Part 1: What Is Forex Trading? – A Definition & Introduction

An Introduction to Forex Trading:                    

Hey beginners,

This free Forex mini-course is designed to teach you the basics of the Forex market and Forex trading in a non-boring way. I know you can find this information elsewhere on the web, but let’s face it; most of it is scattered and pretty dry to read. I will try to make this tutorial as fun as possible so that you can learn about Forex trading and have a good time doing it.

Upon completion of this course you will have a solid understanding of the Forex market and Forex trading, and you will then be ready to progress to learning real-world Forex trading strategies.

Introduction to Forex

What is the Forex market?

• What is Forex? – The basics…

Basically, the Forex market is where banks, businesses, governments, investors and traders come to exchange and speculate on currencies. The Forex market is also referred to as the ‘Fx market’, ‘Currency market’, ‘Foreign exchange currency market’ or ‘Foreign currency market’, and it is the largest and most liquid market in the world with an average daily turnover of $3.98 trillion.

The Fx market is open 24 hours a day, 5 days a week with the most important world trading centers being located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney.

It should be noted that there is no central marketplace for the Forex market; trading is instead said to be conducted ‘over the counter’; it’s not like stocks where there is a central marketplace with all orders processed like the NYSE. Forex is a product quoted by all the major banks, and not all banks will have the exact same price. Now, the broker platforms take all theses feeds from the different banks and the quotes we see from our broker are an approximate average of them. It’s the broker who is effectively transacting the trade and taking the other side of it…they ‘make the market’ for you. When you buy a currency pair…your broker is selling it to you, not ‘another trader’.

• A brief history of the Forex market

History of FX Trading

                                      

Ok, I admit, this part is going to be a little bit boring, but it’s important to have some basic background knowledge of the history of the Forex market so that you know a little bit about why it exists and how it got here. So here is the history of the Forex market in a nutshell:

In 1876, something called the gold exchange standard was implemented. Basically it said that all paper currency had to be backed by solid gold; the idea here was to stabilize world currencies by pegging them to the price of gold. It was a good idea in theory, but in reality it created boom-bust patterns which ultimately led to the demise of the gold standard.

The gold standard was dropped around the beginning of World War 2 as major European countries did not have enough gold to support all the currency they were printing to pay for large military projects. Although the gold standard was ultimately dropped, the precious metal never lost its spot as the ultimate form of monetary value.

The world then decided to have fixed exchange rates that resulted in the U.S. dollar being the primary reserve currency and that it would be the only currency backed by gold, this is known as the ‘Bretton Woods System’ and it happened in 1944 (I know you super excited to know that). In 1971 the U.S. declared that it would no longer exchange gold for U.S. dollars that were held in foreign reserves, this marked the end of the Bretton Woods System.

It was this break down of the Bretton Woods System that ultimately led to the mostly global acceptance of floating foreign exchange rates in 1976. This was effectively the “birth” of the current foreign currency exchange market, although it did not become widely electronically traded until about the mid 1990s.

(OK! Now let’s move on to some more entertaining topics!)…

What is Forex Trading?

What is FX Trading?

                                 

Forex trading as it relates to retail traders (like you and I) is the speculation on the price of one currency against another. For example, if you think the euro is going to rise against the U.S. dollar, you can buy the EURUSD currency pair low and then (hopefully) sell it at a higher price to make a profit. Of course, if you buy the euro against the dollar (EURUSD), and the U.S. dollar strengthens, you will then be in a losing position. So, it’s important to be aware of the risk involved in trading Forex, and not only the reward.

• Why is the Forex market so popular?

