FX GUIDE

FX GUIDE :: INTRODUCTION

WHAT IS FOREX TRADING ? 
Forex or Foreign Exchange is the simultaneous buying of one currency and the selling of another. Currencies are traded in pairs.The Forex Market, also referred to as the "Forex" or "FX " , has more buyers and sellers and daily volume ($2 trillion a day) than any other market in the world and takes place in major financial institutions across the globe. The forex market is open 24 hours a day, five days a week.In the forex market, currencies are always priced in pairs and all trades result in the simultaneous buying of one currency and selling of another. The objective of currency trading is to buy the currency that increases in value relative to the one you sold. If you have bought a currency and the price appeciates in value, then you must sell the currency back in order to lock in the profit. 
WHY TRADE FOREIGN CURRENCIES ? 

There are many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market:

• No commissions: No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread.
• No middlemen. Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
• No fixed lot size. In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250 (although we explain later why a $250 account is a bad idea).
• Low transaction costs. The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later.
• A 24-hour market. There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night.
• No one can corner the market. The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.
• Leverage. In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
• High Liquidity. Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).
• Free Demo Accounts, News, Charts, and Analysis. Most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for “poor” and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
• “Mini” and “Micro” Trading: You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't. Online Forex brokers offer "mini" and “micro” trading accounts, some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up trading capital.

WHAT TOOLS DO I NEED TO START TRADING FOREX? 

A computer with a high-speed Internet connection and all the information on this site is all that is needed to begin trading currencies. 

WHAT DOES IT COST TO TRADE FOREX? 
An online currency trading (a “micro account”) may be opened for with a couple hundred bucks. Micro accounts and its bigger cousin, the mini account, are both good ways to get your feet wet without drowning. For a micro account, we'd recommend at least $100 to start. For a mini account, we’d recommend at least $1000 to start. For a standar account we'd recommend at least $10000. Anyway, the recommended starting amount depends on your forex trading system.

FX GUIDE :: FOREX CONCEPTS

QUOTING CONVENTIONS : 
Currencies are quoted in pairs. The first listed currency is known as the base currency and the second is called the counter or quote currency.

Currencies are quoted using five significant numbers, with the last place holder called a point or a pip.
For example a EUR/USD quote: 1.2760/1.1765
Like all financial products, forex quotes include a "bid" and "ask" or a "sell" and a "buy" price. By quoting both the bid and ask in real time, brokers ensure that traders always receive a fair price on all transactions. As in any traded instrument, there is an immediate cost in establishing a position. This cost will vary between the different brokers and is called "spread".
For example, USD/JPY may bid at 131.40 and ask at 131.45, this five-pip spread defines the trader's cost, which can be recovered with a favourable currency move in the market. 
MARGIN AND LEVERAGE :
The margin is a performance bond, or good faith deposit, to ensure against the total loss of your account. Trade stations have margin management capabilities. In the event that funds in the account fall below margin requeriments, the broker's dealing desk will close all open positions. This prevents clients accounts from falling into negative balance, even in a highly volatile, fast moving market.
The new NFA rule requires a minimum 1% margin at all time to maintain an open trade (note this may change from time to time so although we use 1% as the example at some stage in the future the margin may be different. However using similar caculations one can easily calculate the new margins). Some deal stations automatically calculate thi according to the formula and hence the margin requirements are continually varying.
Example: EUR/USD
Rate: 1.2326/1.2331
Account type: 100.000/lot account
1% leverage: 100.000x0.07 (1%)=1000 units
When you are long (buy) EUR/USD, the margin required is:
1.2331 (EUR/USD) x 1000 (units of a base currency EUR) = USD1233 for each lot. Some brokers require $1.300 per lot in margin for EUR based pairs. In general, a margin of $1.300 allows you to control a $100.000 spot currency position. This is an efficient use of trading capital as the leverage in futures and stock markets is much less.

FOREX MARKET AND LOCATIONS :

The forex market is a seamless 24 hour market and is open 5 days a week. Forex market opens on Sunday 5 pm EST (10:00 pm GMT), closes on Friday 5 pm EST (10:00 pm GMT) As a trader, this allows you to react to favourable/unfavourable news by trading immediately.
The trading of forex takes place all over the world and is not located in any one central location. Deals are done between a variety of traders, from banks to managed funds to individual traders

SIZE OF FOREX MARKET :

Forex trades approximately $4 trillion a day and is by far the most liquid market in the world. It takes the NY Stock Exchange 3 months to trade the same USD value as the forex trades each and every day making it the largest and most liquid market in the world. This market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. If you compare this to the USD30 billion per day futures market, it becomes clear that the futures markets provide only limited liquidity. The forex market is always liquid, meaning positions can be liquidated and stop orders executed without slippage. 

