Lesson 01 - Introduction To Forex
Forex Introduction:
If you are reading this then you have probably never heard of Forex, or read some ad that promised you they would make you rich overnight. Perhaps a friend told you about a new system where you could yield super attractive results by investing very low capital. No bank could match those results.
All this sounds very good, but we both know that you were not born yesterday. Until today you have probably been told many stories about opportunities like this and you know that nothing in life is free and FOREX is no exception to the rule!
The FOREX market is not an easy way to become a millionaire, even if people make it sound simple. So what is good about the Forex market? If you plan to dedicate yourself to the currency market and work as hard at it as you do at your day job then that is a whole different story. The difference is that your potential payment\profit can be much higher in the Forex market. Another benefit is that you can work in more comfortable hours then most day jobs. You are your own boss!
There are many myths about the FOREX market, and that is why we have prepared this short introduction "for dummies" about what the FOREX market\currency market is really about. At the end of this section you shall know the advantages and risks of investing in FOREX in a clear and objective manner. This will strengthen your ability to use Expert Advisors correctly!
What exactly is Forex?
FOREX (Foreign Exchange Market) is just a place where people and institutions around the world gather to exchange one currency for another. This place does not have a central physical space, this space is distributed throughout the world: banks, institutions, companies, brokers and people who are connected with each other via Internet, telephone, fax. Etc.
As we said earlier, it does not have a defined physical space. Basically, the FOREX market is available to whoever has a computer with Internet, a telephone or a fax. You can execute sales and purchase transactions while in pajamas from the comfort of your very own living room. That's a big advantage for people who seek to be their boss and want to spend quality time with loved ones.
How is money won and lost in Forex?
Very simple, buy low and sell high.
But what happens when you bought cheap, but the price drops even lower? Or if when buying the initiali price has already increased? "Well, yes, you lose money.
Sounds very simple right? Sure, it is simple but not easy, the rules are simple, but nothing easy. If you want to make profit then you need to know what you are doing. Forex trading should not be left to chance, it should not be a coin toss!
This is where analysis plays an important role. A true Forex Market analysis is based on mathematics, statistics, social, geographical and political events. Starting to sound complicated? Well it is not too complicated; you do not need to be a rocket scientist to succeed in the Forex market. There are quite a few simple-minded people who by sticking to very simple strategies have made huge amounts of money. There are also many Forex Robots (Expert Advisors) that can help you make quite a bit of money on the Forex market.
How much can you earn?
The amount of money you can earn in a day varies and depends on 3 variables:
1. The amount you decide to invest.
2. Leveraging
3. Decisions you make.
Thanks to the leverage a trader can maintain positions larger than the total of his investment.
We will give you an example:
Suppose you want to do a pair trade in EURO (EUR) / POUND (GBP) and that the purchase price is 1.3468 which means that you'll pay 1.3468 dollars for every Euro you want to buy. If you open an account and deposit 500 pounds and decide to open a position to buy 1 lot, you have 10,000 pounds with which you can buy Euros, that's 10,000 pounds provided by your broker for a few moments. Suppose that the decision you made was correct and the price of the euro rose to 1.3488:
If your starting price was 1.3468 and it rose to 1.3488 then:
1.3488-1.3468 = .0020
That is your profit for every .0020 Pound, but you borrowed 10000Pounds from your broker, so:
.0020 X10000 = $ 20.
By closing the position you are automatically paying your money to your broker and you keep the $ 20 you won.
Now, suppose that instead of the previous example with 1 lot you use 5 lots to do the trade, for example you open a position for 50000GBP then:
If your starting price was 1.3468 and it rises to 1.3488:
1.3488-1.3468 = .0020
Again, the gain is .0020 GBP per pound, but since you borrowed 50000GBP from your broker:
.0020 X 50000 = 200 Pounds.
By closing the position you are automatically paying your money to your broker and you keep the 100 pounds you won.
It is the same effort to win 20GBP or 100GBP.
Remember you opened an account with 500GBP, suppose you've just won a previous trade, and you are super excited – from making 100GBP in just 5 minutes. You decide to increase the number of lots to 20. Let's see what happens:
Instead of rising, the price fell to 1.3468 from 1.3488:
1.3468-1.3488 = - .0020
You had a loss of GBP .0020 per pound, but you borrowed 200000GBP from your broker, so:
.0020 x 200000 = -400 pounds.
By closing the position you are automatically paying your money to your broker and since you lost, your broker took 400 pounds from your account leaving you with a total of 100 pounds.
That's why a proper risk management tool together with good analysis is what you need to get decent returns. Expert Advisors come built in with money management tools and have excellent analysis capabilities.
What are the factors that enable you to succeed in Forex?
Surviving in the FOREX is a fine combination of 30% knowledge and 70% discipline.
Within 6 months you can learn most of the theory and technical analysis. The real challenge is to manage the 70% of discipline it takes.
Discipline is important largely because the market is nothing more than a clash of emotions. A trader must know how to control emotions such as anger, frustration and greed. You will constantly find yourself trying to decide whether or not to close a position that is winning. It can then become a loss if you stay longer than you should.
Trying to become a millionaire in a day can fuel feelings of greed, and often this is what leads traders to losing their investment. This is where Expert Advisors are very important. They are robots that trade with no emotional feelings. They use pure statistics and math to decide whether or not to close a position.
Is there fraud or scamming in the Forex market?
It should be emphasized that Forex is not regulated throughout the world but it is not illegal either. There have been cases of brokers not releasing the trader’s money after they earned it fairly. There are also cases of traders cheating the trader during the trading hours – increasing spreads without notifying them, cancelling trades with no due cause. On this website there are many tools that can help you prevent the broker from cheating you and they also level your odds of profiting on the Forex market. We recommend that before choosing a dealer you asked and investigate about their performance. A simple Internet search can give you a clearer picture about the company – ask other traders as well about their experiences with the company.
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