eToro – Forex Trading Forum

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I have noticed that we have quite a few new members on the forum and thought that it might be a useful exercise to revisit some forex basics. This thread will be aimed at complete novices – and it would be great if you contribute your comments and experiences whether you are a novice or an experienced trader. (Espevcially if you are an experienced trader ....)

There are many places to learn about forex and it can all be very confusing and off-putting . I believe that essentially forex is simple. Don't get me wrong - it is not easy, but it does not have to be complicated or confusing. I hope that you find this thread useful and not in the least bit confusing !

So, forex is not easy but it can be simplified – and basic forex training should be absolutely basic. Combine that with the eToro platform and you will find that you have success on your Practice Account.

The first simple forex training tip is – DO NOT TRADE WITH REAL MONEY.

The second clears up two areas which often tempt newbies :

1. Avoid 'Forex Gurus' (they don't actually exist anyway).
2. Don't spend a fortune on training courses.

Next : Four Essentials to get Started in Forex

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There are 4 things that you can't do without if you want to start to learn forex :

1.a computer
2.a broadband internet connection
3.a trading platform
4.a broker

As you are reading this forum it is safe to assume that you already have the first two. You may already have opened a Practice account with eToro and are reading this forum via the platform. If you have accessed this forum via an internet search then do consider joining the Etoro community.

I recommend eToro as a platform and their partner RetailFX as a broker after having tried and tested other platforms over several months. The eToro platform grows with you as you develop as a trader. The eToro team respects your need to systematically build a sound knowledge of forex in order to build a successful forex business. There is no pressure to move from a Practice account to a Real account.

The intuitive interface and the clear platform inject a fun element to forex which compliments my belief that forex is simple (if not easy) and will be profitable.

Next : What is Forex ?

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The word 'Forex' – sometimes shortened to 'FX' or '4X' – is an abbreviation for FOReign EXchange and actually encompasses the foreign exchange market. This is the market place of international currencies which are traded in pairs. As a forex trader you will buy one currency whilst selling the other currency of a pair and if you know how to read the market conditions correctly you will make a profit from the difference between the values of the two currencies.

This is a huge market place in which more than four trillion USD are traded for 24 hours a day over five and a half days each week. The great thing is that this market is as much for the small individual trader as for the big boys. There is a positive opportunity to make a good living on the forex – but unless you prepare yourself properly you will lose money.

Next : So - Why Trade the Forex ?

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Forex trading has become a viable option for individuals because of the recent explosion of home computing and high-speed internet access. For decades it was the preserve of large banks, hedge funds and major dealers.

As a home based business trading the forex has a number of significant advantages iover other on line earning opportunities and home based businesses.

1. It is the biggest financial market in the world.
2. There is not a physical market place that you must attend. Instead all activities are carried out electronically on your computer via the internet from wherever you want to work (at home, on holiday, in a cafe).
3. The forex market is open 24 hours a day for five and a half days each week.
4. The forex market has great liquidity, strong trends and volatility (don't worry if you don't understand these terms yet – just accept at this stage that they are good things)
5. If you are looking for a sound home-based business forex is just about the simplest to develop and to administer. There is no stock, no marketing, no selling to clients and yoou don't need a website or a blog.
6. Forex can provide a very nice long term income.

Next : How Trading the Forex Works

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Forex traders buy and sell currencies. The aim is to buy a currency that will increase in value – then sell it for a profit. Or conversely, to sell a currency that will fall in value – and buy it later for a profit. On the forex market it does not matter whether the value moves up or down – so long as the price moves, any direction is an opportunity to make a profit.

That will be your aim as a forex trader - to exchange one currency for another having ascertained that there will be a price change in your favour. Between now and the point at which you are ready to trade with real money, you need to learn just how you will be able to judge a future price change in your favour.

Learning to read a currency pair is a good place to start.

Currency exchange rates are always quoted in currency pairs so that they are measured against something of value. The first currency of the pair known as the base currency and the second one as the counter currency. So when you see USD/GBP – the dollar is the base currecy and the pound sterling is the counter currency.

Next : Reading a Currency Pair

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Let's assume : EUR/USD = 1.3608 this is an exchange rate which tells you :

1.how much you would pay in the counter currency if you wanted to buy one unit of the base currency. So, you would pay 1.3608 USD dollars for 1 EUR.
2.how much of the counter currency you will get for each unit of the base currency that you sell – you would get 1.3608 USD for 1 EUR.

As a trader you will BUY if you think that the base currency will increase in value against the counter currency and you will SELL if you think that the opposite will happen.

So far, so logical and simple. But the decision making process is not so easy. How do you know whether a buy or sell trade is the right one ? That is the key. It takes time. Be patient with yourself and give yourself time to learn the basics.

Pick a couple of currency pairs and study the exchange rates. Observe the changing rates. Watch the movement on the graphs. Use your practice account over a few weeks, daily if possible, limiting yourself to two currency pairs and simply observe. Open and close trades – you can afford to experiment with virtual money !

Next : If you don't have one - open an eToro account

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I tried some trading platforms that I found counter-intuitive and I did not progress with my forex learning. Once I discovered eToro my rate of learning increased ten fold because of the user friendly trading interface and lots of other features that made forex much more accessible to me. The vizualisations helped me to understand how currencies behave.

The eToro platform ensured that I made steady progress – and I began to enjoy forex. I also discovered this forum which is a good source of information for all levels of trader. In addition there is a live chat facility on which you can talk to other eToro traders and a fun championship to encourage your trading activity.

If you do not already have an eToro Practice account I recommend that you download and install the software. I will be using screen shots from the eToro platform in later posts on this thread.

Go to www.etoro.com for the download link.