FX GUIDE :: ORDER TYPES

BASIC ORDER TYPES :

There are some basic order types that all brokers provide and some others that sound weird. The basic ones are:

• Market order: A market order is an order to buy or sell at the current market price. For example, EUR/USD is currently trading at 1.2140. If you wanted to buy at this exact price, you would click buy and your trading platform would instantly execute a buy order at that exact price.
• Limit order: A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. For example, EUR/USD is currently trading at 1.2050. You want to go long if the price reaches 1.2070. You can either sit in front of your monitor and wait for it to hit 1.2070 where you would then click a buy market order. Or you can set a buy limit order at 1.2070, then walk away from your computer and attend your ballroom dancing class. If the price goes up to 1.2070, your trading platform will automatically execute a buy order at that exact price. You specify the price at which you wish to buy/sell a certain currency pair and also specify how long you want the order to remain active (GTC or GFD).
• Stop-loss order: A stop-loss order is a limit order linked to an open trade for the purpose of preventing additional losses if price goes against you. A stop-loss order remains in effect until the position is liquidated or you cancel the stop-loss order. For example, you went long (buy) EUR/USD at 1.2230. To limit your maximum loss, you set a stop-loss order at 1.2200. This means if you were dead wrong and EUR/USD drops to 1.2200 instead of moving up, your trading platform would automatically execute a sell order at 1.2200 and close out your position for a 30 pip loss (eww!). Stop-losses are extremely useful if you don't want to sit in front of your monitor all day worried that you will lose all your money. You can simply set a stop-loss order on any open positions so you won't miss your basket weaving class. 

 OTHER ORDER TYPES :

• GTC (Good ‘til canceled): A GTC order remains active in the market until you decide to cancel it. Your broker will not cancel the order at any time, therefore it's your responsibility to remember that you have the order scheduled.
• GFD (Good for the day): A GFD order remains active in the market until the end of the trading day. Because foreign exchange is a 24-hour market, this usually means 5pm EST since that that's U.S. markets close, but I’d recommend you double check with your broker.
• OCO (Order cancels other): An OCO order is a mixture of two limit and/or stop-loss orders. Two orders with price and duration variables are placed above and below the current price. When one of the orders are executed the other order is canceled. Example: The price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985. The understanding is that if 1.2095 is reached, you will buy order will be triggered and the 1.1985 sell order will be automatically canceled.

Always check with your broker for specific order information and to see if any rollover fees will be applied if a position is held longer than one day. Keeping your ordering rules simple is the best strategy.
The basic order types (market, stop loss, and limit) are usually all that most traders ever need. Unless you are a veteran trader (yeah right), don’t get fancy and design a system of trading requiring a large number of orders sandwiched in the market at all times – stick with the basic stuff first. 

FX GUIDE :: FOREX TERMS

Ask: Price at which broker/dealer is willing to sell. Same as "Offer".
Bid: Price at which broker/dealer is willing to buy.
Bid/Ask Spread (or "Spread"): The distance, usually in pips, between the Bid and Ask price. A tighter spread is better for the trader.
Cost of Carry (also "Interest" or "Premium"): The cost, often quoted in terms of dollars or pips per day, of holding an open position.
Currency Futures: Futures contracts traded on an exchange, most typically the Chicago Mercantile Exchange ("CME"). Always quoted in terms of the currency value with respect to the US Dollar. Parameters of the futures contract are standardized by the exchange.
Drawdown: The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.
Fundamental Analysis: Macro or strategic assessments of where a currency should be trading based on any criteria but the price action itself. These criteria often include the economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements.
Leverage: The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded (also referred to as "lot size" or "contract value") is $100,000 dollars and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000).
Limit: An order to buy at a specified price when the market moves down to that price, or to sell at a specified price when the market moves up to that price.
Liquidity: A function of volume and activity in a market. It is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a smaller bid/ask spread.
Margin: The amount of funds required in a clients account in order to open a position or to maintain an open position. For example, 1% margin means that $1,000 of funds on deposit are required for a $100,000 position.
Margin Call: A requirement by the broker to deposit more funds in order to maintain an open position. Sometimes a "margin call" means that the position which does not have sufficient funds on deposit will simply be closed out by the broker. This procedure allows the client to avoid further losses or a debit account balance.
Market Order: An order to buy at the current Ask price.
Offer: Price at which broker/dealer is willing to sell. Same as "Ask".
Pip: The smallest price increment in a currency. Often referred to as "ticks" in the futures markets. For example, in EURUSD, a move from .9015 to .9016 is one pip. In USDJPY, a move from 128.51 to 128.52 is one pip.
Premium (also "Interest" or "Cost of Carry"): The cost, often quoted in terms of dollars or pips per day, of holding an open position.
Spot Foreign Exchange: Often referred to as the "interbank" market. Refers to currencies traded between two counterparties, often major banks. Spot Foreign Exchange is generally traded on margin and is the primary market that this website is focused on. Generally more liquid and widely traded than currency futures, particularly by institutions and professional money managers.
Stop: An order to buy at the market only when the market moves up to a specific price, or to sell at the market only when the market moves down to a specific price.
Technical Analysis: Analysis applied to the price action of the market to develop trading decisions, irrespective of fundamental factors. 

