Beginner Forex book

fbs.com

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Table OF CONTENTS
Beginner Guide to Forex 3
1. What is Forex? 4
2. Who trades at Forex market? 5
3. Why become a Forex trader? 6
4. When one can trade on Forex? 8
5. How to get started? 8
6. What instruments can I trade? 10
7. How are the price moves measured? 11
Calculating profits 12
8. What is spread? 14
9. How to predict where exchange rates will go 15
10. How to use economic calendar? 17
11. How to open a trading account at FBS 19
How to deposit money on your account 20
12. The interface of MT4 21
13. How to open/modify/close a trade in MT? 24
How to modify an order? 27
How to close an order? 28
14. What is swap? 29
15. Risk management 30
16. Money management 32
17. Choosing the size of a trade 34
18. Psychology of Forex trader 36
Getting in the right mind-set to trade successfully 36
Dealing with losses 37
Becoming psychologically strong 37
Learn more about Forex at FBS! 39
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Beginner Forex book
You heard the word ‘Forex’, but have only a vague idea of what
it means? The time has come to find out. Read the short tips
below to learn what is the currency market and how to make
money on it.

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1. What is Forex?
Forex, FX – short for ‘foreign exchange’ – is trading currencies
of different countries against each other. Forex is one of the
largest global financial markets for trading various currencies.
It assists international trade and investments via foreign ex-
change transactions. In 2016 daily FX volume accounted for
$5.1, according to data from the Bank of International Settle-
ments (BIS).

Forex transactions involve two currencies, which form a so-

called currency pair. One currency is bought, while the other is
sold. Consider the EUR/USD currency pair. If you buy this pair,
you will be buying euros and selling dollars. If you sell this pair,
you will be selling euros and buying dollars. If buying of the cur-
rency pair exceeds selling, the price goes up. If selling exceeds
buying, the price goes down.

The decision to buy or sell the currency pair depends on your

expectations of the future price. If you think that EUR/USD will
rise, you buy the pair or, in other words, open a long position
on it. If you think that the EUR/USD will fall, you sell the pair
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 or, as traders say, open a short position on this pair. As some
time passes and the price of EUR/USD changes, you close the
position and get the profit if the price changed in line with your
expectations. If the price moved in the opposite way, you have
a loss on this transaction. The amount of profit depends on
how much the rate of this currency pair has increased during
this time and on the size of your position.

2. Who trades at Forex market?

Some trade to make profits, others trade to hedge their risks and
others simply need foreign currency to pay for goods and services.

FX market is decentralized. In other words, there is no physical loca-

tion where investors go to trade currencies. FX traders can use the
Internet to check the quotes of various currency pairs from different
dealers. Financial centers around the world – London, New York,
Tokyo, Hong Kong and Singapore – function as anchors of trading
between a wide range of different types of buyers and sellers.

The main participants of trading are commercial banks, so currency

quotes are set at the interbank market. Apart from large commer-
cial and central banks and multinational companies, there are also
many risk-seeking investors who are always ready to engage in
different sorts of speculations. Among them are typical retail trad-
ers – individuals, who trade on the daily/weekly basis to snatch lots
of money. Many of them scrutinize economic and political news,
statistical releases and public engagements of influential persons
to decipher the future movement of currency’s prices. Others rely on
technical indicators without paying any heed to what is happening
in the world of finances.
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PICTURE 1. Forex market participants

You as well are able to become a Forex trader and join this
class of currency entrepreneurs. You can obtain access to the
interbank market through a FX broker (see 5).

3. Why become a Forex trader?

• You can get extremely big returns in comparison with your initial deposit.
• You have your own business and depend only on yourself.
• You don’t need large amount of money. In fact, you can start with
only 1 USD.
• You are free to manage you time as you wish.
• You are able to use leverage provided by a broker and trade with big-
ger amounts of money than you have on your deposit.
• You enjoy lower trading costs than in other financial markets.
• You get a vast knowledge and experience in finance.

One of the main advantages of Forex market is high liquidity.

There is a lot of money fluctuating in this market – more than
5.3 trillion dollars a day. As a result, it takes fractions of a sec-
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 ond to open and close trading positions. In addition, exchange
rates usually move very lively, and you can profit on the moves
of the price anytime you like.

All trading is done through the Internet. There is no physical

location, where investors go to trade currencies. All the curren-
cy trading we will do, will be done online. You will just need to
download special software from the website of a broker or use
a web trading terminal. Trading terminal will connect you to
real-time quotes of various currencies.

Successful Forex trading can be a source of immense income.

There are a lot of websites that claim to double or triple their
money every month. However, in practice professional traders
return 20-80% a month, so a return of 20-30% is both a realistic
and a reasonable expectation. Remember that currency trading
is like any investment vehicle, and having realistic expectations
for what you can make is going to set you up to succeed more
than thinking that you can get rich quickly with only a $50 in-
vestment.

Please remember that Forex trading is very risky. Forex should

be traded with only risk capital. In other words, trade with mon-
ey you can afford to lose. At the same time, there is no need
to be afraid of the risk. As trader, you have to take reasonable
risk, which is exceeded by potential reward, and make efforts to
decrease risk.

