History of the markets

The Forex market began in the US after the great depression and removal of the Gold standard in 1931. The Gold standard was a system whereby a country's paper currency would be valued against the price of gold. Countries would convert their paper currency for a fixed amount of gold coins and then use this to trade. Eventually, private ownership and use of gold were outlawed by the Federal Reserve, who then went onto ordering banks and individuals to return their gold coins.

 

Currency pairs

Currency pairs are traded within the forex market. The rate of the currency pair is the pairs current value, and this is calculated by its pairing with another currency. For example, USD/JPY. The base currency is the first currency, so the USD in this example. The second currency is called the quote currency which is, in this example, JPY. Once you have done your analysis and you have an idea of where the market is going to move, you would then enter with a buy or sell position. You would sell USD/JYP if you thought the dollar was going to lose strength or if you thought the YEN was going to gain strength and vice versa.

 

The most famous pairs to trade are known as the majors, and they are stated below with their trading nick-names;

                                                                                                

NZD/USD – Kiwi

GBP/USD – Cable

USD/JPY – Dollar-Yen

USD/CAD – The funds

AUD/USD – Aussie

 

Commodities

Commodities are broken down into two different categories, soft and hard. Commodities such as gold and silver are classed as hard goods and products such as sugar and cocoa are classed as soft goods. All commodities are raw products. You can buy and sell these natural products to make profits within the market. Commodities are moved by economic data. Some commodities have a huge link to currency pairs as people use gold and silver as safe-havens.

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We have stated a list of commodities for you to watch and potentially trade, depending on your experience.

 

Crude oil

Heating oil 

Natural gas

Gasoline

Gold

Silver

Platinum

Copper

 

Indexes

Indexes reflect the economies financial situation. Indexes are a group of the top performing companies with the highest share value from a country. 

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Listed below are the main indexes in which you may be familiar with.

 

BBC Global 30

FTSE 100 Index

S&P 500 

Dow Jones

CAC40

Hang Seng Index

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Trading Terminology

Below we have explained some different trading terms to help you develop your trading vocabulary;

 

PIP(s) 

In the Forex market, a pip is a number value. It's the smallest value-move a currency can make.  One pip equals 0.0001; two pips equal 0.0002, three pips equal 0.0003 and so on. The pip is the 4th number after the decimal point on all currency pairs except for the YEN pairs. On the YEN pairs, the pip is the 2nd number after the decimal point.

 

Lot Sizes 

A lot size is the value of a pip. When placing a trade, you will want each pip to be a figure, for example, £0.50 per pip. Lot sizes have the same value as money but are converted into a different figure, lot sizes are commonly used on platforms such as MetaTrader4. 

 

Spread 

The difference between the buying price and the selling price created a value known as the spread. You will notice that the broker will give you two different prices, one for buying that currency pair and one for selling the currency pair. The difference will typically be anywhere between 0.5 to 3 pips. At Project Forex, we call this the trader's tax. 

 

Leverage

When we open a trading account we will open it with a 1:30 leverage. This means that we can borrow up to 30 times our initial deposit from our broker when making investments in the markets. The broker will lend you money for investing so that you have more opportunity with what would be very small moves in a multi-trillion-dollar market. 

 

Margin 

Our broker will allow us to use our margin as a maximum on one trade. The margin gives us traders the ability to enter multiple trades at the same time without having to wait for a position to close. If you are silly with your account and are in various high pip stake trades the broker will remove you from any trade that you're in if your losses exceed the margin required. 

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Buying/Bullish 

Buying, is when you open a position on a trade you think is going to increase in value and is also known as a bullish movement.

 

Selling/Bearish 

Selling, is when you open a position on a trade that you think is going to go down in value and is also known as a bearish movement.

 

Stop Losses (SL) 

We apply stop losses so that our accounts stay healthy. Stop losses help us with managing our accounts and risk per trade. This is something that you will place on every trade you take. We advise you keep your stop loss between 40-60 pips with a value of 2% of your account size, this will keep losses to a minimum. This is in case your trades do not go as you expected them to. 

 

Take Profit (TP) 

A take profit is a line instructed to close out a trade at a profit once it hits that particular level. Applying a take profit is just as important as applying a stop loss. TP's allow us to take our well-deserved profits from the market once it hits a level we predicted it would hit. We use TP's so that we stay away from greed and to keep money management and risk/reward skills to a high level.

 

Different types of trading

Fundamental Analysis is analysing and recognising economic data released to the general public, events such as interest rate decisions etc. Fundamental traders will enter positions on a currency pair based on what information is pulled from news releases.  Fundamental traders look at the long term picture and understand which direction a currency is heading in over that period.

Technical Analysis is analysing and recognising the charts/currency pairs history. To recognise the patterns, all technical traders use things such as resistant and support levels to determine where the price will go. Once a technical trader knows all the patterns for the chart they are analysing, they will be able to trade the currency pair, commodity or Index based on their technical analysis. This is because they will be able to understand the economic effects/bias through reading the charts price patterns. 

 

Different charts

There are three different types of charts that you can trade and read the price action from. These are candlesticks, line graph, and bar charts.

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