Introduction to Forex Trading
Presented By: Engr. Faiz Ur Rehman
DISCLAIMER
This program being provided for educational purpose only,
should NOT be taken as an investment advice by any mean
Online trading & investing business is lucrative as well as risky
so any trading or investment decision should be made afte
consultation with certified & regulated Investment Advisors, b
carefully considering your financial situation. Opportunitie
shown has benefits of hindsight, without the problems of (lac
of liquidity, unprecedented geopolitical & economic events
so, the past performance is not guarantee of future result
Learning Outcomes:
Overview of how the Forex market works
Overview
The role of the interbank market
The
Major Currencies & Currency Pairs
Major
The basic terms related to forex trading
The
(e.g. pip, spread/commission, leverage)
Overview of Quotex
What is FOREX
Its a decentralized global market where all the world
currencies are traded. The forex market is the most
liquid & the largest market in the world with an
average daily trading volume around $5~7 trillion.
All the world's combined stock markets don't even
come close to this.
Interbank Market:
Whenever a country wants to buy something from another country e.g.
UK wants to buy something from USA, they need to pay them in US
dollars so they need to exchange their currency GBP in to US dollars
which is done by the banks.
In 90’s it was done among banks & financial institutions only, this is
called Interbank market. This financial system is still a top-level
top of foreign
exchange market.
The capital requirement to trade in interbank market was so higher in
amount that it wasn’t possible for a retail investor or trader to work in it.
Online Retail Foreign Exchange (Forex)
Market
After Commodity Futures Modernization Act was passed on 15th
December 2000 by congress in USA, the doors for online forex brokers
were opened. Low cost computer systems, availability to internet &
online trading platforms software given birth to retail FOREX trading we
have in these days.
When a retail trader (having limited capital) opens an account with online
forex broker which acts as third party between a trader & interbank
market, the broker provides the leverage to that retail trader so that
he/she can trade in interbank market with limited capital. In provision of
this facility, forex broker charges spread/commission to retail trader. It
acts in similar way as the physical currency exchange which we use to
exchange the currencies when you want to travel abroad.
Major Currencies
Currency Nick Name Issuer /Central Bank
FED (Federal Reserve Bank of
USD (United States Dollar) Buck / Greenback
America)
EUR (Euro) Fiber ECB (European Central Bank)
GBP (Great Britain Pound) Sterling / Cable BOE (Bank of England)
JPY (Japanese Yen) Yen BOJ (Bank of Japan)
CHF (Swiss Franc) Swissy SNB (Swiss National Bank)
AUD (Australian Dollar) Aussie RBA (Reserve Bank of Australia)
RBNZ (Reserve Bank of New
NZD (New Zealand Dollar) Kiwi
Zealand)
CAD (Canadian Dollar) Loonie BOC (Bank of Canada)
Trading in Pairs
Every thing is traded in pairs. In old times (in Barter system) some
quantity of one commodity/goods was exchange/sold to get
some quantity of other commodity/goods.
Even in recent times when we buy something e.g. Car, buy paying it
cost in Pak Rupees, it can be considered that we bought CAR/PKR
pair. Vice versa if we are selling back our car, we can say we are
going to sell CAR/PKR pair.
Major Currency Pairs:
EUR / USD GBP / USD USD / JPY USD / CHF
AUD / USD NZD / USD USD / CAD
PIP (Point in Percentage)
In most currency pairs fourth decimal point of exchange rate
is called PIP.
•Spread
Spread is the difference between Buy (ask / offer) & Sell (bid) prices available in
market at any time. This difference is charged by broker to trader as service cost
or transaction fee.
Spread / •Commission
Commission is a fee charged by forex brokers on different account types. Now a
days
Commission many broker doesn’t charge commission, instead its covered in spread.
• Leverage is a facility provided by broker so that the trader can
participate in forex trading
with relatively smaller account size. Usual leverages provided by
brokers are 100:1 , 200:1,
Leverage 400:1, 500:1
• It’s an amount (equity) required as a percentage for the worth of
currency being bought in forex market. Higher leverage reduces
margin requirements e.g. an account with 50:1 leverage requires the
2% margin (means trader need $2,000 equity to buy $100,000 worth
Margin of currency), while 100:1 reduces the margin requirements to 1% only.
