http://forexpriceactions.com/Forex Basics
So you want to learn about this thing called Forex? Great! Let’s start with some Forex basics, but first let me say that I’ve designed this “mini” course to be both educational and FUN! I think the most important part of learning anything is having fun. After all, if we aren’t having fun, what’s the point?
Ok, let’s get right into it…
The Forex Market
The Forex market can be thought of as the place where all global currencies are traded. It is the single largest, and therefore most liquid, market in the world. It’s said that about $5 trillion exchanges hands every day!
The Forex market is also called the “FX market” or it’s longer version, “Foreign exchange market”. They are all interchangeable.
So why is the Forex market so popular, you ask? Aside from it being the largest, most liquid market in the world, it’s also open 24 hours a day and 5 days a week. This means you can sit and watch price tick away until your eyes bleed. Of course I don’t teach that…in fact it’s the opposite of what I teach in my
www.forexpriceactions.com Unlike the stock market, the Forex market has no central marketplace such as the NYSE. Instead, trading is conducted electronically over-the-counter (OTC). This simply means that trading is conducted between computer networks around the world, rather than one centralized exchange. The largest financial centers are London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney. As you can see, the Forex market is seriously global, hence the need for a 24 hour marketplace.
The Players
This is an important section to understand Forex basics because I find that many retail traders (you and I) forget that we are but a flea on an elephant’s behind when it comes to the scale of the Forex market. The big boys we’re about to discuss are the real “market movers” when it comes to the Forex market. Understanding more about these players will help you grasp why the Forex market moves the way it does.
Banks
The 400 lb gorillas of the Forex market. These big mamas are by far the largest players in the Forex market. Banks primarily interact with the Forex market in two capacities.
The first is by facilitating transactions for retail traders (you and I). When a bank does this they are also called a “dealer” and they facilitate client trades through a trading desk, where the bid-ask spread is their profit.
The second way banks profit from the Forex market is through speculative trading, just like you and I. Do note that banks have A LOT more resources than you and I and thus, are on a much different playing field. Having said that, we can even the playing field by using the same techniques they use, which is what I teach in my
http://forexpriceactions.comCentral Banks
While banks may be the largest player in the Forex market, central banks are arguably the most important. Central banks set the tone for how a particular currency pair will trade, also called an exchange rate regime. I’m not going to go into detail there because anything further and we’d be getting into economics. I don’t know about you, but that stuff bores me to tears, which is why I became a technical trader.
Moving on…central banks often intervene to make their currencies appreciate or depreciate. For example, a central bank may weaken its own currency by creating more of the currency, which can then be used to purchase foreign currency. In doing so the central bank effectively weakens the domestic currency thus making exports more competitive in the global market.
Ok, enough of that…I’m starting to feel my Econ101 gag reflex kicking in Just know that central banks like to muddy up the water in order to make their currencies appreciate or depreciate, so it’s usually a good idea to know which way the waters flowing.
Investment Managers and Hedge Funds
After banks, portfolio managers, pooled funds and hedge funds are the second largest players in the Forex market. Investment managers trade currencies for large accounts such as pensions. If the manager is managing an international portfolio, he/she will have to buy and sell currencies in order to trade foreign securities. Hedge funds also execute speculative currency trades.
Corporations
Corporations that engage in international trade (importing and exporting) conduct trades in the Forex market in order to pay for goods and services. An American company might buy parts from China and then sell the end product to Germany. When the American company buys from China it must convert dollars for yuan just as the German company must convert euros for dollars to purchase the end product. Every time this happens, a transaction is made in the Forex market.
Retail Traders (you and I)
Last but not least, the peons of the Forex market (proud peons at that!) We make up a very small percentage of the market compared to the other institutions. Although small in size, retail trading in the Forex market is growing at a rapid pace. In fact the Forex market is the fastest growing market at the moment for retail trading. Retail traders primarily make currency trades in two ways.
Fundamental traders make currency trades based on things like interest rate parity, inflation rates, monetary policy expectations, etc. These traders would be interested in what the central banks are doing. While it is a popular way to trade Forex, it certainly isn’t for me.
Technical traders – now we’re talkin! Technical traders typically make trades based on support and resistance, technical indicators, price patterns, etc. In
http://forexpriceactions.com I teach traders how to trade based on price action alone…no need for indicators; they just get in the way
Getting a Piece of the Pie
So we’re starting to grasp some Forex basics, great! The next question you’re liking asking yourself is, how the heck can I get a piece of this $5 trillion pie?