4. When one can trade on Forex?

FX market is open 24 hours a day, 5 days a week. Although
currencies are traded non-stop around-the-clock, market play-
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 ers distinguish trading sessions corresponding to the time
during which stock markets are open in a particular region of
the world. Usually trade volume is higher at the intersection
of these sessions. FX day always begins in Australia and New
Zealand, and then spreads to Asia. After that it’s the turn of Eu-
rope and, finally, the United States and Canada join in.

You can trade anytime you wish during the working week. You
can open your currency position for a couple of hours or even
less (intraday trading) or for a couple of days (long-term trad-
ing) – just as you see fit.

TABLE 1. Forex trading sessions

Summer (aprox. April - October) Winter (aprox. October - April)

Australia 22:00–07:00 21:00–06:00
Japan 23:00–08:00 23:00–08:00
UK 07:00–16:00 08:00–17:00
USA 12:00–21:00 13:00–22:00

5. How to get started?

FX trading is typically done through brokers. Brokers are com-
panies providing individuals like you with access to the in ter-
bank market where all the trading takes place. In other
words, a broker gives you a special software program, where
you can see live currency quotes and are able to place orders
to  buy/sell currencies with just a few clicks. When you de-
cide to stop your trade, the broker closes the position on the
interbank currency market and credits your account with the
gain or loss. It will take you only a couple of minutes to open
an account with the Forex broker of your choice and begin
your trading career. All you need for that is an internet access.
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As a reward for the services, a trader pays to his broker spread
or commission.

Trading platforms for FX are called Meta Trader 4 and 5

(MT4 and MT5) and it can be easily downloaded from here.
FBS offers such software for different operating systems, in-
cluding the ones for mobile devices. To buy or sell currency
pairs, you need to place orders — give special commands to
your broker in MT4.

You may see the example of you trading terminal window below:

PICTURE 2.
A print screen
from MT4

You don’t have to spend your own money on Forex right

away. Most brokers offer practice demo accounts, which will
let you test out the Forex market with virtual money using real
market data. Using a demo account is a good way to learn
how to trade. You will be able to practice by pressing the but-
tons and grasp everything much faster.

In addition, pay attention to the fact that the minimum real de-
posit at FBS starts from just $1. This means that you can start
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 trading with small amounts of money and thus limit your risks,
while still having a chance to reap profits!

6. What instruments can I trade?

Currencies on the FX market are always traded in pairs. In order
to find out the relative value of one currency, you need another
currency to compare. When you buy one currency, you automat-
ically sell another currency.

Currency pairs in Forex are given in abbreviations. For instance,

EUR/USD stands for the euro versus the US dollar, and USD/
JPY stands for the US dollar versus the Japanese yen. If you
buy EUR/USD, you are buying euros and selling dollars. If you
sell EUR/USD, you are selling euros and buying dollars.

The first currency in the pair is called the BASE CURRENCY,

while the second currency is called the QUOTE OR COUNTER
CURRENCY. The price of the base currency is always calculat-
ed in units of the quote currency.

For example, the exchange rate for the EUR/USD pair is 1.1000.
It means that a euro costs 1.1000 US dollar (one dollar and 10
cents).

Currency pairs are usually divided into majors, crosses, and ex-
otic pairs. All the MAJOR PAIRS include the US dollar and are
very popular among the traders: EUR/USD, GBP/USD, USD/JPY,
USD/CHF, AUD/USD etc.

CROSSES consist of two popular currencies, but do not

include the US dollar. The most common crosses include
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 the euro, the yen, and the British pound: EUR/GBP, EUR/JPY,
GBP/JPY, EUR/AUD etc.

EXOTIC CURRENCY PAIRS consist of one major currency and

one currency, representing the developing (Brazil, Mexico, India
etc.) or small (Sweden, Norway etc.) economy. Exotics are rare-
ly traded on Forex and usually have less attractive trading con-
ditions.

In addition to currency pairs, you can also trade METALS AND

CFD (contracts for difference). The CFD instrument is an easy
way to trade indices, shares and other assets without physical-
ly owning them or paying for them.

CRYPTOCURRENCIES represent the latest addition

to trading terminals. These are digital currencies designed
to work as a medium of exchange using cryptography to se-
cure the transactions, to control the creation of new coins,
and to verify the transfer of assets. Traders can trade such
cryptocurrencies as Bitcoin, Ethereum and others.

7. How are the price moves measured?

Forex «language» has such important words as pip and lot.
These are the two the most essential things you need to know
before trading in Forex market. Without them, you simply won’t
be able to define the size of your position and calculate your
potential profits and losses. So, let us sort it out before your
pockets got drained.

On Forex market the value of a currency is given in pips.

PIP is an acronym of “Percentage in Point”. It represents
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the smallest change an exchange rate can make. Pip is the
smallest amount by which a currency quote can change.
It  is the last decimal of a price/quotation. For example,
for EUR/USD a pip is the fourth decimal place – $0.0001;
for currency pairs including the Japanese yen like USD/JPY,
it is the second decimal place ($0.01). If EUR/USD changed
from 1.0800 to 1.0805, this would be a change of 5 pips.
If USD/JPY changed from 120.00 to 120.03, this would be
a change of 3 pips.