Being a Forex trader offers the most amazing potential lifestyle of any profession in the world. It’s not easy to get there, but if you are determined and disciplined, you can make it happen. Here’s a quick list of skills you will need to reach your goals in the Forex market:

Ability - to take a loss without becoming emotional

Confidence - to believe in yourself and your trading strategy, and to have no fear

Dedication – to becoming the best Forex trader you can be

Discipline - to remain calm and unemotional in a realm of constant temptation (the market)

Flexibility - to trade changing market conditions successfully

Focus – to stay concentrated on your trading plan and to not stray off course

Logic – to look at the market from an objective and straight forward perspective

Organization – to forge and reinforce positive trading habits

Patience – to wait for only the highest-probability trading strategies according to your plan

Realism – to not think you are going to get rich quick and understand the reality of the market and trading

Savvy – to take advantage of your trading edge when it arises and be aware of what is happening in the market at all times

Self-control – to not over-trade and over-leverage your trading account

As traders, we can take advantage of the high leverage and volatility of the Forex market by learning and mastering and effective Forex trading strategy, building an effective trading plan around that strategy, and following it with ice-cold discipline. Money management is key here; leverage is a double-edged sword and can make you a lot of money fast or lose you a lot of money fast. The key to money management in Forex trading is to always know the exact dollar amount you have at risk before entering a trade and be TOTALLY OK with losing that amount of money, because any one trade could be a loser. More on money management later in the course.

• Who trades Forex and why?

   

Forex market Participants

               

Banks – The interbank market allows for both the majority of commercial Forex transactions and large amounts of speculative trading each day. Some large banks will trade billions of dollars, daily. Sometimes this trading is done on behalf of customers, however much is done by proprietary traders who are trading for the bank’s own account.

Companies – Companies need to use the foreign exchange market to pay for goods and services from foreign countries and also to sell goods or services in foreign countries. An important part of the daily Forex market activity comes from companies looking to exchange currency in order to transact in other countries.

Governments / Central banks – A country’s central bank can play an important role in the foreign exchange markets. They can cause an increase or decrease in the value of their nation’s currency by trying to control money supply, inflation, and (or) interest rates. They can use their substantial foreign exchange reserves to try and stabilize the market.

Hedge funds - Somewhere around 70 to 90% of all foreign exchange transactions are speculative in nature. This means, the person or institutions that bought or sold the currency has no plan of actually taking delivery of the currency; instead, the transaction was executed with sole intention of speculating on the price movement of that particular currency. Retail speculators (you and I) are small cheese compared to the big hedge funds that control and speculate with billions of dollars of equity each day in the currency markets.

Individuals – If you have ever traveled to a different country and exchanged your money into a different currency at the airport or bank, you have already participated in the foreign currency exchange market.

Investors – Investment firms who manage large portfolios for their clients use the Fx market to facilitate transactions in foreign securities. For example, an investment manager controlling an international equity portfolio needs to use the Forex market to purchase and sell several currency pairs in order to pay for foreign securities they want to purchase.

Retail Forex traders – Finally, we come to retail Forex traders (you and I). The retail Forex trading industry is growing everyday with the advent of Forex trading platforms and their ease of accessibility on the internet. Retail Forex traders access the market indirectly either through a broker or a bank. There are two main types of retail Forex brokers that provide us with the ability to speculate on the currency market: brokers and dealers. Brokers work as an agent for the trader by trying to find the best price in the market and executing on behalf of the customer. For this, they charge a commission on top of the price obtained in the market. Dealers are also called market makers because they ‘make the market’ for the trader and act as the counter-party to their transactions, they quote a price they are willing to deal at and are compensated through the spread, which is the difference between the buy and sell price (more on this later).

Advantages of Trading the Forex Market:

• Forex is the largest market in the world, with daily volumes exceeding $3 trillion per day. This means dense liquidity which makes it easy to get in and out of positions.

• Trade whenever you want: There is no opening bell in the Forex market. You can enter or exit a trade whenever you want from Sunday around 5pm EST to Friday around 4pm EST.

• Ease of access: You can fund your trading account with as little as $250 at many retail brokers and begin trading the same day in some cases. Straight through order execution allows you to trade at the click of a mouse.

