eToro – Forex Trading Forum

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About this guide

If this is your first time coming across the online Forex market, then you’ve come to the right place.

This guide will provide you with the basic knowledge, tools and techniques a novice Forex trader should have as you take your first steps in the fascinating world of Forex.

Many of the trading concepts introduced here are explained in greater detail in later chapters of the guide.

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If you are reading this guide, you have most likely taken some sort of interest in the Forex market. But what does the Forex market have to offer you?

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The opportunity to profit:

It doesn’t take a financial genius to figure out that the biggest attraction of any market, or any financial venture for that matter, is the opportunity of profit. In the Forex market, profitability is expressed in a number of ways.

First of all, just to set the record straight, you don’t have to be a millionaire to trade Forex. Unlike most financial markets, the Forex market allows you to start trading with relatively low initial capital. At eToro, you can start trading Forex with as little as $25!

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Right about now you’re probably asking yourself: “So how am I meant to make any serious money with such a low initial investment?” The Forex market has just the thing for you, because it allows you to use leveraged trading. Leveraged trading lets you open positions for tens of thousands of dollars while investing sums as small as $25. This means that Forex trading has the profit potential of tens and even hundreds of percent a day!

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What is also unique about the Forex market is that any sort of movement is an opportunity to profit. Whether a currency is crashing or soaring, there is profit to be made, since you always have the option of buying or selling the currency of your choice. Unlike the stock market, you are not limited to speculating on rising stocks, and a falling market is just as good for business as a rising market.

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Having said all that, it is important to remember that as profitable as the Forex market is, it still carries all the risks involved with financial trading. You should always be aware of the risk, and never risk money that you can’t afford to lose.

So, how do I produce profits in the Forex market?

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Cashing in on Price Movements
Trading Forex is an exciting adventure. The market is always on the move, and every tiny shift in currency rates can mean a profit of hundreds and even thousands of dollars!

Let’s demonstrate how that can happen:

Forex trading is always done in pairs, since any trade involves the simultaneous buying of a currency and selling of another currency. The trading revolves numerous currency pairs.

In general, the eight most traded currencies on the Forex market are:

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USD U.S. Dollar
EUR Euro
GBP British Pound
JPY Japanese Yen
CAD Canadian Dollar
CHF Swiss Franc
NZD New Zealand Dollar
AUD Australian Dollar

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Bid/Ask
When buying or selling a currency pair, each pair has its own Bid/Ask rate, for example:
Pair Bid Ask
EUR/USD 1.5767 1.5769
GBP/USD 1.9780 1.9782
USD/JPY 103.23 103.25
AUD/USD 0.9613 0.9615
USD/CHF 1.0263 1.0265
USD/CAD 0.9843 0.9845
EUR/GBP 0.7971 0.7973
EUR/CHF 1.6182 1.6184
EUR/JPY 162.77 162.79

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This means you could either:

Buy the pair at the Ask rate

Which means:

Buy 1EUR for $1.5769
-or-

Sell the pair at the Bid rate

Which means:

Sell 1 EUR for $1.5767

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OK, but where’s the profit?

The currency pair rates are volatile and constantly changing.
One way to profit is by buying a pair, then selling it at a higher rate.
The second way is by selling the pair, then buying it at a lower rate.

I'm no professional economist, so how can I know if the rate is going up or down?

Pay a visit to the next chapter which will introduce you to a new friend: the trend.

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The Trend is Your Friend

Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.

Although this may seem pretty basic, being able to identify when a pair is in a trend and when it isn't will help you to increase your chances to profit consistently in the Forex market.

When you can identify a trend, you can estimate what direction the rate of a currency pair is going to go in. You should exploit the direction of the trend you identify by placing a trade in that direction.

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If it’s an uptrend, meaning that the rate is increasing, buying the currency pair will give you a better probability for profit. If it’s a downtrend, meaning that the rate is decreasing, selling the currency pair will give you a better chance of making money.

How do I identify a trend? What are the characteristics of a trend?

The simplest way to identify a trend is through the distinct patterns that the price forms. These can tell you if the market is moving in an uptrend or downtrend.

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How do I identify a trend?

When a trend is taking place in a Forex pair, the price movements start to form peaks and valleys in the chart of that pair, which are easily identified.

During an upward trend, the price movements form a series of higher peaks and higher valleys. (Higher Highs and Higher Lows)

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Since a picture`s worth a thousand words, lets look at the following chart:


This chart suggests that the trader should buy the currency pair (and close the trade by selling at profit after the rate rises).