FOREx:

Lesson One
Understanding the FX Markets

The Trading Pitt 2010 1

Terms to Know:

• Currency Pair – Currency (USD, EURO) can only be bought by buying

one pair and selling an equivalent amount of the second currency.
– Ex: Buying 1 Lot (10,000 units) of EUR/USD at 1.30: 10,000
euros costs $13,000
• Foreign Exchange – Another name for the currency exchange
markets that are over the counter and trade 24 Hours/ 5.5 days a
week
• Spot Market –Buying something in the spot market means that you
in most cases take delivery in 2 days .
• Margin – Amount required by the clearing house in order to trade a
leveraged product
• Leverage – The ability to borrow or use financial products to increase
your exposure to a certain instrument. Which can increase or
decrease portfolio returns.
• Pip – The smallest increment that a currency pair can move, now
with fractional pips is equivalent to $.00001 (Yen pairs are quoted
in .001)
• Carry Trade – Buying high yielding assets by financing purchases
with borrowed low interest rate assets
• Rollover –
• Spread – Difference between the bid and ask; the immediate
• Stop Hunting – Market movements in thin conditions to trigger levels
where stop orders exist



The Trading Pitt 2010 2
Intro to
Understanding the
Forex Markets

• Hours: 6:00 PM EST Sunday to 5 PM Friday

• Participants :
– Corporations – Commercial Hedgers
– Banks – Process payments, prop desks, and
internal hedging
– Hedge Funds and Speculators – Pure
speculation, and in some cases arbitrage
when it rarely exists
• Sessions –
– New York: 8 AM – 5 PM
– London: 3 AM – 12 PM
– Australasian : 5 PM – 4 AM
• Best Times to Trade – London/New York overlap is
the most overall liquid, but really depends on the
pair your trading


The Trading Pitt 2010 3

Getting
Started
Trading

• Leverage
– 100:1
• Practicing trading with real money is important when
you get the basics
• Understanding how the fee structures work
– “Commission Free Trading” is just paying
through a wider spread
• FX is a rigged game, your going to have to work hard if
you want to succeed in it
• Undercapitalized?
– If you can’t trade at a level where a 1% profit at
first is a good amount keep working on the
demo till you have enough money
• Dangers of Overtrading
– Leverage is dangerous because it is so easy and
accessible and although the thoughts it only
takes one trade to double your money. More
The Trading Pitt 2010 4
than likely you will blow your account.
The Major Currencies
“Major Pairs”

• US Dollar “Greenback”
• Great Britain Pound “Cable”
• Swiss Franc “Swissie”
• European Monetary Union Euro “Euro/Fiber”
• Australian Dollar “Aussie”
• Japanese Yen “Yen”
• Canadian Dollar “Loonie”
• New Zealand Dollar “Kiwi”
• The major are the all the foreign currencies traded against
the US Dollar

The Trading Pitt 2010 5

Simulation 1 Practice Trading and Getting
Used to the Volatility in FX
Fundamentals vs Risk
May 20th , 2010
Regimes

The Trading Pitt 2010 6

Key Points The Australian economy at


from this time was perceived to be

the best but got dragged down
Simulation 1 with poor risk appetite

The Trading Pitt 2010 7

Traders Psych

• The importance of not trading when you do not have

an edge.
• “TRADE To Make Money, never trade to just TRADE”
• The importance of a playbook you eventually make
that over time tells you what you want to do next.
•
• Quote for Yra Harris from Inside the House of Money.
• “The worst thing you can do in a trade is try to get
back to even. I call that the “prayer trade”. I can
spot guys on the floor who have it on because they
shake back and forth, basically in prayer,
mumbling , “Oh, please God, just let it come back
to me. Let me break even.”
 What is that? Break even? That’s a loser. I’m
not in this business to break even. There’s always
opportunity in the markets, so forget breaking even.
If breaking even is your goal, you’re not trading
anymore.”
The •Trading Pitt 2010 8
•
Second Same day but now look how


Simulation currency crosses are affected

by the majors and vice versa

may 20th , 2010

The Trading Pitt 2010 9

Key Points EUR/JPY underperforms late


Simulation 2 day as the USD/JPY stays weak

The Trading Pitt 2010 10

Week Follow EUR/USD all week and


Simulation: practice trading that. It tends

to move more cleanly.

The Trading Pitt 2010 11

Analysis, • Open Practice Accounts
Comments, – MB, FXCM
Questions? • Contact info
• Questions?


The Trading Pitt 2010 12

What to Look
out for this
week:

The Trading Pitt 2010 13