• Fewer currency pairs to focus on, instead of getting lost trying to analyze thousands of stocks

• Freedom to trade anywhere in the world with the only requirements being a laptop and internet connection.

• Commission-free trading with many retail market-makers and overall lower transaction costs than stocks and commodities.

• Volatility allows traders to profit in any market condition and provides for high-probability weekly trading opportunities. Also, there is no structural market bias like the long bias of the stock market, so traders have equal opportunity to profit in rising or falling markets.

While the forex market is clearly a great market to trade, I would note to all beginners that trading carries both the potential for reward and risk. Many people come into the markets thinking only about the reward and ignoring the risks involved, this is the fastest way to lose all of your trading account money. If you want to get started trading the Fx market on the right track, it’s critical that you are aware of and accept the fact that you could lose on any given trade you take.

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Part 2: Forex Trading Terminology

Forex Trading Terminology

FX Terminology

The Forex market comes with its very own set of terms and jargon. So, before you go any deeper into learning how to trade the Fx market, it’s important you understand some of the basic Forex terminology that you will encounter on your trading journey…

• Basic Forex terms:

Cross rate - The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in.

For example, if an exchange rate between the British pound and the Japanese yen was quoted in an American newspaper, this would be considered a cross rate in this context, because neither the pound or the yen is the standard currency of the U.S. However, if the exchange rate between the pound and the U.S. dollar were quoted in that same newspaper, it would not be considered a cross rate because the quote involves the U.S. official currency.

Exchange Rate - The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200.

Pip – The smallest increment of price movement a currency can make. Also called point or points. For example, 1 pip for the EUR/USD = 0.0001 and 1 pip for the USD/JPY = 0.01.

Leverage - Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.

FX Leverage

To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000).

Margin - The deposit required to open or maintain a position. Margin can be either “free” or “used”. Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount available to open new positions. With a $1,000 margin balance in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage his account by up to 100 times or a leverage ratio of 100:1.

If a trader’s account falls below the minimum amount required to maintain an open position, he will receive a “margin call” requiring him to either add more money into his or her account or to close the open position. Most brokers will automatically close a trade when the margin balance falls below the amount required to keep it open. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade.

Spread - The difference between the sell quote and the buy quote or the bid and offer price. For example, if EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal to the spread.

• The major Forex pairs and their nicknames:

• Understanding Forex currency pair quotes:

You will need to understand how to properly read a currency pair quote before you start trading them. So, let’s get started with this:

The exchange rate of two currencies is quoted in a pair, such as the EURUSD or the USDJPY. The reason for this is because in any foreign exchange transaction you are simultaneously buying one currency and selling another. If you were to buy the EURUSD and the euro strengthened against the dollar, you would then be in a profitable trade. Here’s an example of a Forex quote for the euro vs. the U.S. dollar:  

          

The first currency in the pair that is located to the left of the slash mark is called the base currency, and the second currency of the pair that’s located to the right of the slash market is called the counter or quote currency.

If you buy the EUR/USD (or any other currency pair), the exchange rate tells you how much you need to pay in terms of the quote currency to buy one unit of the base currency. In other words, in the example above, you have to pay 1.32105 U.S. dollars to buy 1 euro.

If you sell the EUR/USD (or any other currency pair), the exchange rate tells you how much of the quote currency you receive for selling one unit of the base currency. In other words, in the example above, you will receive 1.32105 U.S. dollars if you sell 1 euro.

An easy way to think about it is like this: the BASE currency is the BASIS for the trade. So, if you buy the EURUSD you are buying euro’s (base currency) and selling dollars (quote currency), if you sell the EURUSD you are selling euro’s (base currency) and buying dollars (quote currency). So, whether you buy or sell a currency pair, it is always based upon the first currency in the pair; the base currency.

The basic point of Forex trading is to buy a currency pair if you think its base currency will appreciate (increase in value) relative to the quote currency. If you think the base currency will depreciate (lose value) relative to the quote currency you would sell the pair.

