FOREX Market

Definition of the FOREX Market

Currency Market (also referred to as the “spot” or “cash market”).
Traded in pairs (i.e. EUR/USD).

The size of your trade is based on various blocks of money called “lots.” It is measured in PIPS which also vary based on your position size.

The most liquid market in the World – over 4 trillion dollars in transactions each day.

No central exchange; most brokerage houses use an ECN to match up buyers and sellers from the quotes provided by the big banks (i.e. Chase, UBS, BOA, etc.).

Consists of markets that are not moving in the same direction, which provides a rare non-correlated opportunity.
Global Sessions: Sydney, Asia, London, and U.S.

Benefits of Forex Trading

Forex is a fantastic trending market that provides many income and wealth trading opportunities.

You don’t deal with overnight gaps because it trades 24 hours per day, 5 ½ days per week.

You can trade the currency pairs both long and short. You can start with a very small account or easily trade a very large account because of available liquidity.

It provides great purchasing power—up to 100:1. You can reduce risk and position size easier than most other markets.

If you work full time, you can look at this market at any time of the day or night and use bracketed orders so you don’t have to be present when your orders get filled.

Some new traders get overwhelmed with selecting stocks while currencies can be more simple—only 15-20 currency pairs that you generally evaluate to identify trading opportunities.

Opens on Sunday afternoon at 5pm EST.

Closes Friday afternoon at 5pm EST. 24 hours per day and 5 ½ days per week.

Most activity generally occurs during the London Session (3am EST Open).

Ideal FOREX Account Size

You can open an account with as little as $500 – $2,000 at most brokerage houses. An educated trader/investor should be aware of appropriate account size, position sizing, and risk management when trading or investing in any market.
This is also a great market for traders that have very large accounts because of its liquidity.

Types of Accounts for FOREX

(Traded through a custodial firm)
Various Entity Structures (LLC, Corp, LP, etc.)

Ideal Forex Trader

Someone that works full time and can’t be in front of the computer in the morning for day trading

Someone who has less than $10K to fund a trading account for income

Someone who has seven-figure accounts to hedge fixed income currency risk

Someone who is looking for a simple swing trading market

Someone who is looking to hedge their portfolio by having their money in other currencies/markets than the US Dollar

Novice Mistakes

Not using appropriate risk management and being over-leveraged.

Inability to choose the correct pairs to trade (often trading exotic pairs rather than “the majors”).

Misunderstanding the correlation between currency pairs and how that correlation breaks down and re-establishes itself.

Misunderstanding the impact of certain fundamental reports.

Lack of understanding market volatility and therefore setting stop losses too small or too large.

Selecting incorrect time frames and time horizons for either their account size, risk tolerance, or trading style.