Exchange rates are usually quoted to 5 figures. The first three

digits of the quote are called the big figure.

PICTURE 3. Currency quotes

Note that some Forex brokers also count the 5th and
the 3rd decimal places respectively. They are called «pipettes»
and make the spread calculation more flexible.

Calculating profits
If you entered EUR/USD long at 1.0500 and prices moved high-
er to 1.0550, it means that you made 50 pips. There is a simple
formula for this: 1 pip in the decimal form / the current exchange
rate of the quote currency to the US Dollar = value per pip. In our
case: 0.0001/1 = 0.0001 USD. It means that you will get this sum
for every pip of your profitable trade. As you can see is not a large
sum of money. It’s because it is the value of a pip per 1 unit, but
traders operate with a bigger number of units — so called lots.

Historically spot Forex trading is only available in specific

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amounts of base currency called lots. A STANDARD LOT SIZE
equals to 100,000 units of a base currency. Later on, when Forex
market opened for traders with smaller capital. You may come
across such terms as «mini» and «micro» lots.

Lot Number of Units

Standard 100,000
Mini 10,000
Micro 1,000

Given all mentioned above, a VALUE OF 1 PIP is always dif-

ferent for you. It depends on the pair you trade and the size
of your position in lots. Let’s see how to calculate it.

So, if you open a long trade with one standard lot on EUR/USD,
you will be buying 100,000 units. In this case, your profit will
be not 0.0001 USD for 1 pip the price goes in your favor, but
0.0001 USD *(multiplied) 100,000 which is 10 USD.

If you earned a profit of 50 pips trading 1 standard lot of EUR/

USD, you profit will be 50*$10 = $500.

You should remember that the US Dollar is a quote currency

in many pairs (EUR/USD, GBP/USD etc.). It means that the ex-
change rate of the quote currency to USD equals to 1. For such
pairs one pip will always cost about $10 when we trade
a 100 000-unit contract (1 standard lot):

100 000 * 0.0001 / 1 = $10 (PIP VALUE FOR EUR/USD)

For the pairs where the US Dollar is a base currency (USD/CHF,

USD/CAD), pip value depends on the exchange rate:

100 000 * 0.0001 / 1.0195 = $9.8 (PIP VALUE FOR USD/CHF)

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 For the pairs that include the Japanese yen the pip value is cal-
culated as follows:

100 000 * 0.01 / 120.65 = $8,28 (PIP VALUE FOR USD/JPY)

8. What is spread?
There are 2 types of currency prices at Forex are Bid and Ask.
The price we pay to buy the pair is called Ask. It is always
slightly above the market price. The price, at which we sell
the pair on Forex, is called Bid. It is always slightly below the
market price.

The price we see on the chart is always a Bid price. Later

on, we will find out how to check the Ask price in our trad-
ing platform. Ask price is always higher than the Bid price
by a few pips. The difference between these two prices is called
spread. Spread is commission we pay to our broker for every
transaction. You’ve probably faced a similar logic in a bank ex-
changer: rates are always different for sellers and buyers.

SPREAD = ASK – BID

For example, the EUR/USD Bid/Ask currency rates are

1.1250/1.1251. You will buy the pair at the higher Ask price
of 1.1251 and sell it at the lower Bid price of 1.1250. This rep-
resents a spread of 1 pip.

The more popular is the currency pair, the smaller is the spread.
For example, spread for EUR/USD transaction is usually very
small or, as traders say, tight. Note that the cost of spread
on Forex is usually negligible in comparison with the expenses
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 on the stock or options markets. As spread is quoted in pips,
a trader can easily calculate the cost of every trade by multiply-
ing the spread in pips by the value of 1 pip.

9. How to predict where exchange rates will go?

As in any market, in FX market prices (exchange rates) are driv-
en by supply and demand:

• If buyers exceed sellers, prices go up.

• If sellers outnumber buyers, prices go down.

There are many different factors which influence supply & de-
mand for a particular currency and, consequently, its exchange
rate vs. other currencies. For example, national economic per-
formance matters a lot. If the euro zone’s GDP is higher than
expected, with all things equal the euro will appreciate versus
its counterparts and you can make a profit buying EUR/USD.
You may learn about all important events from our economic
calendar (see 10).

Moreover, there are so called technical tools & indicators. When

you see a currency pair chart in your trading terminal, it’s as-
sumed that this chart reflects all the information available to
the market. As a result, you can use the previous price action
to foresee the future. According to this concept, previous highs
and lows represent important levels where a currency pair may
linger and reverse. If such level is breached, a big move may
follow and a big move means good profit opportunities. More-
over, you will be able to identify trends – rising, descending
and sideways – and open your positions in direction of a trend
getting profit.
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 To sum up, to make a good trading decision you need to per-
form market analysis. There are 2 main types of Forex market
analysis: technical and fundamental.

Some traders consider themselves to be «TECHNICAL

TRADERS». They rely on the price movement patterns and
technical tools in their analysis and don’t pay much attention
to the economic news flow. The only thing that matters, accord-
ing to them, is the price of the currency/financial asset. Other
things are just distractors.