• Bid and Ask price 

Bid Price – The bid is the price at which the market (or your broker) will buy a specific currency pair from you. Thus, at the bid price, a trader can sell the base currency to their broker.

Ask Price – The ask price is the price at which the market (or your broker) will sell a specific currency pair to you. Thus, at the ask price you can buy the base currency from your broker.

Bid/Ask Spread – The spread of a currency pair varies between brokers and it is the difference between the bid and ask the price.

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Part 3: Long or Short? Order Types and Calculating Profits & Losses

Going long, Going short, Order types, and Calculating Profit & Loss

• Buying and selling

Buy/Sell in FX

The basic idea of trading the markets is to buy low and sell high or sell high and buy low. I know that probably sounds a little weird to you because you are probably thinking “how can I sell something that I don’t own?” Well, in the Forex market when you sell a currency pair you are actually buying the quote currency (the second currency in the pair) and selling the base currency (the first currency in the pair).

In the case of a non-Forex example though, selling short seems a little confusing, like if you were to sell a stock or commodity. The basic idea here is that your broker lends you the stock or commodity to sell and then you must buy it back later to close the transaction. Essentially, since there is no physical delivery it is possible to sell a security with your broker since you will ‘give’ it back to them at a later date, hopefully at a lower price.

• Long vs. Short

Another great thing about the Forex market is that you have more of a potential to profit in both rising and falling markets due to the fact that there is no market bias like the bullish bias of stocks. Anyone who has traded for a while knows that the fastest money is made in falling markets, so if you learn to trade both bull and bear markets you will have plenty of opportunities to profit.

LONG – When we go long it means we are buying the market and so we want the market to rise so that we can then sell back our position at a higher price than we bought for. This means we are buying the first currency in the pair and selling the second. So, if we buy the EURUSD and the euro strengthens relative to the U.S. dollar, we will be in a profitable trade.

SHORT – When we go short it means we are selling the market and so we want the market to fall so that we can then buy back our position at a lower price than we sold it for. This means we are selling the first currency in the pair and buying the second. So, if we sell the GBPUSD and the British pound weakens relative to the U.S. dollar, we will be in a profitable trade.

(potential arrow image)

• Order types

Now it’s time to cover order types. When you execute a trade in the Forex market it is called an ‘order’, there are different order types and they can vary between brokers. All brokers provide some basic order types, there are other ‘special’ order types that are not offered by all brokers though, and we will cover them all below:

Market order – A market order is an order that is placed ‘at the market’ and it’s executed instantly at the best available price.

Limit Entry order – A limit entry order is placed to either buy below the current market price or sell above the current market price. This is a bit tricky to understand at first so let me explain:

If the EURUSD is currently trading at 1.3200 and you want to go sell the market if it reaches 1.3250, you can place a limit sell order and then when / if the market touches 1.3250 it will fill you short. Thus, the limit sell order is placed ABOVE current market price. If you want to buy the EURUSD at 1.3050 and the market is trading at 1.3100, you would place your limit buy order at 1.3050 and then if the market hits that level it will fill you long. Thus the limit buy order is placed BELOW current market price.

Stop Entry order – A stop-entry order is placed to buy above the current market price or sell below it. For example, if you want to trade long but you want to enter on a breakout of a resistance area, you would place your buy stop just above the resistance and you would get filled as price moves up into your stop entry order. The opposite holds true for a sell-stop entry if you want to sell the market.

Stop Loss order – A stop-loss order is an order that is connected to a trade for the purpose of preventing further losses if the price moves beyond a level that you specify. The stop-loss is perhaps the most important order in Forex trading since it gives you the ability to control your risk and limit losses. This order remains in effect until the position is liquidated or you modify or cancel the stop-loss order.

