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Part of this publication is a solicitation nor an offer to buy or sell any
financial market.

Examples are provided for illustration purposes and should not be

constructed as investment advise or stratergy.

All trade examples are hypothetical.

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CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE
RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL
PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT
ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN
EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED
FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS
LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE
ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE
BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT
ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES
SIMILAR TO THOSE SHOWN.

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
Contents
Forex Trading - What Is Forex Trading? .................................................................................................. 2
Understanding Currency Prices .............................................................................................................. 3
Market, Limit and Stop Orders ............................................................................................................... 4
Trader Psychology ................................................................................................................................... 6
Sample Trade .......................................................................................................................................... 7

Forex Trading - What Is Forex Trading?

If your thinking that Forex is a the new wonder cleaning product, you have come to the wrong site,
Forex or FX is simply short for foreign exchange. So when you hear someone talking about forex
they are not wanting to clen your sink, but they are specifically talking about currency trading.

Currency trading is exchanging dollars for pounds, or euros for yen and so on. It has one thing in
common with a household cleaning product, though - if you are not careful you can get cleaned out
in a hurry trading currencies.

The currency exchange markets are the largest, most volatile and among the most risky forms of
trade in the world. Amounts exchanged are large, magnifying small price changes, and the total daily
volume is in the range of two trillion dollars. Yes, that's 'trillion'... a two followed by twelve zeros!

There are dozens of markets, with the largest centered in New York, London and Tokyo. Although,
'centered' is slightly misleading, since there's no physical exchange that trades currency - unlike the
New York or London Stock Exchanges for equities (stocks).

Instead, the playground primarily of large institutions - international banks, insurance companies
and governments via their central banks - currency exchange is carried out by phone and via
computer networks, formerly all private or government but now including the Internet.

And that latter means of communication, along with changes in trading methods, is what makes
possible the opportunity for the individual investor with less than a few million dollars to participate
in the fast-paced, highly speculative game of trading one country's money for another's.

In order to play that game without getting immediately run over, the investor will need to learn
some new terminology, do some research in new areas, find a broker who trades currency and stock
up on some courage pills. Enormous sums are traded in forex and only commodities trading offers
similar ease in feeling dumb and getting poor fast.

But losing money isn't inevitable for the prepared investor.

An investor will need to become familiar with new phrases and quoting methods - pips, spreads,
cable and the like. Calculations formerly carried out with ease will now need a little more thought.
I would recommend you have a look at my review of Forex
Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
Everyone is used to their own currency and seeing a $10 stock go up by a dollar one immediately
sees a 10% gain. Trading currencies requires a little more knowledge.

The prepared investor will need to expand the scope of his research. Finding out the likely future of
a home-based business is complicated, but straight forward. Conditions in one or two sectors and a
few economic indicators can be grasped without requiring a PhD in finance. Learning about the
factors influencing the currencies of two or more countries is an order of magnitude more difficult.

If you really want to learn to trade forex, have a look at my review of Forex Mentor Pro at
www.watchmelearnforex.com to learn to trade like a professional.

Understanding Currency Prices

Forex trading is always about buying one currency and selling another one simultaneously. The
world of currency exchange, Forex (Foreign Exchange), employs terminology not used elsewhere in
the investment world. Defining those terms, and providing a sample trade, will go a long way toward
taking the 'foreign' element out of foreign exchange.

Currency trading is always done in pairs. In other trading, such as stocks and bonds, cash is
exchanged for something else (a percentage of ownership, a promise to pay interest).

In Forex, cash is traded for cash. Euros are traded for dollars, dollars for yen, yen for euros and so
on. There are dozens of trading pairs, just as there are dozens of currencies around the world that
participate in the currency exchange markets.

The major players are US Dollar (USD), Euro (EUR), Australian Dollar (AUD), British Pound (GBP),
Canadian Dollar (CAD), Japanese Yen (JPY) and Swiss Franc (CHF). Most of all daily transactions
involve trading of these major currencies.