When I first heard about Forex I remember thinking, how am I supposed to compete with banking giants like Goldman Sachs and JP Morgan. The great news is, you don’t have to compete with these guys to make substantial money in the Forex market. With the advent of the internet and trading platformS such as Metatrader, you can join these guys while still in your pajamas sipping on your favorite coffee; or tea if you prefer.
Forex vs Stocks: The Ultimate Showdown
Sorry to disappoint, but there’s no showdown…it’s more like a back-alley beat down. I’m a Forex trader, what’d you expect? But really, when it comes to Forex vs stocks there isn’t a ton of competition.
I digress, stocks still have their place in the world. Heck, I still invest in stocks every month, but when it comes to trading I choose Forex over the stock market every day of the week.
Here are the top 5 reasons why I like Forex over the stock market.
#1 Opportunity
Market Hours and Overlap
Being able to trade the Forex market 24 hours a day and 5 days a week can be a great advantage over the stock market, which is only open 8 hours a day and 5 days a week. The real advantage here is not being able to trade around the clock, but rather having 5 days of trading where there are no opening gaps in the morning. This means you can hold a trade overnight in the Forex market without worrying about a huge gap in the morning, which can and does happen in the stock market.
While the ‘around the clock’ trading ability of the Forex market can be a major advantage, to the untrained Forex trader it can be an absolute curse. It can easily turn into long nights of staring at your screen watching every tick, biting your nails with anxiety. Trust me, I’ve been there!
I developed my forex price action trading course to help traders avoid falling into this all too common trap.
#2 Simplicity
Major Pairs Make Trading Simpler
When it comes to Forex vs stocks and simplicity, there’s no comparison. This is because the eight major currency pairs account for the majority of market volume. This is compared to the more than 2,000 listings on the NYSE alone!
This allows traders to focus on fewer trading instruments while still providing plenty of trade setups.
#3 Liquidity
Money Movement: Forex vs. Stock Market
When comparing Forex vs stocks, the volume traded in the Forex market is substantially higher than that of the stock market. This means that under normal circumstances orders are filled with ease and there isn’t a large bid-ask spread. Now, unless you’re trading Warren Buffet’s bankroll you aren’t going to have an issue getting your order filled in terms of market liquidity. However, this does mean that the bid-ask spread will tend to be lower in the Forex market than the stock market. This is critical especially as your position size increases
Being able to get in and out of the Forex market without worry is a huge advantage over the stock market. Take a look at the image above to get a feel for the massive discrepancy in liquidity between the Forex market and stock market.
#4 Market Growth
Heading in Opposite Directions
Yet another disparity between Forex vs stocks where Forex takes the day. The volume in each market is moving to opposite ends of the spectrum. In other words, volume in the Forex market is flourishing while volume in the stock market is slowing. Forex has been growing steadily for the past 15 years, while the stock market has returned to pre-2006 volume.
#5 Profit Potential
Forex vs Stocks
Leverage in the Forex market can turn small moves into large profits, and large losses if you aren’t careful. This is why having a coach to teach you how to trade price action is critical to your success as a trader. Take a look at the graph below. This shows two $2,500 investments – one a stock investment in Tesla Motors, Inc. and the other in AUD/USD utilizing 20:1 leverage.
In the image above, we can see that Tesla rose by 234%, which is extraordinary, while the AUD/USD currency pair changed just 11%. However, due to leverage in the Forex market the profit was the same between the two instruments.
As stated above, the leverage in the Forex market can be a great asset, but only if you know how to use it properly. Far too often I hear about traders abusing leverage which usually leads to losing more money than they bargained for.
#6 Long or Short (Buy or Sell)
You Choose
Anyone who knows me will tell you that I like to save the best for last. This is by FAR my favorite aspect of trading Forex vs stocks. The ability to make money regardless of which way a particular Forex currency pair is trending is a great asset to the Forex market. What this means is that while you may need 20 stocks to make up a decent ‘watch list’, you may only need 10 currency pairs. This is because, due to the fact that Forex currency pairs can be traded long or short, they essentially give you twice as many trade setups as a single stock in the stock market.
While you can go short in some cases in the stock market, you’ll need to jump through a few hoops with your broker to do so. Going short on a stock is also viewed as unethical by many, since you are essentially hoping that a company under performS. An extreme example of this was the shorting that took place to Lehman Brother’s stock in 2008.
When it comes to the Forex market, the debate of whether to go long or short is irrelevant; the only thing that matters is finding the right price action trading strategies to trade.
In closing, when it comes to Forex vs stocks I think Forex beats the stock market hands down. I’m obviously a little biased being a Forex trader, but when you compare the advantages over disadvantages I think you’ll find that Forex wins out. Whether you decide to trade Forex or the stock market, I strongly urge you to find an experienced coach who is actually trading using the strategies he/she teaches.