Trailing Stop – The trailing stop-loss order is an order that is connected to a trade like the standard stop-loss, but a trailing stop-loss moves or ‘trails’ the current market price as your trade moves in your favor. You can typically set your trailing stop-loss to trail at a certain distance from current market price, it will not start moving until or unless the price moves greater than the distance you specify. For example, if you set a 50 pip trailing stop on the EURUSD, the stop will not move up until your position is in your favor by 51 pips, and then the stop will only move again if the market moves 51 pips above where your trailing stop is, so this way you can lock in profit as the market moves in your favor while still giving the trade room to grow and breath. Trailing stops are best used in strong trending markets.

Good till Cancelled order (GTC) – A good till cancelled order is exactly what it says…good until you cancel it. If you place a GTC order it will not expire until you manually cancel it. Be careful with these because you don’t want to set a GTC and then forget about it only to have the market fill you a month later in a potentially unfavorable position.

Good for the Day order (GFD) – A good for day order remains active in the market until the end of the trading day, in Forex the trading day ends at 5:00pm EST or New York time. The exact time a GFD expires might vary from broker to broker, so always check with your broker.

One Cancels the Other order (OCO) – A one cancels the other order is essentially two sets of orders; it can consist of two entry orders, two stop loss orders, or two entry and two stop-loss orders. Essentially, when one order is executed the other is cancelled. So, if you want to buy OR sell the EURUSD because you are anticipating a breakout from consolidation but you don’t know which way the market will break, you can place a buy entry and stop-loss above the consolidation and a sell entry with stop-loss below the consolidation. If the buy entry gets filled for example, the sell entry and its connected stop loss will both be cancelled instantly. A very handy order to use when you are not sure which direction the market will move but are anticipating a large move.

One Triggers the Other order (OTO) – This order is the opposite of an OCO order, because instead of cancelling an order upon filling one, it will trigger another order upon filling one.

• Lot size / Contract size

FX lot sizes

In Forex, positions are quoted in terms of ‘lots’. The common nomenclature is ‘standard lot’, ‘mini log’, ‘micro lot’, and ‘nano lot’; we can see examples of each of these in the chart below and the number of units they each represent:

                   

• How to calculate pip value

You probably already know that currencies are measured in pips, and one pip is the smallest increment of price movement that a currency can move. To make money from these small increments of price movement, you need to trade larger amounts of a particular currency in order to see any significant gain (or loss). This is where leverage comes into play; if you don’t understand leverage totally please go read Part 1 of the course where we discuss it.

So we need to know now how lot size affects the value of one pip. Let’s work through a couple examples:

We will assume we are using standard lots, which control 100,000 units per lot. Let’s see how this affects pip value.

1) EUR/JPY at an exchange rate of 100.50 (.01 / 100.50) x 100,000 = $9.95 per pip

2) USD/CHF at an exchange rate of 0.9190 (.0001 / .9190) x 100,000 = $10.88 per pip

In currency pairs where the U.S. dollar is the quote currency, one standard lot will always equal $10 per pip, one mini-lot will equal $1 per pip, one micro-lot will equal .10 cents per pip, and a nano-lot is one penny per pip.

• How to calculate profit and loss

FX profit/loss calculating

Now, let’s move on to calculating profit and loss:

Let’s use a pair without the U.S. dollar as the quote currency since these are the trickier ones:

1) The rate for the USD/CHF is currently quoted at 0.9191 / 0.9195. Let’s say we are looking to sell the USD/CHF, this means we will be working with the ‘bid’ price of 0.9191, or the rate at which the market is prepared to buy from you.

2) You then sell 1 standard lot (100,000 units) at 0.9191

3) A couple of days later the price moves to 0.9091 / 0.9095 and you decide to take your profit of 96 pips, but what dollar amount is that??

4) The new quote price for the USD/CHF is 0.9091 / 0.9095. Since you are now closing the trade you are working with the ‘ask’ price since you are going to buy the currency pair to offset the sell order you previously initiated. So, since the ‘ask’ price is now 0.9095, this is the price the market is willing to sell the currency pair to you, or the price that you can buy it back at (since you initially sold it).