FX GUIDE :: TYPES OF CHART 

Chart is a graphical description of forex price movements over a specific period of time. There are two important parameters in forex chart, the X axis represents time, and the y axis represents price. 

Forex Charts usually consist of three types:

• Line Chart
• Bar Chart
• Candlestick Chart

1. Line Chart : 
A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.

EUR/USD 15 minutes Line Chart

2. Bar Chart : 
Bar charts provide more detailed information compared to Line chart. It shows not only closing price, but consists of opening price, highest price, and lowest price during a time period (timeframe). For example if you use 5 minutes chart, it means every price movements within 5 minutes period are represented by 1 single bar.

EUR/USD 15 minutes Bar Chart

Open: The little horizontal line on the left is the opening price High: The top of the vertical line defines the highest price of the time period Low: The bottom of the vertical line defines the lowest price of the time period Close: The little horizontal line on the right is the closing price . 
3. Candlestick Chart : 

Candlestick charts have the same characteristics of bar charts as they provide open, high, low, and close prices within one bar, but the main difference is the ease of interpretation purpose. We can easily interpret bullish and bearish pattern from the color of their bodies.

  Candlestick bars still indicate the high-to-low range with a vertical line. However, in candlestick charting, the larger block in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or colored in, then the currency closed lower than it opened.In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price. If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled. We don’t like to use the traditional black and white candlesticks. We feel it’s easier to look at a chart that’s colored. In the chart below we simply substituted green instead of white, and red instead of black.

EUR/USD 15 minutes Candlestick Chart

MT4 :: INTRODUCTION

MetaTrader4 (MT4) is an online trading platform designed for financial institutions dealing with Forex, CFD, and Futures markets. The platform includes all necessary components for brokerage services via internet including the back office and dealing desk. Currently, over 100 brokerage companies and banks worldwide have chosen Metatrader4 to meet their high standards of business performance.

MetaTrader4 has a user-friendly front-end trading interface. It provides technical analysis, charting and Expert Advisors to help you develop your own trading strategies.

The special feature of MT4 is that you can program your own technical indicators and expert advisors using MQL4 programming language.

MetaTrader4 Forex Trading Platform :

The expert advisor is a mechanical trading system written in the MQL4 programming language called MetaQuotes Programming compiled to a program which can stay in front of the terminal instead of you and automates your trades. It can analyze the chart as any indicator does and it can modify and close the trading orders. Any expert advisor has to decide when to enter the market and when to exit. And the idea behind any expert advisor is what the entering and exiting conditions are. By using expert advisors, you eliminate the need to sit for endless hours in front of a screen watching the movements taking place in the financial markets. Instead you can use your time to do something else.

MT4 :: EXPERT ADVISOR

An expert advisor comes in a .mq4 file (source code) or from a .ex4 file (compilation from .mq4 file). Some expert advisors use custom technical indicators (another .mq4 or ex4 file).

1. INSTALL THE EXPERT ADVISOR :

A. Shutdown your Metatrader platform
B. Copy the expert advisor file into the /experts folder of your Metatrader software (Example: C:\Program Files/MetaTrader4/experts)
C. Copy the needed indicators into /experts/indicators folder of your Metatrader software (Example: C:\Program Files/MetaTrader4/experts/indicators)

2. CONFIGURE YOUR MT4 PLATFORM :

A. Go to Tools -> Options

B. Go to Expert Advisors tab and configure options as follows

3. STARTING THE EXPERT ADVISOR :

A. Open the chart of the selected pair in your Metatrader platform. To open a chart drag and drop a pair from market watch panel to work area.