Another team of traders disagrees with these «technicians» and

advocates the FUNDAMENTAL WAY OF MARKET ANALYSIS.
These traders scrutinize macroeconomic releases and news in
order to unravel the future direction of the market – they are the
adherers of fundamental analysis.

The first group of people is generally made of short-term day

traders who take positions for a day, several hours, minutes,
or even seconds. Fundamental traders act more strategically.
They prefer holding positions for days, weeks, or even months.

TABLE 2. Comparison of technical and fundamental analysis (pt.1)

Technical Analysis Fundamental Analysis

Definition Uses price movements them- Explains which fundamental (economic) factors
selves to predict future price caused the price moves seen on the chart and
movements. what factors will determine the price movements
in future.
Source of Data Price charts Economic releases, news events
Entry Signals Price formations and technical Buy (sell) when the asset becomes under(over)
indicator signals valued
Type of Trader Short-term day traders Usually long-term position traders

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TABLE 2. Comparison of technical and fundamental analysis (pt. 2)

Technical Analysis Fundamental Analysis

Time Horizon Position is held for days, Position is held for days, weeks, months
hours, minutes, seconds
Main Concepts Dow theory, support & resis- Comparison of the actual economic figures with
tance, price patterns the expected/historical readings

Both fundamental and technical analysis have their advantages

and drawbacks, so it’s best to combine these 2 methods. You
can learn more about these things when you get started. FBS
analytics will be very helpful for this purpose.

10. How to use economic calendar?

Fundamental factors are not an abstract concept. Traders face
them daily in a form of economic news, published in the eco-
nomic calendar.

Let’s have a look at the economic calendar. For each date, you
can see a list of scheduled economic releases corresponding
one of the major Forex currencies. Pay attention to the release
time: make sure that you have made adjustments for your time
zone. You can see that all events have different impact: the
higher this impact is, the stronger move of the market is ex-
pected, so you can focus on the most important events. Most
news in the calendar represent economic indicators and have
numerical values. The previous reading is available in advance.
The forecast is the medium forecast of 20-240 economists sur-
veyed by big agencies like Bloomberg, Reuters, etc. The actual
reading is the reading published by the official source (the na-
tion’s statistics agency or an analytical center). For most indi-
cators, if the actual reading is higher than the forecast one, it’s
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positive for the currency in question. Unemployment indicators
are the exception: for them the lower the reading, the better for
the currency.

PICTIRE 4.
Economic calendar
at fbs.com

By the way, there are different ways to use the economic cal-
endar. Some market players trade “the news”. It means that
they open positions in accordance with their expectations for
a change in economic indicators (for example, eurozone GDP
is expected to improve – we buy the euro). Others, on the con-
trary, avoid the news as trading them is associated with risks of
too rapid price movements. Such traders prefer to wait until the
market “digests” the news and enter the already shaped trend.
No matter what strategy you choose, we strongly recommend
you following the news in order to be aware of the market mov-
ing impulses. Some data releases increase volatility and cause
sudden moves on the market. The best example is the US non-
farm payrolls (NFP). The release of this indicator may lead to an
unexpected closure of your position under a stop-loss order.

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11. How to open a trading account at FBS
The process of opening an account at FBS is simple.

1. Visit the website fbs.com.

2. Click the “Open an account” button in the top right corner of the web-
site. You’ll need to go through the registration procedure and get
a personal area.
3. You can register via a social network or enter the data required for ac-
count registration manually.
Let’s go through the second option. Firstly, you will need to choose
an ACCOUNT TYPE. FBS offers a variety of account types. If you are
a newbie, choose cent or micro account to trade with smaller amounts
of money as you get to know the market. If you already have Forex
trading experience, you might want to choose standard or unlimited
account. Zero spread account suits those who can’t or wouldn’t like
to pay spread. Instead these traders pay commission from $20 for
a trade. In order to find out more about the account types, check the
«Trading» section of FBS website.
Next you have to set the currency of your account and fill in your full
name, email and mobile number. Have a look at FBS customer agree-
ment. Make sure that you read through it carefully.
When you read all the information, click that you accept the customer
agreement and then press the «Open an account» button.
4. Congratulations! Your registration is finished. The system has gen-
erated for you a temporary password. We strongly recommend you
to change it and create your own password.
Type in the new password and press «Save password». You will see
your account information. Make sure you carefully save your pass-
words and keep them in a safe place. Note that you will need to enter
your account number, trading password and trading server to Meta
Trader 4 to start trading.
5. Check your email. There will be a registration email. Follow the link
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 in this letter in order to confirm your email address and complete the
registration. To become able to withdraw money from your account,
you need to verify your profile in a PERSONAL AREA you got at FBS
website.

How to deposit money on your account

You can deposit money on your account in your Personal Area.
Have a look at «Financial operations» section. Choose the
account number in the drop-down menu, the payment system,
specify the amount of money you want to add to this account
and choose the currency. Then press «Confirm». Withdrawals
and internal transfers are done in the same fashion.

You can also choose «Deposit funds» option here and look
through the list of payment system and their options. You will
be able to monitor the status of your financial requests in the
box on the right.

PICTURE 5. A view of a trader’s personal area

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 12. The interface of MT4
In order to login into the trading terminal, press «File» — «Login
to Trade Account». Enter your account number, password and
server name in the box. Check your «Connection status» in the
lower right corner. If you see these green&blue columns and
the speed of your Internet connection, it means that you are
connected to the server and able to trade.