5) The difference between the price you sold at (0.9191) and the price you want to buy back at (0.9095) is 0.0096, or 96 pips.

6) Using the formula from above, we now have (.0001 / 0.9095) x 100,000 = $10.99 per pip x 96 pips = $1055.04

For currency pairs where the U.S. dollar is the quote currency, calculating profit or loss is pretty simple really. You simply take the number of pips you gained or lost and multiple that by the dollar per pip you are trading, here’s an example:

Let’s say you trade the EURUSD and you buy it at 1.3200 but the price moves down and hits your stop at 1.3100….you just lost 100 pips.

If you are trading 1 standard lot you would have lost $1,000 because 1 standard lot of pairs with the U.S. dollars as the quote currency = $10 per pip, and $10 per pip x 100 pips = $1,000

If you had traded 1 mini-lot you would have lost $100 since 1 mini-lot of USD quote pairs is equal to $1 per pip and $1 x 100 pips = $100

You can also use our Forex Trade Position Size Calculator.

Always remember: when you enter or exit a trade you have to deal with the spread of the bid/ask price. Thus, when you buy a currency you will use the ask price and when you sell a currency you use the bid price.

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Part 4: What is Professional Forex Trading?

What is Professional Forex Trading? – Making the Money

• What is a professional Forex trader?

Professional Forex Trading

A professional Forex trader is someone who uses price movement in the Foreign exchange currency market to make profit. The aim of any Forex trader is to win as many trades as possible and also to maximize those winning trades. A professional Forex chart technician uses price charts to analyze and trade the market. By trading with an EDGE in the market, professional traders can put the odds in their favor to successfully trade price movement from point A to point B.

Caution: Forex trading is not a ‘get-rich-quick’ scheme and it is more difficult to make money in Forex than what most popular Forex system-selling websites would have you believe. To trade profitably we must not only have winning trades, but we must also cut our losing trades short so that our winners out-pace our losers. You see, losing is an enviable part of trading the Forex markets, and you must learn to lose properly by taking small losses relative to your winners. This means you must A L W A Y S trade with a stop loss on E V E R Y trade you take and make sure the dollar amount you have at risk is an amount you are 100% comfortable with losing.

Professional Forex price-chart traders have a winning edge which is developed via Technical Analysis (more on this in Part 4). There are also Fundamental Analysis traders and traders who use a combination of both analysis techniques; we will discuss all of these later.

A professional Forex trader understands that reading a price chart is both art and skill, and as such, they do not try to mechanize or automate the process of trading as each moment in the market is unique, so it takes a flexible and dynamic trading strategy to trade the markets with a high-probability edge.

• How do pro traders trade the Forex markets?

There are many different trading strategies and systems that pro traders use to trade the markets with, but generally speaking, professional traders do not use overly-complicated trading methods and rely mainly on the raw price data of the market to make their analysis and predictions. To be comprehensive, I wanted to give you guys a brief overview of all the primary different styles and ways people trade the Forex market:

Automated / Robot Trading: Software-based trading systems, also known as forex trading robots, are created by converting a set of trading rules into code that a computer can make use of. The computer will then run this code via trading software that scans the markets for trades that meet the requirements of the trading rules contained in the code. The trades are then executed automatically via the trader’s broker.

Automated Forex Trading

Discretionary Trading: Discretionary Forex trading depends on a trader’s ‘gut’ trading feel or discretionary trading skill to analyze and trade the markets. Discretionary trading allows for a more flexible approach than automated trading but it does take a certain amount of time to develop your discretionary trading skill. Most professional Forex traders are discretionary traders because they understand the market is a dynamic and constantly flowing entity that is best traded by the human mind.

