how to start trading on forex

DUKASCOPY BANK SA

AN INTRODUCTION TO THE FOREIGN EXCHANGE MARKET

DUKASCOPY BANK

EDUCATIONAL GUIDE

www.dukascopy.com

AN INTRODUCTION TO THE FOREIGN EXCHANGE MARKET

INTRODUCTION TO FOREX

CURRENCY TRADING

FOREX MARKET MECHANICS

FOREX MARKET ANALYSIS

HOW TO START TRADING FOREX

04

06

10

13

17

DUKASCOPY BANK EDUCATIONAL GUIDE 03

CONTENTS


Unlike other financial markets that operate The foreign exchange market is extremely from a centralised location (i.e., the stock active. Unlike stock markets, currency trading exchange), the worldwide Forex market does takes place continuously throughout the day; not have a central location. It is a global the Asian trading session moves into the electronic network of banks, financial European session, followed by the North institutions, and individual Forex traders, all American session and then back to the Asian involved in the buying and selling of national session, excluding weekends. It is the largest currencies. and the most liquid market in the world.

The Foreign exchange market (Forex) is a financial market in which currencies are traded.


FOREX



23 22 21 20 19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 00

NEW YORK

LONDON

TOKYO

SYDNEY

THE LARGEST AND THE MOST LIQUID MARKET

IN THE WORLD


CURRENCY TRADING

In order to express the value of a particular currency, it is compared with another currency. Thus, currencies are traded one against another and presented in pairs. For instance, the quotation EUR/USD 1.3702 is the price of the Euro expressed in US Dollars, suggesting one Euro equals 1.3702 US Dollars.

While trading currencies, traders may expect against another currency. Taking a long the value of one currency to appreciate or position is one in which a bullish trader buys depreciate against another. Traders can a currency at one price and aims to sell it later generate profits (or losses), whether the at a higher price. Alternatively, a short currency is rising or falling, by buying one position is one in which a bearish trader sells currency which is anticipated to gain value a currency that he anticipates to depreciate against another currency, or by selling one and aims to buy the currency back later at a currency which is anticipated to lose value lower price.

GBP/USD or USD/JPYBASE CURRENCY QUOTE CURRENCY QUOTE CURRENCYBASE CURRENCY

CURRENCIES ARE TRADED IN PAIRS


CURRENCY TRADING

SELL

BEARISH TRADER BEARISH TRADER

BU

YBULLISH TRADERBULLISH TRADER


CURRENCY TRADING

In Forex trading, due to the fact that the value of the currency is influenced by many economic, political, and even psychological factors, one currency is always strengthening against another (bullish), and therefore one currency is always weakening against another (bearish). Because of this, traders have equal opportunity to buy or sell to enter the market.

What creates demand for a currency?

better return on savings

safer and more attractive banking environment

people need the currency when travelling

Some examples:

1 HIGHER INTEREST RATES

2 MORE NATIONAL STABILITY

3 TOURISM

DemandIncreasedDemand

Supply

Pric

e

Qty

When Demand Increases, The Price Increases


CURRENCY TRADING

The main trading currencies are:

U.S. Dollar Japanese YenEuro British PoundAustralian DollarSwiss Franc Canadian DollarNew Zealand Dollar

USD

JPY

EUR

GBP

AUD

CHF

CAD

NZD

USD

CAD

CHF

GBPEUR

NZD

AUD

JPY

Dukascopy Bank offers over 30 major currency pairs to trade.

When you start trading, you will begin to recognise the eight major currencies by their codes.

U S DCOUNTRY NAME CURRENCY NAME

CURRENCY CODES are always three letters: the first two identify the country name and the last letter usually identifies the name of the currency. The exception to this rule is the Euro (EUR), which is the official currency in multiple countries in the EU.



Currency price is usually displayed with four decimal places, except the Japanese Yen which has only two decimal places. Regardless of the number of decimal places, the last digit always represents a pip – the smallest commonly quoted change of an exchange rate of a currency pair.

However, you may notice that currency pairs are usually quoted in bid-ask spreads. For example, a EUR/USD quote of 1.3740/1.3742. The first price (bid) is the price to sell, whereas the 'ask' price represents the price at which investors may buy the currency pair. The difference between the two prices is called a spread – an amount the broker takes for the order execution.

REPRESENTS ONE PIP

Bid Ask1.4111

price to sell spread price to buy

1.41132EUR/USD


Currencies are bought and sold in units called lots. For most Forex dealers, one lot usually equals 100,000 units of the base currency.