PICTURE 6. MT4 interface

At the top, there’s the main menu, where all commands and
functions are represented.

Below you will see 4 toolbars, which are built into MT4: «Stan-
dard», «Charts», «Line Studies», and «Timeframes». The tool-
bars are customizable, you can manage them by pressing View
— Toolbars.

To the left from the chart there is a Market Watch tool. It con-
tains the list of the currency quotes. If you don’t see there the
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currency pair you need, point the cursor bar at the window,
right-click and press «Show All». As a result, you’ll see all trade
instruments provided by the broker.

To open a new chart of a currency pair, right-click on the nec-

essary trading instrument in the «Market Watch» window and
choose «Chart Window». Another way to do this is to left-
click at this pair in the «Market Watch» window and then drag
it to the chart window without releasing the click. You can also
press File — New Chart or click on the icon («Create a new
chart»).

All your open accounts, advisors and indicators are collected

in the «Navigator» window. You can easily control the key com-
ponents of your trade here.

At the bottom of the screen you can see the «Terminal» panel.
It shows the amount of money you have on our account and
how much money we’ve used on your trades. You can also
modify your positions and review your trade history here.

Choose «Account history» tab at the bottom of the terminal.

Right-click in the terminal window and choose «All history».
You can also request your account history for any particular
period.

Price charts consume the biggest part of the screen. Charts

are used to perform market analysis, using various technical
tools. You can add indicators, linear tools, figures and text by
pressing «Insert» button in the main menu and choosing the
element you need.

By default, only Bid price is reflected on the chart in Meta Trad-

er. To see the ask price, choose «Charts» --> «Properties» in the
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program menu or press F8 key on your keyboard. In the opened
window choose tab «Common» and put a check for «Show Ask
line» option. Then click OK.

It is better to enlarge the chart you are currently analyzing. You

can also customize the color scheme of every chart (right-click
on the chart — «Properties»). You can choose the predefined
color diagrams or set you own color scheme. If you want
to save the scheme you’ve set and use it for some other charts,
press «Charts» — «Template» — «Save template». Then, when
you open a new chart, simply press «Charts» — «Template» –
«Load template».

There are 3 different chart types:

1. Line chart. It reflects dynamics of an asset’s closing prices.

2. Bar chart. Consists of vertical columns. Highest and lowest points
are the maximum and minimum prices of the period. Horizontal lines
to the left and to the right mark opening and closing prices.
3. Japanese candlesticks. The most popular chart type among the trad-
ers that is considered to be the most user-friendly type as well. Japa-
nese candlesticks show the opening, the closing, the highest and the
lowest price of a period.

PICTURE 7.
Structure of a Japanese
candlestick

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 The most popular colors for candlesticks are green and red.
For the green candle, the closing price is above the opening
price (bullish candle). For the red candle, the closing price is be-
low the opening price (bearish candle). The wicks show the
highs and lows. Candlestick is a quick and simple way to un-
derstand what the market was doing during the defined time
period.

Each candlestick represents a designated time period. If we

switch to M30, each small candlestick represents 30 minutes
of price movement. On the H4 chart, each candle represents
a 4-hour price movement.

13. How to open/modify/close a trade in MT?

If you know what currency pair you want to buy or sell, go to the
trading terminal to open you trade. To do this, you need to place
orders – give special commands to your broker in Meta Trader.

How to open an order?

There are several ways to open a trading order:

1. Choose «Tools» – «New order» in the program menu.

2. Right-click on the chart; go into «Trading» – «New order».
3. Double-click on the name of the trading instrument in the «Market
Watch» window.
4. Click on the «New Order» button on the toolbar.
5. Press F9 key on the keyboard.

After you execute one of the options listed above, an order box
will open. You will need to fill in the following fields.

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PICTURE 8. A new order window in MT4

At the very beginning, check the SYMBOL. Choose from

the drop-down list (this will automatically be set to the sym-
bol on the active chart). A corresponding tick chart appears
in the left pane.

The next is trading VOLUME in terms of lot size. Remem-

ber we talked about lots (see 7)? 1.0 is equal to 1 lot,
or 100,000 units. Many traders select smaller volumes.

Now it’s time to set the STOP LOSS and TAKE PROFIT. These
fields are blank by default. You can enter this information right
away or later or choose not set these levels at all.

STOP LOSS (SL) is an exchange rate at which your trade will

be automatically closed if the price goes in an adverse direc-
tion. Thus, SL limits your loss and eliminates the anxiety every
trader inevitably faces while being in a losing trade without
a plan. It’s necessary to understand that no trading system will
bring profit on every trade, and losses are natural. Successful
risk management means that losses should be minimized.
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Stop loss order can be an efficient solution for that. For exam-
ple, you enter a stop order 50 pips away from your entry point.
As soon as the market moved 50 pips against you, your stop
order would automatically close you out of that trade protect-
ing you from losing more than 50 pips.