Technical Trading: Technical trading, or technical analysis, involved analysis of a market’s price chart for making one’s trading decisions. Technical analysis traders use price patterns or ‘technical signals’ to trade the market with an edge. The common belief amongst technical analysis traders is that all economic variables are represented by and factored into the price movement on a price chart.

Fundamental Trading: Fundamental trading, or news trading, is a trading technique wherein traders rely heavily on market news to make their trading analysis and predictions. Fundamental news does ‘drive’ price movement, but often times the market will react differently than what a particular news release would imply due to the fact that market participants often buy on expectations of future events and sell once the reality of said future event occurs. This is another main reason many pro traders rely more heavily on technical analysis than fundamental analysis, although many do use a combination of the two.

Day Trading: Traders who day-trade the Forex market are in and out of the market within one day. This means they typically buy and sell currencies over a very short period of time and they may enter and exit numerous trades in one day.

Scalping: Scalping is similar to day-trading but it relies on more frequent and shorter-term trades than even day-trading does. It is a trading style that refers to jumping in and out of the market many times a day to ‘scalp’ a few pips here and a few pips there, generally with little regard for placing logical stop-losses. Scalping is generally not recommended by experienced / pro traders because it is essentially just gambling.

Swing Trading / Position Trading: This style of trading involves taking a short to mid-term view on the market and traders who swing trade will be in a trade anywhere from a few hours to several days or weeks. Swing or position traders are generally looking to trade with the near-term daily chart momentum and typically enter anywhere from 2 to 10 trades per month, on average.

Range Trading: Range trading involves trading a market that is consolidating between obvious support and resistance levels. By watching for trading signals near the support and resistance boundaries of the trading range, traders have a high-probability entry scenario with obvious risk and reward placement.

Trend Trading: Trend traders are traders who wait for the market to trend and then take advantage of this high-probability movement by looking for entries within the trend. An uptrend is considered to be in place when a market is making higher highs and higher lows, and a downtrend is in place when a market is making lower highs and lower lows. By looking for entries within a trending market, traders have the best chance at making a large profit on their risk. Traders who continually try to trade against the trend by trying to pick the top and bottom of the market, generally lose money quite quickly. Professional Fx traders are largely trend-traders.

Counter-trend Trading: Trends do indeed end, and if you are a savvy and skilled trader you can successful trade a counter-trend move, but this should not be tried until trend-trading has been mastered as counter-trend trading is inherently more risky than trend-trading and there can be many false tops or bottoms in a trend before the real one emerges.

Carry Trading: Carry trading, or simply ‘the carry trade’ as it is called, is the strategy of simply buying a high interest-rate currency against a low interest-rate currency and holding the position for what is usually a long period of time. Forex brokers will pay traders the interest rate difference, or ‘swap’, between the two currencies for each day the position is held. The trick here is that higher-yielding currencies are susceptible to large sell-offs if the market loses risk appetite since these currencies are generally considered riskier than safe-haven currencies like the U.S. dollar or Japanese yen, so it’s a good idea to trail your stop loss up to lock in profit as the carry trade moves in your favor.

• Professional Forex traders vs. amateur Forex traders

Professional Forex trading might seem like something of an elusive or difficult goal for those of you struggling to trade profitably or just beginning to trade. But, there are a few key differences between pro traders and amateur traders that you should be aware of to help you improve your trading or get started on the right track if you are a newbie:

• The important role of Banks in Forex trading

Banks play a very important role in FOREX trading. In fact, most of the market plays against larger banks, hedge funds and big-money players. Commercial banks (such as Deutsche Bank and Barclays) provide liquidity to the Forex market due to the trading volume they handle every day. Some of this trading represents foreign currency conversions on behalf of customers’ needs while some is carried out by the banks’ proprietary trading desk for speculative purpose. The bottom line is that we retail Forex traders are small-change compared to the bigger players like commercial banks, hedge funds, and other big players. We can profit from the moves these big players cause in the market by finding our own edge in the market and trading it with discipline.

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