So, when reading quotes, investors will see prices listed as:

Name Bid Ask Change %Change High Low Time

EUR/USD 1.1901 1.1903 -0.0091 -0.76% 1.2024 1.1891 15:26
GBP/USD 1.7439 1.7442 -0.0004 -0.02% 1.7573 1.7410 07:01

The currency listed on the left is called the 'base currency' (EUR & GBP) and the second is the 'quote
currency' (USD).

The 'bid' is the price at which brokers are willing to buy the base currency. The 'ask' price is that at
which brokers are willing to sell the base currency. The quotes are always listed from the brokers'
point of view. So if you (the trader) wants to buy the base currency the ask price will apply. If you
(the trader) wants to sell the base currency the bid price will apply.

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
EUR/USD 1.1901/03 means

If you buy 1 EUR you will pay 1.1903 USD

If you sell 1 EUR you will receive 1.1901 USD

GBP/USD 1.7439/42 means

If you buy 1 GBP you will pay 1.7442 USD

If you sell 1 GBP you will receive 1.7439 USD

The difference between bid price and ask price at a single specific time is called 'the spread'. The
spread is measured in pips (price interest points). The 'pip' is often said to be the smallest increment
by which the price changes.

If the bid price of the EUR/USD pair changes from, say, 1.1901 to 1.1902 that's a single pip. That's a
(bid or ask) price at two different times. Remember not to confuse this difference with the spread,
which is a difference between the bid and ask price at a single, specific time.

If you really want to learn to trade forex, have a look at my review of Forex Mentor Pro at
www.watchmelearnforex.com to learn to trade like a professional.

Market, Limit and Stop Orders

To understand limit and stop orders it's best to contrast these with the ordinary (and still extremely
common) market order. A market order is one that is placed by the investor to execute at the
current market price whatever that is at the time it's filled. It's very important to keep in mind that in
Forex, 'current' changes even faster than in the stock market.

As a result of the inherent high (relative) volatility of Forex, any market order can be expected to
deviate from the price shown on the investor's screen some of the time. When a stock trader
requests a market order right this instant to sell Microsoft at, say, $28.25, he or she can expect to
get that price very often. The odds of selling at exactly the price shown on the screen right now is
smaller in Forex trading.

As a result, other order types are more common in Forex trading. The most common are limit orders
and stop orders.

In essence, a limit order is a request to guarantee you will not sell for less, or buy for more than the
limit price, or nearly so. No broker will guarantee execution at an exact price, though this is often
achieved.

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
Suppose, for example, that you bought euros at $1.1905. The market then rises to, say, $1.1955.
Placing a limit sell order on your euros at, say $1.1945 would allow you to lock in a minimum profit
of 40 pips or better.

Alternatively, you may want to buy in at no more than a specified price. Suppose the market for
British pounds (GPB) is currently at $1.7750, which seems too high to you. You could place a limit
buy order to buy GBP at $1.7705. In other words you are telling the broker you don't want to pay
more for GBP than $1.7705 per pound.

If the time limit expires before the price drops or rises to the limit price, the limit order simply
expires unfulfilled.

A stop order used to be more commonly called a stop-loss order. That type is still used, by that
name, incidentally. That gives a clue to what stop orders are primarily for: to stop losses.

It's what can or does happen before and after that makes the difference between a limit order and
stop order. A limit order is an order to buy or sell AT a specified price or better. A stop order is an
order to buy or sell ONCE a specified price is reached. After that it becomes a market order and is
subject to fluctuation.

Suppose you bought euros, using dollars in your account, at the then current exchange rate of
$1.1903. Now suppose, as often happens in Forex trading, the exchange rate changes to, say,
$1.1888. The market appears to be on the way down. In order to protect yourself from either a)
having to input more cash to cover the equivalent of a margin call, or b) enduring an even larger loss,
you wisely put in a stop order.

You tell your broker you want to sell those euros once the exchange rate reaches $1.1803, for
example. If during the trading period, the price reaches $1.1803, your euros will be sold at the
market price saving you from incurring further losses.

Note that the price used for executing the order is the market price! This is the most current
exchange rate at the time the order is executed and not necessarily the threshold specified in the
stop order ($1.1803). This means you may only get $1.1802, or 1.1801, or 1.1800 or lower
depending on what the market price is at the moment your order is executed.

To prevent this from happening the stop-limit order may be your best friend. It's a combination of a
stop order and limit order. Like stop orders, your order will be executed once the market reaches a
specific price. Once that price is reached, it becomes a limit order, so your order will only get filled at
the chosen limit price, or a better price if there is one available.

These are techniques every investor should very quickly adopt as a habit, most especially novice
investors. Forex trading is a roller coaster ride. Don't get thrown out of the car. Use a seat belt... Use
limit orders and stop orders liberally in your trading strategy. Market orders are simpler, but much
more risky.

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
If you really want to learn to trade forex, have a look at my review of Forex Mentor Pro at
www.watchmelearnforex.com to learn to trade like a professional.

Trader Psychology
Professional athletes are often told by their coaches that their attitudes on the field can affect
whether they win or lose. That's even more true in Forex trading. It sounds like the standard
motivational speech, but having the right frame of mind can definitely influence your trading results.

There are many aspects of Forex trading that are outside the investor's control.

Forex market participants number in the millions - traders for the world's largest banks, huge
governments and individuals just like you. Unlike stocks, even the big traders have a tiny effect on
exchange rates.

Even when setting interest rates and other actions that influence inflation, the largest governments
can have no immediate impact on exchanges. The Forex markets are simply too large - $2 trillion
daily - for any one player to dominate the action.

Trading strategies, which are essential, can increase the odds of making profits and help minimize or
avoid losses. They give the knowledgeable trader that tiny edge that can make the difference
between winning and losing on a given trade, or over time.

But before looking at market influences, and even before developing a set of technical strategies
that help guide trading choices, the novice Forex investor has to honestly and objectively examine
his or her own attitudes.

Forex is fast-paced, complicated and requires a well-thought out game plan. That game plan has to
be executed with nerve and skill. Trading successfully in a demo account for several weeks is
essential but can lead to unwarranted confidence. Traders who invest Monopoly money will often
take chances, leading to successful trades, that they wouldn't dream of taking with real money.

Real trading requires answering honestly a number of questions that can be difficult to answer
objectively when the subject is the self-same trader asking them. What are your financial trading
goals? Looking for a quick buck? Seek elsewhere. You will have losses that wipe them out. Looking
for secure, low-risk capital accumulation? Try AAA bonds instead.

Forex trading can be simultaneously a stimulating intellectual game and an exciting adventure. The
thrill of victory! The despair of (temporary) defeat! The mastery of the intricacies of Fibonacci,
Parabolic SAR, Stochastic Oscillators and Doji Stars. All this, and much more, is part of Forex
investing.

As a result, you will need to be very frank with yourself and decide how (and whether) you are
prepared to deal with pressure and fear. Even professional traders do not have any certain system of
ensuring profits and avoiding losses.

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
The pressure of deciding when to buy and when to sell is many times larger than in stock trading.
The fear of loss is greater, in part because of the amplification provided by 100:1 or larger leverage.

Even winning can be problematic. With practice and persistence, provided you don't quit too soon or
run out of money too quickly, you will have periods when it all seems laughingly easy. That can lead
to euphoria, which is great. But it can also lead to cockiness, which is fatal. Nothing will wipe out a
trader quicker than arrogance. Confidence is essential, vanity is suicidal.

The other side of the coin to be avoided is too much second guessing. Successful trading requires
bold moves based on sound judgment and confidence. Every decision is a small leap of faith, since
no one can know in advance for certain what the outcome will be. Probability of one degree or
another is the best that can be achieved.

All this will be accompanied by the fear of loss of capital, which often leads to panic selling in the
face of what would have been a temporary price movement. It is of such panics that depressions are
made, both economic and psychological.

Forex is a roller coaster ride. But if you have a good inner ear and a strong stomach, bolstered by the
brain of a statistician and the nerves of a pro billiards player, you will be well suited to end the ride
with full pockets.

If you really want to learn to trade forex, have a look at my review of Forex Mentor Pro at
www.watchmelearnforex.com to learn to trade like a professional.

Sample Trade

Currency trades are always done in pairs between the currencies of two different countries. Below
are listed two sample currency pairs.

Name Bid Ask Change %Change High Low Time

EUR/USD 1.1901 1.1903 -0.0091 -0.76% 1.2024 1.1891 15:26
GBP/USD 1.7439 1.7442 -0.0004 -0.02% 1.7573 1.7410 07:01

Taking the one listed in the first line, let's look at how a sample Forex investment might evolve over
time.

As shown in the price listing, the ask price for the EUR/USD currency pair is 1.1903. Remember the
ask price is that at which brokers are willing to sell the base currency (EUR). In this example that
means we can buy the base currency (EUR) for $1.1903.

The bid price is listed as 1.1901. Remember the bid price is the price at which brokers are willing to
buy the base currency (EUR). In this example that means we can sell the base currency (EUR) for
$1.1901.

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
Unless you have something that brokers are now beginning to offer called a 'mini' account, all trades
are done in standard lots of 100,000 units. So, to get in the game, you (theoretically) have to shell
out $119,030 to purchase one standard lot of 100,000 euros.

To professional currency traders, that's a tiny amount of cash. To the average investor interested in
Forex trading it's enormous. That's one of the reasons some brokers are beginning to offer 'mini'
accounts. Mini accounts have much smaller standard lots, such as 10,000 units.

Even at 1/10th the standard size, that's still a substantial investment for many investors. Even
professionals will balk at having to come up with the full cash amount for large trades. Forex brokers
deal with this problem by offering something called 'leverage'.

Leverage is the ability to control much more than you own. Forex brokers 'loan' an investor typically
up to 90% or more. It isn't technically a loan. The 10% or less actually invested is regarded, in the
industry and in law, as a 'good faith deposit'. The investor is technically on the hook for the other
90% or more, but it's very rare to press an investor for the money.

Instead, if the price direction moves in an unfavorable direction (for the investor) by a large enough
amount, the broker simply liquidates the position and the investor loses! It's important to realise
this! A good broker will usually give the client a call and give him or her the option to input enough
fresh cash to cover the shortfall.

Currency prices can change by significant amounts very quickly (that's called 'volatility'), though, so
be prepared.

What might that look like in a realistic scenario?

Let's look at the above example EUR/USD 1.1901/03. Bid price is 1.1901 and ask price is 1.1903 and
suppose trades are done at 1:100 (1%) leverage. You decide to buy EUR. In the case of 1 standard lot
of 100,000 units, you put up 1% of $119,030, or $1,190.30.

Let's take a look at the profit potential.

Suppose the market moves to EUR/USD 1.1907/09. If you sell the euros at this point, the bid price
will apply. In this case you make a profit of ...

$119,070 - $119,030 = $40.

That doesn't sound like much, but observe two things.

One, the initial investment 'out of pocket' was only $1,190.30, and 1% of $119,070 = $1,190.70, only
a 40 cent! difference ($0.4). Yet the actual profit was 100 times that, $40. That multiplier effect on
the actual profit is the result of leverage.

Second, price changes of a few pips can (and often do) happen in minutes in the Forex markets, and
getting in and out doesn't cost a formal commission. Brokers make money off the spread. Investors

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.
can get in and out quickly and accumulate large amounts of profit (or loss) in one day. Or, they can
wait for wider swings - which also often happens in relatively short periods.

Welcome to the roller coaster world of investing: Forex, if you want to learn how to trade Forex I
would look at Forex Mentor Pro to learn how to trade like a professional.

I would recommend you have a look at my review of Forex

Mentor Pro at www.watchmelearnforex.com to learn to
trade like a professional.