If you’ve decided to use a stop loss order, it’s very import-

ant to find a good place for it. If the stop order is too close
to the current price, there’s a risk that the volatile price will
hit this order during a false move and then go in the direction
you’ve expected it to, so you’ll lose money and earn nothing.
If the stop order is too far from the current price, a trader may
be vulnerable for a big loss in case the market reverses con-
trary to  his expectations.

TAKE PROFIT (TP) is an exchange rate where your trade will

be automatically closed if the price goes in your favor. In other
words, it’s your profit target. If stop loss and take profit values
are set, they will appear on the chart as horizontal lines at the
corresponding price levels, making it easy for you to moni-
tor open trades. If SL and TP levels were set too close to the
current price, you will see an error message: «Incorrect S/L
or T/P». You will need to move the levels farther from the cur-
rent price and repeat the request.

The next important field is Type. There are 2 types of orders

– market orders and pending orders. The main difference be-
tween these 2 types is that market orders are automatically
opened at the current market price, while pending orders can
be set for a specific price in future.

If you choose MARKET EXECUTION, your trade will open

as soon as you hit the button «Sell by market» or «Buy by mar-
ket». If you choose a PENDING ORDER option, you will be able
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to choose entry levels in advance. In this case, the trade will
automatically open once the price level that you have chosen
is reached, and you won’t need to be in front of the monitor
when it happens.

There are several types of pending orders. If you think that the
price of the currency pair will rise and then reverse to the down-
side, place SELL LIMIT above the current price. If you expect
the currency pair to decline and then reverse to the upside,
place BUY LIMIT below the current price. If you think that
selling will intensify once the price breaks a certain level on the
downside, place SELL STOP below the current price. If you
expect that buying will intensify once the price breaks a certain
level on the upside, place Buy Stop above the current price. Fill
in the entry price for the trade in the «At price» box. Open price
you set must differ from market price by at least 20 points.
In the «Expiry» enter the date and time at which the order will
expire. The order cannot expire sooner than after 10 minutes.
Click on «Place» to submit the order.

If «Sell» and «Buy» buttons are inactive, it means that you have
chosen an incorrect order volume for this account type. Please
check your settings for order volume and compare them to the
trading conditions stated on our website.

The open order can be viewed in the Terminal window by click-

ing on the Trade tab.

How to modify an order?

After the order if opened, you can add a protective stop loss order
and/or a take profit (profit target) order. To modify an order this
way, you need to highlight the trade in the «Trade» tab of the Ter-
minal and then right-click and select «Modify or Delete Order».
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A window opens where you can manually specify stop loss
and/or take profit levels. The «Copy As» buttons can be clicked
to fill the stop loss and take profit fields with the current price.
Then you may change these prices, so that they would repre-
sent the desired stop loss and take profit levels.

Once you have set the desired levels, click the «Modify» but-
ton at the bottom of the screen. This button will be highlighted
only when valid stop loss and/or take profit levels have been
entered (at least 10 pips away from the trade entry level). Oth-
erwise, the bar will remain grey and inactive.

How to close an order?

If you have set stop loss and take profit levels, the trade will
automatically close once the price reaches one of these lev-
els. If you want to close a trade at any time, highlight the trade
in the Trade tab of the Terminal, right-click and select «Close
Order». Another way is to double-click the trade in the Terminal.
A window appears prompting you to confirm that your trade
should be closed. Click «Close #####» (the yellow horizontal
bar at the bottom of the window) to close the trade.

Open position can also be closed by an opposing position

or, in other words, a reverse position for the same symbol.
To do this, open an Order window, select «Close by» in the
«Type» field, choose a position and press “Close”. It allows
to close two positions at the same time. If the position sizes
in lots differ, only one of two opposite positions will remain.
The volume of this position will equal to the difference between
lots of the two closed positions, and its direction and open
price (short or long) will correspond with those of the larger
(in volume) of two closed positions.

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14. What is swap?
ROLLOVER (also known as rollover swap) is a procedure
of moving open positions from one trading day to another.
If  a trader extends his position beyond one day, he/she will
be dealing with a cost or gain, depending on prevailing interest
rates.

Remember that on Forex market the base currency represents

how much of the quote currency is needed for you to get one
unit of the base currency. The trader borrows money to pur-
chase another currency, and interest is paid on the borrowed
currency and earned on the purchased currency. In other words,
your position will therefore earn the interest rate of the currency
that you have bought, and you will owe the interest rate of the
currency that you sold. Most brokers perform the rollover auto-
matically by closing open positions at the end of the day, while
simultaneously opening an identical position for the following
business day.

Let’s study an example. Every central bank sets interest rate

and these rates may significantly differ. For example, imagine
that the New Zealand dollar had a higher interest rate than
the US dollar. If you were to buy NZD/USD, you would earn the
interest difference between the NZD and the USD or so-called
swap on your position every day you held that trade overnight.
However, if you sold NZD/USD, you would pay the swap for your
position every day you held that trade overnight.

You can look up swaps long and short at FBS website. The
trading terminal automatically calculates and reports all swaps
on your open positions.

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15. Risk management
Even if you have designed a really smart trading system, you
can still fail on Forex without a sensible risk management
strategy. Risk management is a combination of multiple ideas
to control the risk of losses. By limiting the risk you’ll make sure
that you will be able to continue trading when things do not
go as planned. The constant use of the risk management is
what constitutes difference between an amateur and the pro-
fessional trader. So how can you limit you risk exposure? The
basic rules are quite simple.