B. Select the time frame. At the image below we have selected GBPUSD pair and H1 time frame

C. Double click on your expert advisor. At the image below we are going to double click "AI Grid EA v0.07".

D. You will see a dialogue with expert advisor paremeters. Click "Ok" to accept current paremeters (use "load" to load a set file).

E. Check that you see a smiling face at the top right corner of your MT4 platform. Your EA (expert advisor) is running.

How to Install, Load, Run and Edit an Expert Advisor (EA)
& Indicator On the Metatrader4 Platform

In Metatrader4 there are two types of Expert Advisor and Indicator Files. They are MQL4 and EX4 files. Either will work on the Metatrader4 platform but only the MQL4 files can be opened and edited with the MetaEditor program that comes with Metatrader4. The EX4 is the compiled program and cannot be edited. 
1. Make sure your Metatrader4 platform is closed. 
2. From a website or email download your Expert Advisor or Indicator to a folder on your computer. 
3. Locate the file, click on it to highlight it and go to Edit on the Menu bar and select copy or you can also just right mouse click on the file and select copy.
4. Click open “My Computer” and then click open C Drive, or what ever letter drive that contains your program files,then click open the Program Files folder. 

5. Locate your Metatrader4 folder and click it open. It will probably begin with the name of your forex broker. 
6. In the Program Files folder locate and open the Experts folder and paste the file in this folder if it is an Expert Advisor File. You can paste by selecting paste from your edit menu or right mouse click and select paste. If it is an Indicator file, then in the Experts folder locate and click open the Indicators folder and paste the file in that folder. 
7. You can now open the Metatrader4 platform by clicking on the “Terminal” icon located in your Metatrader4 folder.

8. Once the Metatrader4 platform is opened you can now open a chart for a currency pair by going to File on the Menu bar and choosing “New Chart”. Then choose the time frame by going to Charts on the menu  bar, then “Periodicity” and then choose the time frame you wish to view.

9. There other options to choose from in the Charts menu in order to view your chart to your liking, such as candles or bars, grid lines or not, or choosing Properties and selecting various colors.

10. Now you are ready to place the Expert Advisor and/or Indicator on the chart. Go to View on the Menu bar and choose Navigator. The Navigator window will appear. In the Navigator window expand Expert Advisors or Indicators by double clicking it. You should now see all the Expert Advisors and Indicators including the one you just inserted. You can now place it on the chart by 3 different methods. You can either double click on the indicator or right mouse click on it and choose “Attach to a Chart” or you can drag it onto the chart.

11. If you are placing and Expert Advisor continue to step #12 if an Indicator skip to #16. 
12. Once the Expert Advisor is placed on the chart, the Settings window will pop up. Here you can view the default settings and adjust them if you need to. Make sure on the Common tab you have the “Allow live trading” box checked.

13. After you have placed the Expert Advisor on the chart, in the upper right hand corner of your chart you should see a smiley face. This means the Expert Advisor is running. If you do not have a smiley face but see a frown or an x, then make sure again that under Properties, the “Allow Live Trading” box is checked. If it is and still you do not have a smiley face there is one more place to check. Go to Tools on the menu bar and choose Options. A popup will appear and select the Expert Advisors Tab. Make sure the “Enable Expert Advisors” box and “Allow Live Trading” box are both checked. Your Expert Advisor is now ready to open, modify and close trades.

14. You can always edit the Expert Advisor settings by right mouse clicking anywhere on the chart and choosing Expert Advisors and then Properties.

15. You cannot place more than one Expert Advisor on a chart. You can open up multiple charts, either for the same currency pairs or different pairs and even the same time frames or different time frames and place the same or different Expert Advisors on each chart. By running multiple Expert Advisors there can be some conflicts. Some Expert Advisors have a MagicNumber setting where other Expert Advisors and manual trades will not interfere but not all do.

16. If you are placing an Indicator on the Chart…. after placing it on the Chart the Settings window will pop up. Here you can view the default settings and adjust the settings if you need to.

17. You can always edit the Indicator settings by right mouse clicking anywhere on the chart and choosing Indicators List and a popup will appear. Highlight the Indicator you wish to view or edit its properties and click Edit. 
18. You can place multiple Indicators on one chart.

How to add custom indicators to MT4 platform (SHORT CUT) :

1. Close MT4 platform.
2. On your local disk find the folder you installed MT4 to.
3. Inside it find a folder called "experts", and within it another folder called "indicators".
4. Now, copy your custom indicators as is into the "Indicators" folder. 
5. Run MT4 platform.
6. In the upper Menu go to:"Insert" -> "Indicators" -> "Custom".
* You should be able to find there the indicator(s) you've added.