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for“poor” and SMART traders who would like to hone their trading skills with 'play'money before opening a live trading account and risking real money.

“Mini” and “Micro” Trading:

You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't.Online Forex brokers offer "mini" and “micro” trading accounts, some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up

Leverage.

In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $50-dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

What Tools Do I Need to Start Trading Forex?

A computer with a high-speed Internet connection then you ready to go hunting.

An android or ios capable mobile phone  

Forex Terms “ Lingo”

Base Currency

The base currency is the first currency in any currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6350, then one USD is worth CHF 1.6350

Quote Currency

The quote currency is the second currency in any currency pair.

Pip

A pip is the smallest unit of price for any currency. Nearly all currency pairs consist of five significant digits and most pairs have the decimal point immediately after the first digit, that is, EUR/USD equals 1.2538. In this instance, a single pip equals the smallest change in the fourth decimal place - that is, 0.0001.

Therefore, if the quote currency in any pair is USD, then one pip always equal 1/100 of a cent.

One notable exception is the USD/JPY pair where a pip equals $0.01.

XAU/USD is also another exception

Bid Price

The bid is the price at which the market is prepared to buy a specific currency pair in the Forex market. At this price, the trader can sell the base currency. It is shown on the left side of the quotation.

Ask Price

The ask is the price at which the market is prepared to sell a specific currency pair in the Forex market. At this price, you can buy the base currency. It is shown on the right side of the quotation.

Bid/Ask Spread

The spread is the difference between the bid and ask price.

The critical characteristic of the bid/ask spread is that it is also the transaction cost for a round-turn trade.

Bull

This means a tendency to be going up. Imagine when a bull attacks you, it aims to toss you up with its horns. So a bull market bullish market simply means price is going up or rising.

Bear

This term describes a drop or the going down of prices. When a bear is about to attack you, it stands on its hind legs and using its giant paws and claws pulls you down. A bearish/bear market simply means prices are falling.

Cross Currency

A cross currency is any pair in which neither currency is the U.S.

dollar. These pairs exhibit erratic price behavior since the trader has, in effect, initiated two USD trades.

For example, initiating a long (buy) EUR/GBP is equivalent to buying a EUR/USD currency pair and selling a GBP/USD. Cross currency pairs frequently carry a higher transaction cost

Margin

When you open a new margin account with a Forex broker, you must deposit a minimum amount with that broker. This minimum varies from broker to broker and can be as low as $100 to as high as $100,000. Each time you execute a new trade, a certain percentage of the account balance in the margin account will be set aside as the initial margin requirement for the new trade based upon the underlying currency pair, its current price, and the number of units (or lots) traded. The lot size always refers to the base currency.

Leverage is the ratio of the amount capital used in a transaction to the required security deposit (margin). It is the ability to control large dollar amounts of a security with a relatively small amount of capital. Leveraging varies dramatically with different brokers, ranging from 2:1 to 400:1.

Forex Terms

Lot

Is the standard unit used to measure the magnitude of each trade. It has three measures namely

  • Standard Lot where 1 lot   =   100 000 units of the base currency
  • Mini lot which is 0.10 lots  =   10 000 units of the base currency
  • Micro lot which is         0.01 lots  =    1 000 units of the base currency

Margin + Leverage = Possible Deadly Combination

Trading currencies on margin lets you increase your buying power.

Meaning that if you have $5,000 cash in a margin account that allows 100:1 leverage, you could purchase up to $500,000 worth of currency because you only have to post one percent of the purchase price as collateral. Another way of saying this is that you have $500,000 in buying power.

With more buying power, you can increase your total return on investment with less cash outlay. But be careful, trading on margin magnifies your profits AND losses.

Importance Of Margin

Every trade one gets into a certain amount has to be set aside for as long as that trade runs

For standard micro accounts with brokerages around there is a standard amount that is held as margin.

Lot Size

Unit Size

Average Margin Held

1.00

   100 000

$250 - 340

0.10

   10 000

$25 - 34

0.01

   1 000

$2.50 - 3.40

        

Importance of Margin

Margin Call

This occurs when your broker notifies you that your margin deposits have fallen below the required minimum level because an open position has moved against you. While trading on margin can be a profitable investment strategy, it is important that you take the time to understand the risks.

Margin calls can be effectively avoided by monitoring your account balance on a very regular basis and by utilizing stop-loss orders (discussed later) on every open position to limit risk.

Quotes

"Nothing great was ever achieved without enthusiasm."

Ralph Waldo Emerson

"If you are going to achieve excellence in big things, you develop the habit in little matters. Excellence is not an exception; it is a prevailing attitude."

#We will put a video

                                                                                                                                                                    Colin Powell

© Copyright Y & M Investments 2019. Design & Inspired by VTT

Search