1. Don’t use too much leverage. Brokers provide you with more money
than the balance of your account by letting you use leverage. Lever-
age helps to increase your profit potential. For example, if you trade
1 standard lot ($100,000) while having only $1,000, it means that you
are using 1:100 leverage. However, leverage is a double-edged sword.
Access to additional capital is great, but remember that leverage
increases your losses if the market goes against you, so always make
estimates of what you can afford.
2. Choose correct position size. It’s obvious that you shouldn’t put all
your money on one trade. Here’s the golden rule of experienced trad-
ers: risk no more than 1-2% of deposit for 1 trade. Have a look at the
table below. It shows 2 traders with the same initial amount of money
equal to $20,000. The difference is that the first one risks 2% of his
account on each trade, while the second one risks 10% of his account
on each trade. If each trader has 10 losing trades in a row, the first one
will have $16,675 left, while the second will have only $7,748.
3. Limit the losses. Don’t neglect stop loss orders: they limit your losses
and make the results of your trade more predictable. Set these orders
in the beginning and then don’t change them unless the market goes
in your favor (in this case you can remove stop to breakeven point).

30
 PICTURE 9.
Why position size
matters

Note that the bigger loss your account suffers, the harder it will be to
recover your capital to the initial position. For example, if you had $100
and lost $50 (50% of your capital), you’ll have to increase the remain-
ing $50 by 100% to get your account back to $100. The conclusion is
that it’s necessary to be cautious and not let your losses run.

PICTURE 10.
Why it’s important
to limit losses

4. Always seek a bigger reward than the loss you are risking. This is
called a “risk/reward ratio”. If you risk losing the same number of pips
as you hope to gain, then your risk/reward ratio is 1:1. If you target a
profit of 80 pips with a risk of 40 pips, then you have a 1:2 risk/reward
ratio. If you follow this simple rule, you can be right on the direction of
only half of your trades and still make money because you will earn
more profits on your winning trades than losses on your losing trades.
31
 5. Be aware of currency correlations. Some currency pairs, for exam-
ple USD/JPY and USD/CHF, tend to move in the same direction or, in
other words, have direct correlation. So, to have 2 positions in similar
direction will double your risk exposure.
6. Keep track of your trades. Keep a diary to register and analyze
your Forex transactions: this way you’ll manage your money more
efficiently and will be able to learn on the history of your trades.

You can’t control price movement and can’t be 100% sure for
the results of your trade. However, you can control many other
things: when to trade and when not to trade, what you trade,
when you exit a trade. When you open an order, you can know
the worst-case scenario if you have safety mechanisms like
stop loss orders in place. It means that you shouldn’t worry
about losing, but think about winning.

There are two approaches to Forex trading: a reckless trading and

a controlled one. A reckless trader has no systematic approach
and doesn’t use stop loss orders. Such trader puts at stake the
money he/she can’t afford to lose. As a result, this trader is under
constant stress – something that drives him/her to ill-judged de-
cisions and, consequently, losses. Controlled trader, on the other
hand, has a trading system that fits his/her personality. He/she
uses the rules of risk management and trades with spare money.
Such trader is an active learner, is psychologically stable and will be
able to stay in the market for a long time becoming a professional.

16. Money management

How much money should you have on your account to keep
trading? It’s logical that you will need money to maintain open
positions. The necessary sum is called margin.
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Margin is a portion of trader’s account equity set aside and
allocated as a deposit with Forex broker. Forex brokers set
margin requirements for clients. Usually, margin equals
to 1-2% of the position size.

This notion of margin is tightly linked to the term «LEVERAGE».

When you trade on margin you use leverage: you are able
to open positions on bigger sums than you have on your
account.

Let’s see how it works on the example. You invested $10,000

supplying the sum by yourself. This is 1:1 leverage (in es-
sence, this is an unleveraged position), as you don’t borrow
anything from the broker. If you earn $100, your return will
be 1% ($100/$10,000*100). At the same time, if you lose $100,
your loss will be just –1% return as well.

Imagine that you don’t have $10,000, but want to trade this
amount. Forex trading allows you to do that with the help
of leverage. In this case, your broker will require 1% margin
equal to $100 on your account. This is your used margin.
The leverage is 100:1 because you control $10,000 with just
$100. The remaining 99% is provided by the broker. The mar-
gin is needed for broker’s security in case the market goes
against your position. In the case of $100 profit, your return will
be  100% ($100/$100*100). However, if you lose $100, the re-
turn will be –100%. As you can see, with leverage small move-
ments of the currency pairs can result in larger profits or larger
losses when compared to an unleveraged position.

In your terminal «Trade» window you can see columns «Bal-

ance», «Equity» and «Free Margin». Your free margin will be
always equal to «Equity» less «Margin».

33
PICTURE 11. Trade tab of a Terminal panel

Brokers usually define margin call level. At FBS, a margin

call is at 40% and lower. It means that you’ll get a margin call
if your account equity drops to 40% of the margin and lower
(in our case 40% of $100 is $40). In this case, you will receive
a warning from your broker that you need to close your trade
or deposit more money to meet the minimum margin require-
ment. In addition, beware that the broker will have to close
your position at the current market price if the ratio of your
deposit to your loss will reach so-called stop out level. As stop
out equals to 20% at FBS, this will happen if your equity drops
to $20 (20% of the margin and lower). Sometimes, margin call
and stop out are the same, and if your drops below 100% of the
minimum requirement to trade the position is closed without
any warnings.

Margin requirements, margin call and stop out levels are set
by the broker for each account type and shown at its website.
As a trader, you should do your best to avoid hitting margin call
and stop out levels.

17. Choosing the size of a trade

Imagine you put $1000 on your deposit and you want to
trade. Should you use the entire sum at once? Probably not:
remember how we spoke about risk management? So, which
34
 position size to choose then?

STEP 1. Don’t risk more than 1-2% of your deposit for one
trade. This way even if some of your trades aren’t successful,
you won’t lose all your money and will be able to keep trading.

For example, if you deposit is $1,000, risk no more than $10

(1% of account) on a single trade.

STEP 2. Establish where a stop loss will be for a particular

trade. Then measure the distance in pips between it and your
entry price. This is how many pips you have at risk. Based on
this information, and the account risk limit from step 1, calcu-
late the ideal position size.

For example, you want to buy EUR/USD at 1.1100 and place a

stop loss at 1.1050. The risk on this trade is 50 pips, and you
can risk $10.

STEP 3. And now you determine position size based on ac-

count risk and trade risk. Remember that a standard lot (1.0 in
MT) is worth $10 per 1 pip movement. This applies to all pairs
where the USD is listed second, for example, the EUR/USD. If
the USD is not listed second, then these pip values will vary
slightly.

Use the formula:

[ACCOUNT RISK/(TRADE RISK X PIP VALUE)] = POSITION SIZE IN LOTS

Assuming the 50-pip stop in the EUR/USD, the position is: [$10/
(50x$10)] = $10/$500 = 0.02 lot.

The pips at risk will often vary from trade to trade, so your next
trade may only have a 20-pip stop.
35
 Use the same formula: [$10/(20x$10)] = $10/$200 = 0.05 lot.

TABLE 3. Possible position sizes for EUR/USD

18. Psychology of Forex trader

Psychology is a hot-button issue in Forex. Psychological as-
pects do influence traders’ performance. Emotions often
affect our ability to look at the market clearly and to think
in a cold-headed fashion. Sometimes even high-profile, very ex-
perienced and skillful traders fail to control their emotions while
trading. No one is perfect. And we must say that markets, these
wicked capricious beasts, tend to punish those who slack off,
or those who overrate their abilities. So, traders must be able
to control their emotions in order not be punished afterwards.

Getting in the right mind-set to trade successfully

The rule number one is to adhere to you initial trading plan and
properly execute the basic money management rules. Fol-
low a defined methodology. Rely on logic and not on impulse,
as during an impulse trade you’ll likely forget about the proper
risk management. You must feel that you are making the right
play and not worry about the eventual outcome.

36
Don’t bury yourself in regret if the price continues to rise after
you closed your bullish position. The market isn’t going any-
where and there will be lots of other opportunities to make
money.

Some authors speak about the «zone» – a combination of pos-

itive mind-set, focused attention, and adherence to trading
discipline that allows the best traders to keep on producing
outstanding results day after day, year after year.

Dealing with losses

Get used to the idea that losses will happen. There is no trader
in the world who could manage having profit on every trade.

Understand that you cannot turn the time back and execute
your trade once again. It’s like being on a diet and eating choco-
late cake. Once you ate the whole sweet thing, all you can do is
to go back to the gym and start doing exercises to work it off.
The same is with trading. Once you lost money, analyze why it
happened, make conclusions and use the knowledge and expe-
rience you gained to improve your trading system. Don’t think
that you need to win back the money you lost. Accept the loss
and move on. Your goal is not to compete with the market, but
to make money on Forex.

Becoming psychologically strong

Accept the fact that good results in trading require hard work.
If you don’t delude yourself that you will get immense profits in
no time, you will protect yourself from unjustified disappoint-
ment and will be able to focus on your goal. Remember that
Thomas Edison performed 2,999 experiments before he invent-
ed the electric light bulb.
37
Alleviate your stress. Take breaks from trading and occupy your
mind with something else. Lead a healthy life with sports or at
least walks and good food. Spend time with your family and
friends. All of this will help you to relax and have more strength
for trading.

Find some fellow traders to discuss your fears and problems.

Speaking out will sooth you and help get rid of stress.

Constantly increase your knowledge about trading and Forex

market. Take courses, read books and articles, learn from pro-
fessionals. The more you know about trading, the more psycho-
logically sound you will feel.

38
 Learn more about Forex at FBS!

Forex Video Lessons Daily Market Analysis Educational Webinars

Forex trading is very risky. Forex should be traded with only risk capital, which is investor
speak for money you truly can afford to lose. At the same time, there is no need to be afraid
of the risk. As trader you have to take reasonable risk, which is exceeded by potential reward,
and make efforts to decrease risk. We will talk about these efforts in the final, seventh part
of our course.

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