To your trading success!
Forex Market Hours
The Forex market, unlike other financial markets is a 24 hour affair. That’s right, you can trade in and out of the Forex market day or night between the Forex market hours of 5pm Sunday (EST) to 5pm Friday (EST).
While this provides a great opportunity for traders to take advantage of the world market, it does have its drawbacks.
In this lesson we’ll take a look at the various trading sessions that make up the Forex market as well as the advantages and disadvantages that come with trading a 24 hour market.
The 24 Hour Market
At this point you may be asking, if Forex is indeed a 24 hour market, why can I only trade Monday through Friday?
This brings me to a very common misconception in the Forex world – the idea that the market closes on weekends. In truth, the Forex market never closes. The only thing that closes is the ability for retail traders to participate.
What is a retail trader, you ask? Put simply, a retail trader is someone who buys or sells for their personal account, and not for another company or organization. So unless you are an institutional trader, you are a retail trader.
So although the ability for retail traders to participate is halted over the weekends, the Forex market as a currency exchange is alive and well. This is what creates so called “gaps” when the market opens at the beginning of the week. It’s simply the result of your broker updating their charts from last week’s price action to the current price action at the start of the trading week.
We’ll get into gaps in a later lesson. For now just know that the market never closes due to the needs of international trade, as well as the needs of central banks and global industries to conduct business.
There are various sessions that occur around the world which make up the Forex market hours each day. Let’s take a look at those market sessions.
Forex Market Sessions
Because this is a 24 hour market, there is always at least one active trading session. There are even times when these sessions overlap.
The easiest way to visualize how these Forex market sessions operate is to imagine the earth relative to the sun. Wherever the sun is shining, the Forex market is open. This is of course a simplified way of thinking about it, but it does help to visualize the Forex trading hours in this way.
The chart below shows the different Forex market sessions in Greenwich Mean Time (GMT).
Here is a breakdown of the chart above in Eastern Standard Time:
• New York opens at 8:00 am to 5:00 pm EST
• Tokyo opens at 7:00 pm to 4:00 am EST
• Sydney opens at 5:00 pm to 2:00 am EST
• London opens at 3:00 am to 12:00 noon EST
As you can see from the chart above, there are several market sessions which overlap. The most obvious, and the most heavily traded, is the London / New York overlap. This is when liquidity is at its highest as many Forex market participants prefer trading during this time.
Which Session is the Best to Trade?
One of the most common questions among Forex traders is, when is the best time to trade? Like most things, it’s all relative to your trading style as well as your lifestyle. Obviously if you’re located in a part of the world where the London / New York session overlap occurs at 3 AM, this may not be the most advantageous for your lifestyle.
The great thing about trading price action on the higher time frames is that market hours and market sessions don’t particularly matter. For example, if you spot a bullish pin bar on the daily time frame, you would simply set your pending order and let the market decide what becomes of it. It doesn’t particularly matter which session triggers the order.
Advantages and Disadvantages
Like most things, there are advantages and disadvantages to the Forex market being a 24 hour market. I will note, however, that the disadvantages typically reign true with those just starting out. In fact, I feel confident in saying that the disadvantages below are what make the Forex market one of the more challenging markets to conquer as a beginning trader.
Let’s start with the advantages:
• The 24 hour market offers the ability to trade at any time of the day regardless of your location in the world
• No market closings during the week means very few gaps from one day to the next
• Because it's a 24 hour global market, there is much greater liquidity than that of other financial markets
Now for some disadvantages to Forex market hours:
• The 24 hour nature of the Forex market can lead to traders over-thinking their positions
• The Forex market requires more self-discipline to take breaks away from trading due to the market never closing
One thing that becomes immediately apparent to new traders is the Forex market’s ability to draw them in for hours at a time. Many new traders find it hard to take breaks from the market because they feel the need to monitor their positions at all times.
This is one of the more destructive habits of new traders and is enabled by the fact that the Forex market never closes.
The good news is that these disadvantages are easily cured by a well-structured Forex trading course, discipline and no small amount of practice.
Summary
I hope this lesson has shed some light on the subject of Forex market hours as well as the various market sessions that make up a 24 hour period.
Here are a few key points to keep in mind:
• The Forex market is a 24 hour market that technically never closes
• Retail traders are those who trade for their personal account
• Retail trading hours in the Forex market are between 5pm EST on Sunday until 5pm EST Friday
• There are 4 market sessions that make up the Forex market hours - London, New York, Sydney and Tokyo
Please leave your comments or questions below.
I look forward to hearing from you.
Topic: ONLINE FOREX TRADING (Read 1028 times)