Whenever you place a trade, you start with one lot. Fortunately, you don’t need $100,000 in your account to trade the EUR/USD. Currency pairs usually have a 100:1 leverage ratio. This means that a broker will provide you additional funds, so you can trade a large position ($100,000) with a small amount of money ($1,000).


1 lot of EUR/USD = € 1 (1 Euro)x100,000

1 lot = 100,00 units of the currency



Many traders find the leverage that most Forex dealers offer very appealing. Nonetheless, you should know that trading this way can also be risky. It can cause substantial losses as easily as it can produce significant profits.

EXA

MPL

E You 1 lot of EUR/USD at buy $1.4180and later 1 lot of EUR/USD at sell $1.4193The transaction size is 1 lot (€100,000). To calculate your profit or loss:

(1.4193 - 1.4180 = 0.0013 (13 pips)) x 100,000 (1 lot) = $130 profit!

This is an example of 'going long' on the EUR/USD.Of course, if you went short you would have lost $130!

PROFIT/LOSS FormulaPrice where you sell the currency

Price where you buy the currency

the transaction size profit/loss


BAR CHARTS

CANDLESTICK CHARTS


LINE CHARTS

Using fundamental and technical analysis, the individual currency trader attempts to determine price movement trends, and by buying or selling currency pairs, attempts to earn profits.



Fundamental analysis involves examining the intrinsic value of the currency based on economic news releases that reflect the strength, or weakness, of a country’s economy. Fundamental traders follow these news announcements, known as 'fundamental indicators', because they paint a picture of a currency's strength in relation to other countries.

Fundamental indicators are reports that include statistical data on things such as employment, gross domestic product (GDP), international trade, retail sales, housing, manufacturing, and interest rates. The stability, growth, or decline in any of these sectors may have an effect – directly or indirectly – on the value of the currency. EX

AM

PLE

EXA

MPL

E FUNDAMENTAL and TECHNICAL

ANALYSIS

Unemployment rate jumped by 2.3% during the first quarter

Consumer Price Index (CPI) released

Central Bank cut the interest rate by 0.5%



BOLLINGER BANDS

RESISTANCE

SUPPORT



The technical trader is concerned with studying price movement patterns on a chart in order to predict the direction of current and future trends in the Forex market. The decision to buy, sell, or hedge a current position – or to stay out of the market entirely – is made upon this analysis.

Using various chart types (line, bar, or candlestick) and technical indicators, more accurate predictions can be made from better analysis of the Forex market. Technical indicators use price, volume, volatility, and other factors to create measures of how the market is behaving. Trend lines, support and resistance levels, reversals, and numerous other patterns are used to track and identify trends.

Traders using fundamental analysis constantly track the economic calendar to be aware of incoming news regarding the health of national economies.

15 Nov 04:30

15 Nov 05:45

15 Nov 07:30

15 Nov 07:45

15 Nov 08:00

15 Nov 08:15

15 Nov 10:00

15 Nov 10:00

JP

JP

JP

EU

CH

CH

EU

EU

-3.6%

-3.3%

-3.3%

-4.0%B

2.2%

-0.2%

-1.8%

-2.0%

-0.3%

-2.3%

3.5%

-1.9%

2.4%

-4.0%

-4.0%

-2.4B

-0.10%

-2.0%

1.4%

6.0%

Date Curr. Event Imp. Act. Cons. Prev.

JPY Capacity Utilization (MoM)

JPY Industrial Production (MoM)

JPY Industrial Production (YoY)

EUR French Current Account (euros)

CHF Producer & Import Prices (MoM)

CHF Producer & Import Prices (YoY)

EUR Euro-Zone Industrial Production s.a. (MoM)

EUR Euro-Zone Industrial Production w.d.a. (YoY)

LOW

MED

LOW

LOW

LOW

LOW

MED

LOW

Powered by Dukascopy ® | Data provided by www.dailyfx.com Economic Calendar

1 2 3 41 2 3 4HOW TO START

TRADING FOREX

Open a demo account in order to start trading with a trial portfolio. Start learning by trying to interpret and react to real time prices while identifying price trends.

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www.dukascopy.com

Head OfficeGeneva

ICC, Route de Pré-Bois 20CH-1215 Geneva 15

Phone:+41 22 799 48 88Fax: +41 22 799 48 80

Representative OfficeRigaLacplesa iela 20A, LV-1011, RigaPhone: +37 16 721 87 25Fax: +37 16 721 87 30

[email protected]

how to start trading on forex

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