Next : So Now You Have an eToro Account

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The program might launch automatically once you have installed it – if it doesn't there will be an eToro icon on your desktop. Click the icon to open eToro. You will be given the choice to 'Trade for Real' or 'Practice Trading'.

Click 'Practice Trading'.

On the Practice Registration screen choose your user name and you are just about ready to start learning on your practice account. You will be directed to the relevant 'mode' – the choices will be clearly explained to you.

Also, try clicking the 'HELP' tab at the bottom of the trading screen – this will take you to the excellent eToro User's Guide.

You will be trading with virtual money but try to treat it as real money – this will help you to develop the discipline necessary to become a good trader.

Your next step – come and introduce yourself on this forum !

Next : Basic Forex Glossary

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eToro has a great forex glossary which you can find via the Help menu at the bottom of the trading platform or via the eToro website. But I thought that it would useful for the absolute beginners here on this forum if I created a list of the most basic terms. These are the terms that you must understand and feel confident with during the period of learning to trade on your practice account.

Ask (Offer) — the price of the offer, the price you buy for.

Bear – If someone has a negative view of a particular currency and believes that its price will decrease, they are said to be ‘bearish’ about that currency.

Bid (Demand) —the price of the demand, the price you sell for.

Bull - If someone has a positive view of a particular currency and believes that its price will increase, they are said to be ‘bullish’ about that currency.

ECB (The European Central Bank) — the main regulatory body of the European Union financial system.

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Fed (The Federal Reserve) — the main regulatory body of the United States of America financial system, a division of which, the FOMC (Federal Open Market Committee), regulates, among other things, federal interest rates.

Fundamental Analysis — a Forex analysis based only on news, economic indicators and global events.

GDP (Gross Domestic Product) — this is a measure of the national income and output for a given country's economy. It is one of the most important Forex indicators.

Limit – A limit is placed on a trade so as to exit it after a speculator has gained the expected number of pips.

Long – Trading a currency under the assumption that its price will rise – a ‘buy’ trade..

Loss — the loss from closing long position at lower rate than opening or short position with higher rate than opening, or if the profit from a position closing was lower than broker commission on it.

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Lot — definite amount of units or amount of money accepted for operations handling (usually it is a multiple of 100).

Momentum — the measure of the currency's ability to move in any given direction.

Moving Average (MA) — one of the most basic technical indicators. It shows the average rate calculated over a series of time periods. Exponential Moving Average (EMA), Weighted Moving Average (WMA) etc. are just the ways of weighing the rates and the periods.

Open Position (Trade) — position on buying (long) or selling (short) for a currency pair.

Order — order for a broker to buy or sell the currency with a certain rate.

Pip – Means Price Interest Point and refers to the smallest digit in any pricing, so if GBPUSD rose from 1.9443 to 1.9450, it rose 7 pips.

Pivot Point — the primary support/resistance point calculated basing on the previous trend's High, Low and Close prices.

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Principal Value — the initial amount of money of the invested.

Profit (Gain) — positive amount of money gained for closing the position.

Realized Profit/Loss — gain/loss for already closed positions.

Resistance — price level for which the intensive selling can lead to price increasing (a potential up-trend).

Risk Management - Forex trading is a risky business and as a consequence the trader has to adopt strategies to defend his earnings should events go against his method in the trading process. This is called Risk Management.

Scalping — a style of trading in which a trader opens many positions that are for extremely small and short-term profits.

Settled (Closed) Position — closed positions for which all the required transactions have been made.

Short – Trading a currency under the assumption that its price will fall – a ‘sell’ trade.

Slippage — this is when an order is opened for a price different than expected (ordered). The main reasons for slippage are — a "fast" market, low liquidity and/or your broker's ability to execute orders in a timely fashion.

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Spread —the spread is difference between Ask and Bid prices for a currency pair.

Standard Lot — 100,000 units of the base currency of the currency pair, which you are buying or selling.

Stop – A stop is what you place on a trade to make sure that if you are losing, you don´t lose too much. You always place a stop on a trade. This is basic Risk Management.

Stop-Limit Order — order to sell or buy a lot when the market reaches certain price. Usually is a combination of stop-order and limit-order.

Support — price level for which intensive buying can lead to the price decreasing (a potential down-trend).

Swap — overnight payment for holding your position. Since you are not physically receiving the currency you buy, your broker should pay you the interest rate difference between the two currencies of the pair. Take care - it can be negative or positive.

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Technical Analysis — a Forex analysis based only on the technical market data (quotes) with the help of various technical indicators.

Trend — a trend is the direction of the forex market which has been established with influence of different factors and which can be identified by traders using their experience together with historic, fundamental news, technical indicators etc in order to decide whether or not to trade the trend at any given time.

Unrealized (Floating) Profit/Loss — a profit/loss for your non-closed positions.

Useable Margin — amount of money in the account that can be used for trading.

Used Margin — amount of money in the account already used to hold open positions open.

Volatility — a statistical measure of the number of price changes for a given currency pair in a given period of time.

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Risk Management – Protect yourself against YOURSELF

Risk Management gives you exactly what it says on the tin - it manages risk and is one of the most important elements for a new trader to learn about.

Forex trading carries a great deal of risk – it is a dangerous business for the newcomer or the person who is looking to make a lot of money very quickly. You need to be able to recognize the dangers, only then will Risk Management become second nature to you.

Risk Management is vital if you want to preserve and augment your trading capital. Once you understand the importance of Risk Management you will invariably approach your forex trading with an informed awareness that will help you to protect your assets.

There are two threats to your trading assets: YOU and THE MARKET

Let’s start with how you can protect yourself against yourself.

You are your own worst enemy – especially as a newbie trader, but some experienced traders fail to control that little devil within. This thread continues with a list of stupid, risk-infested things people do whilst trading. Read the list and tick those which apply to you – be honest with yourself: