Forex Frontiers: The Beginners' Booklet

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FOREX FRONTIERS: The Beginners’ Booklet
FOREX FRONTIERS
The Beginners' Booklet
By: IVAN CAVRIC
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FOREX FRONTIERS:
The Beginners’ Booklet
Copyright © 2010 by Ivan Cavric
Published by:
MERRITT HOUSE PUBLISHING INC.
TORONTO, ON
CANADA
www.merritthousemedia.com
Author’s Contact Information
www.ivancavric.com
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Important Notice
The Author of this book has strived to be as accurate and informative as

possible with the sole intention of describing some of the key aspects of Currency
Trading. However, this book is strictly for research and educational purposes only and
the author does not warrant or represent at any time that the contents within are to be
taken as a recommendation to invest in the Forex market.
The Author will not be held responsible for any profits and losses of any sort one
may incur as a result of following the advice contained in this book. The readers
assume responsibility for use of the information found in the book.
The information in this report is not intended to convince the reader to invest
money in the Forex market nor does it guarantee that a certain amount of money can be
made trading currencies. Neither is implied by the author in any way, shape or form.
The readers are advised to seek the assistance of a professional financial advisor prior
to investing some money in the Forex market.
The readers may, however, reproduce and and redistribute this book. Readers
are free to give this book away to friends, family and acquaintances. Readers are
encouraged to give this away as a promotional material for blogs, websites and other
online channels as long as the contents remain original and unedited.
This book is strictly for educational purposes only.
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Table of Contents
Chapter 1: Introduction
Chapter 2: What Is Forex All About?
Chapter 3: Understanding Forex
Chapter 4: Important Forex Terminology
Chapter 5: Some Basic Features Of Forex Trading
Chapter 6: How Currencies Are Bought And Sold
6.1 - The Role Of The Forex Broker

6.2 - Lots And Mini-Lots
6.3 - Order Types
6.4 – Spreads
Chapter 7: What You Need To Start Trading Forex
7.1 - An Account With A Forex Broker

7.2 - Forex Charting Software
Chapter 8: Different Ways To Analyze The Forex Market
8.1 - Technical Analysis

8.2 - Fundamental Analysis
Chapter 9: You Must Learn How To Use Leverage Properly
Chapter 10: Surviving Your First Months Of Forex Trading
Chapter 11: Summary
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Chapter 1
Introduction
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Chapter 1 – Introduction
Forex is an intriguing and exciting subject that attracts numerous new

traders every day. Many are enticed by the sheer daily turnover of Forex that is
reputed to exceed over three trillion dollars. They hope that if they can just acquire
even a small portion of this staggering sum then they can improve their lifestyles
significantly.
Perhaps you were influenced to join the ever-swelling ranks of Forex traders
by the endless bombardment of publicity surrounding this subject proclaiming
promises of quick riches. However, you must adopt care during your early trading
days because Forex harbors a steep learning curve that you must master before
success is ensured.
For instance, you may not be aware that 95% of all Forex novices lose their
entire equity within months of startup. Why is this, you may well ask? To gain an
answer, you need to realize that the 95% of those who fail tend to be small retail
traders, while the 5% winners are institutional investors. The former tend to
underestimate the complexities of Forex and are prone to gambling while the latter
adopt a very disciplined and business-like approach to their trading.
If you are new to Forex, how can you best advance your skills from those
associated with the first group to those associated with professional traders?
Basically, you need help and you must locate quality training from experts whom
you can trust.
This booklet will definitely set you on the correct path by introducing you to
the basic concepts of Forex and then identifying methods that you can use to help
you survive your initial months of Forex trading. You are also advised to seek
additional quality information about all aspects of Forex during this period.
You can study various Forex strategies by visiting my personal blog at

www.ivancavric.com. In particular, I have successfully traded Forex since 2002
using trading strategies that I have personally developed. In addition, I have
designed a number of financial management systems which I consider to be the
cornerstone of my Forex success. I have become a well-respected figure in Forex
and dearly hold a number of prominent positions in the business and Forex arena.
For instance, I am the President of the Association of Professional Forex Traders as
well as a prime member of both the Alliance of Global Forex Traders and Global
Forex Association.
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On my blog you will find many free Forex resources such as articles, videos,
tutorials, as well as hidden strategies and tips that will enable you to not just
advance your Forex career, but to significantly increase your chances of
succeeding. In addition, many Forex tools are provided on the site such as
fundamental and technical analysis of all new Forex developments.
The blog also promotes my well-acclaimed trilogy of Forex books that have
been designed to specifically advance your Forex skills and experience from that of
a novice to those possessed by professional traders of large institutionalized
companies. Here are brief descriptions of each of my three books. You will find that
all of them achieve their objectives by utilizing straightforward explanations
supported by real live examples of trading strategies that are explicitly illustrated
by aesthetical and highly relevant charts and diagrams:
FOREX FRONTIERS: The Essentials of Currency Trading
The Essentials of Currency Trading is the first book of this trilogy and is
designed to jumpstart anyone’s desire to enter the exciting world of Forex. This
book will teach you everything you need to know about how to start trading Forex
successfully using an easy-to-follow style. The Essentials of Currency Trading
does this by initially explaining why so many beginners struggle with Forex, and
then providing you with a solid foundation on which to construct your Forex career.
The principal aim of this book is to show you how to design your own successful
trading strategies by identifying those Forex concepts of upmost importance.
FOREX FRONTIERS: Proven Strategies for Success
Proven Strategies for Success is the second book of the trilogy and is
designed for those who already have a fair grasp of currency trading. This book will
improve upon what you already know and will help you take your Forex knowledge
to the next level. The focus of this book is to explain methods that you can use to
increase your Forex profitability. Proven Strategies for Success achieves this
objective by explaining in detail a number of Forex trading strategies. Each one is
well-presented and made easy-to-follow using straightforward explanations that are
explicitly illustrated by aesthetical and highly relevant charts and diagrams. In
particular, this book uses real test results that have been taken from recent trading
in order to show you explicitly what you can expect from trading each of the
strategies as well as providing you with a means of comparing their merits.
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FOREX Frontiers: What the Pros Won't Tell You
What the Pros Won't Tell You is the final book in this trilogy and is
designed to train you to think like a Forex professional. The main aim of this book is
to help you evolve your trading psychology and abilities from that of a standard
Forex retail trader to those utilized by top institutional experts who trade billions of
dollars for their clients. You will learn how this latter group views important Forex
topics such as leverage, risks and brokerage fees, etc. What the Pros Won't Tell
You will leave you in no doubt about how you should trade Forex so that you
always attain consistent profits.
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Chapter 2
What Is Forex All About?
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Chapter 2 – What Is Forex All About?
Forex stands for FOReign EXchange and is also known as FX. Today, Forex
has grown into probably the biggest fiscal market in the world involving the
currency transactions of corporations, governments, large banks, central banks and
currency speculators.
Forex has a daily turnover that is reputed to be in excess of three trillion US

dollars. The daily turnovers of all the US equity markets combined do not reach 3%
of the volume traded on Forex. One of the principal purposes of the Forex is to
facilitate international trade and investment.
Forex allows the simultaneous buying of one currency and the selling of
another and is simply a marketplace in which different currencies are traded against
one another. As countries have their own currencies, Forex exists to make
international business possible.
In a similar way to the Stock Market, currencies can be considered to be the

commodities that are traded on Forex. For instance, when you buy shares in a
particular company you are, in effect, investing your money in its future
performance. You hope that it will grow and prosper so that the value of your
shares will appreciate.
In just the same way, when you buy the currency of a particular country, you
are investing your money in the economy of that nation. If the economy of your
host country is healthy and prospers then the value of your Forex trade will
increase and you will profit.
When you trade the Forex, you must realize that you are, in fact, making two
trades when you back a currency pair. For example, if you trade the EUR/USD long,
you are buying the EUR and selling the USD. As such, you would be making a
mistake if you viewed this trade just as a single operation. Instead, you must
appreciate that you have activated commercial relationships with two currencies.
This is important to understand so that you can evaluate the correlation and
relationship of each of these two currencies to others.
As currencies are traded against each other on Forex in real time, you can
profit from making transactions if you can correctly identify which currency will
increase in value against the other. To achieve this objective, you must first
purchase a currency and then sell it after it appreciates in value. However, you
must realize that the time required to achieve your targeted profit may range from
a very short period to a very long one.
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The Forex is the world’s most traded market and is active 24 hours a day
from Sunday 5pm EST to Friday 5pm EST. During each day, Forex trading
commences in Sydney and then moves around the globe passing through Tokyo,
London and New York.
During this time, investors have the unique opportunity to react immediately
to currency fluctuations as they arise. In fact, you could even regard Forex as a
huge melting pot of global developments because no other institution embraces the
current world’s events at any given time more than Forex.
The Forex market is a unique market and it is without a doubt one of the
most liquid and largest financial markets anywhere in the world. Governments,
corporations, speculators, central banks, large banks, and various other institutions
all trade on the Forex Market. Most of these organizations also use Forex to hedge
their risks and invest in currencies in order to increase their profits.
Forex trading can sound very confusing especially if you know nothing about
it. However, even if you do not have any experience or knowledge of economic
affairs, you can still enjoy and profit from Forex trading. As already discussed, one
of your best ways forward is to seek good educational sources on Forex that are
well regarded by this industry. You can do no better than to make use of all the free
Forex articles, tips on various strategies, and Beginners to Advance courses that
you will find by visiting www.ivancavric.com.
This website also promotes my book “FOREX FRONTIERS: The Essentials

of Currency Trading.” By reading the The Essentials of Currency Trading you
will discover that it expounds upon all the concepts introduced in this book. It
jumpstarts your Forex career by teaching you how to trade Forex wisely and safely.
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Chapter 3
Understanding Forex
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Chapter 3 – Understanding Forex
Before you can start to trade Forex, you need to understand how it works.
Although this task may seem complicated at first, after a few trades you will find
that it will become second nature.
Forex is unique because of its following features:
- Trading volumes
- Extreme liquidity
- Number and variety of traders
- Geographical dispersion
- Trading hours are 24 hours a day except weekends
- The variety of factors that affect the exchange rates
- The use of leverage
Some of the basic rules for trading currency pairs are as follows:
- The first currency of a pair is termed the base. In most major

currency pairs, the US Dollar is usually the base
- This second currency of a pair is called the counter or quote.
- The currencies are always quoted in pairs. For example, the USD is the
base and the YEN is the counter in the USD/JPY currency pair. If the
value of the USD/JPY is 2.5 then you can exchange $1 for ¥2.5.
- If the value of a currency appreciates, it means that the base currency

has increased in value compared to the counter. For instance, if the
USD/JPY climbed to 2.6 then you would now be able to purchase ¥2.6
for each of your one US dollars.
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One of the main reasons why people want to trade Forex is to improve their
earning power and, ultimately, achieve financial freedom. With these objectives in
mind, is trading the Forex Market a really good choice? Yes it is, because this type
of trading presents serious opportunities for achieving good profits.
Fundamentally, there are two main trading sources that generate the daily
Forex turnover. The Foreign trade represents only five percent of the total value
and results from companies buying and selling products overseas as well as
converting foreign revenue into domestic currency. This group of traders includes
governments, companies (exporters and importers) and some investors who have
foreign exchange exposure.
Consequently, you may be surprised to discover that the remaining 95% of

all other Forex trading is done purely for speculative reasons or, in other words, for
the sole purpose of investing to profit from potential currency movements. This
implies that only a small percentage of Forex activity emulates from the currency
conversion needs of governments and international companies.
This is, without doubt, a very exciting opportunity for you to increase your
earning power substantially. However, in order to do so you must learn how to treat
Forex with the respect it deserves and trade in a business-like and professional
manner right from start.
Again, you can achieve this objective by visiting www.ivancavric.com

where you can enroll in a totally free Forex training course. You will then be able to
access easy to understand lessons that will advance your Forex skills and
knowledge from those of novices to ones of professionals.
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Chapter 4
Important Forex
Terminology
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Chapter 4 – Important Forex Terminology
Similar to other subjects, you must gain an understanding and feel for the
many terms that are utilized in Forex trading in order to achieve consistent profits.
Some of the most commonly used Forex terms are as follows:
Base Currency
The first currency quoted in a Forex currency pair which is sometimes referred to as
the primary. For example, in the USD/CAD currency pair, the US dollar would be
the base currency
Bear
A bearish investor anticipates that a currency pair will decline in value.
Bid/Ask Spread
The spread of a currency pair is the difference between its bid and offer prices.
Bull
A bullish investor expects that a currency pair will appreciate in value.
Charting
Forex investors utilize trading charts in an attempt to determine trends and future
projections of currency pairs.
Commissions
This is the cost that a Forex broker will charge clients for the buying and selling of
currency pairs.
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Currency
This is a monetary commodity used by its host nation as the basis for trading
internationally with other countries
Exchange rate
An exchange rate states the worth of one currency against that of another country
Forex
Forex is the over-the-counter market used for the simultaneous buying of one
currency and selling of another
Hedging
A strategy designed to reduce investment risk by investing in alternative

instruments that offset the risk of the primary portfolio
Initial margin
This is the amount of cash deposit that is required to trade a currency pair
Leverage
Leverage involves the use of various financial instruments or borrowed capital to

increase the potential return of an investment
Long Position
A long position is entered with the expectation that a profit can be achieved
because the value of the selected currency pair is expected to appreciate
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Lot
A standard lot is the smallest unit used in a Forex transaction and is the equivalent
to 100,000 units of the base currency
Maintenance Margin
This is the dollar amount of your equity that is required in order to keep your
positions open throughout their lifetime
Margin
This is the funds that you must deposit as collateral in order to cover any potential
losses from adverse movements in prices
Noise
Price and volume fluctuations in the Forex market can produce noise which can
confuse your evaluation of the price direction of your chosen currency pairs
Open Position
This is a currency pair that has been either bought or sold and that has not yet
been settled by closure
PIP
A PIP (Percentage in Points) is the smallest price unit of a Forex currency pair and
is the minimum amount by which the value of a currency pair can change
Resistance
This is the effective upper bound on price that is created by the many willing sellers
at that value
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Short Position
A short position is entered with the expectation that a profit can be achieved
because the selected currency pair is expected to depreciate in value
Support
This is the effective lower bound on price that is created by the many willing buyers
at that value
Technical Analysis
This is a method used to evaluate currency pairs by analyzing statistics generated

by historical market activity such as past prices and volume. Technical analysts do
not attempt to measure a currency pair's intrinsic value but instead use charts to
identify patterns that can suggest future activity.
Volatility
This is a statistical measure of the tendency of a Forex currency pair to rise or fall
sharply within a period of time
You can obtain a better understanding of these important terms as well as

the best ways to utilize them in your Forex trading by spending some time at
www.ivancavric.com. This is because this website provides you with many free
facilities such as Forex articles and tools to get you acquainted with the forex lingo.
In addition, you will discover that the book “FOREX FRONTIERS: The Essentials
of Currency Trading,” is an easy to read manual that is written with no
assumption that the readers have prior exposure to Forex education. In short, you
will be introduced to most of the terms used in Forex and while learning their uses
at the same time. The book will also show you how to merge such terms into a
process for developing your own profitable Forex trading strategy from scratch.
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Chapter 5
Some Basic Features Of

Forex Trading
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Chapter 5 – Some Basic Features Of Forex Trading
Currencies are all traded in pairs and the rate at which they can be
exchanged for one another is known as the exchange rate. Most currency pairs
use the USD as their base unit. The majority of trades are focused on the biggest
and most liquid currency pairs, which are termed the ‘Majors’.
This important group includes US Dollar (USD), Japanese Yen (YEN), Euro
(EUR), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD) and
Australian Dollar (AUD). In fact, more than 85% of all Forex transactions involve
these major currency pairs i.e. EUR/USD, YEN/USD, GBP/USD, USD/CHF,
AUD/USD and USD/CAD.
Some currencies are more popular than others on Forex. The Dollar has
traditionally been very important but what other currencies are traded regularly?
The top eight traded currencies are identified in the following table:
Currency Code and Symbol % daily share (approx.)
1 United States Dollars USD $ 86%
2 Euros EUR € 37%
3 Japanese Yen JPY ¥ 17%
4 Pound Sterling GBP £ 15%
5 Swiss Franc CHF Fr 7%
6 Australian Dollar AUD $ 7%
7 Canadian Dollar CAD $ 4%
8 Swedish Krona SEK kr 3%
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As such, you can confirm the importance of the USD by studying the above
table. In order to make trading currencies easier, they have been organized into
pairs. This is because in every Forex transaction, one currency must be sold while a
second is purchased. Abbreviations or nicknames are used to refer to currency pairs
especially if they are majors as shown in the following table.
Currency Pair Nickname
AUD/USD Aussie
USD/CAD Beaver
USD/JPY Gopher
USD/CHF Swissy
USD/CAD Loonie
NZD/USD Kiwi
GBP/JPY Geppy
EUR/USD Euro
Even though the majority of currency transactions involve the US Dollar,

there are many cross currency pairs such as the following: EUR/GBP, GBP/YEN,
EUR/YEN, EUR/CHF, AUD/YEN
Although these currency pairs are quoted independently, you must

appreciate that their values are still determined by utilizing the applicable USD
pairs. However, crosses have been designed to make it possible for investors to
trade in currencies of their choice.
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In order for you to trade Forex successfully, you must achieve an

understanding of important terms as explained in the last chapter. For instance,
here is a very important one with some examples of its usage.
A PIP (Percentage in Points) is the smallest price unit of a Forex currency

pair and is the minimum amount by which the value of a currency pair can change.
For example, when the EUR/USD climbs by one pip then its value will rise from
1.2345 to 1.2346.
An important guideline for new traders is to always measure their success or

failure in pips as opposed to a monetary value. This is because a one pip gain in a
$10 account is equal, in terms of the trader’s skill, to a 1 pip gain in a $1,000
account although the actual dollar amounts are quite different.
Some examples of pip movements using some of the major currency pairs
are as follows:
EUR/USD
Imagine that this pair is presently posting a value of 1.4850. If the pair should now
rise to 1.4900, then it would have increased in value by 50 pips.
GBP/USD
Assume the value of this pair is 1.5960. Should the pair now fall to 1.5930 then it
would have decreased in value by 30 pips.
USD/JPY
This pair is presently recording a value of 89.00. If it suddenly experiences a crash

with its value plunging to 88.70, then it would have depreciated in value by 30 pips.
The information presented in this chapter is just a small portion of that

contained in the FOREX FRONTIERS: The Essentials of Currency Trading.
Consequently, you will be able to obtain greater insights and knowledge of Forex
trading by undertaking a study of this important book. The Essentials of
Currency Trading is designed to teach Forex students and researchers the
fundamentals of Forex in an easily digestible and illustrative format.
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Chapter 6
How Currencies Are

Bought And Sold
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Chapter 6 - How Currencies Are Bought And Sold
6.1. The Role of the Forex Broker
Forex is accessible through a number of pricing levels. The Inter-Bank Market

provides the highest level of access but is reserved for the big players, such as
Central Banks, Corporations, Hedge Funds and other large financial institutions.
With the rise of online trading, the Retail Market allowed Forex Brokers to
connect smaller players to Forex using their trading platforms. Basically, there are
two types of such brokers which are those with dealer desks called Market Makers
and those that employ Electronic Communication Networks (ECN). Each has
pros and cons.
Market Makers are the most common type of broker functioning as

intermediaries to the inter-bank market as opposed to providing direct access. They
perform this task by first trading significant amounts of currency on the Inter-bank
market in blocks and then supplying divisible units to the smaller Forex traders.
Electronic Communication Networks offer direct access to the Inter-bank

Market by connecting its clients to multiple banking sources that offer competitive
price quotes. ECNs have a number of major differences from Market Makers which
are:
1. ECNs offer you real-time quotes from a number of large banks although
the prices may not be as stable as those offered by a Market Maker.
2. ECNs provide more competitive prices and spreads because of multi-

sourcing. In addition, the ECN broker is not competing against its clients
and therefore has no vested interest in the trade results. As such, there is
less reason for this type of broker to apply unethical price manipulation
tactics.
6.2. Lots and Mini-Lots
A standard lot is the main measurement of currency used in a Forex

transaction and is the equivalent of 100,000 units of the base currency. In other
words, when you enter a trade using a standard Forex account, the smallest
amount of currency that you can buy or sell is 100K.
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A mini lot is equal to one tenth of a standard lot or 10,000 units whilst a
micro lot is the equivalent of 1,000 units. If you are able to acquire leverage of
100 to 1, then you will be able to purchase or sell a standard lot costing $100k for
only $1k. For example, if you decide to purchase eight standard USD lots then you
must realize that this transaction will cost you $8,000 if you have a leverage facility
of 100:1.
6.3. Order Types
There are many types of orders that you can use to activate a Forex trade.
Here are a few of the most common ones:
Entry Limit Order
You can utilize this order to close a new long position if price rises or exit a
short position should price fall. Basically, you are anticipating that price will
reverse direction at the level of the order.
Example: The EUR/USD is rising and has a present value of 1.4700. As you
expect it to climb and then retract, you set an Entry Limit Order at 1.4750. Should
the EURUSD now achieve 1.4750, then your open trade would be closed.
Entry Order
You can use this order to open a new position once a currency pair achieves
a pre-determined price level.
Example: The EURUSD is rising and has a present value of 1.4540. You
expect it to continue to rise so you set an Entry Order at 1.4550. Should the
EURUSD eventually hit 1.4550, then your new LONG position would be activated.
Market Order
You can utilize this type of order to immediately purchase or sell currency
pairs at the best available price.
Example: If the EURUSD is at 1.4860, you can open a trade immediately at

this value by using a Market Order.
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Stop-Loss Orders
You can use this type of order to protect your equity from a substantial loss
in the eventuality that price should move against your position. All stop-loss orders
will remain active until they are either canceled by the trader or the position is
liquidated.
For example, image that you have opened a new long EUR/USD position at
1.4600 with a protective 100 pip stop at 1.4500. If price should suddenly reverse,
plunging downwards and hitting your stop, your position will be automatically
closed. Consequently, you would have preserved your account balance from a
significant loss by accepting one of just 100 pips.
6.4. Spreads
The spread represents the difference in value between the bid and the offer
prices of a currency pair. The bid price is that at which Forex traders buy their base
currency. The bid price appears to the left of the currency quote.
For example, if the EUR/USD is 1.4750/052 then the bid price is 1.4750.
The ask price is the price at which traders buy their quote currency and
appears to the right of the Forex quote.
Example: If the EUR/USD is at 1.4400/04, then the ask price 1s 1.4404.
For example, imagine that you are quoted EUR/USD at 1.4450/55 and you
decide to buy at 1.4455. However, you must understand that after you have
completed this transaction your EUR/USD will only be worth 1.4450. Consequently,
if you close your new position immediately you would incur a loss of 5 pips.
This is because your broker has charged you a spread commission of 5 pips.
This example clearly demonstrates why you need to seek a broker offering the
lowest spreads possible.
If you visit www.ivancavric.com, you will find a library of free articles

explaining the above concepts in greater detail. For instance, you will be able to
locate ones that will advise you on the best procedures for performing important
tasks, such as selecting a Forex broker. In addition, you will find others that will
educate you fully in the best operational methods of dealing with Forex items such
as lots, order types and spreads.
You will also discover that FOREX FRONTIERS: The Essentials of

Currency Trading is an ocean of knowledge about these topics. This is because it
27
addresses subjects such as these and shows you how to merge them into Forex
trading strategies possessing both positive win-to-loss ratios and expectancy
values. Real live strategies are also presented that have produced profits during
recent times.
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Chapter 7
What You Need To

Start Trading Forex
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Chapter 7 - What You Need To Start Trading Forex
7.1. An Account with a Forex Broker
First you need to open an account with a Forex Broker. As you will be faced
with a wide choice, here are some guidelines to help you make a selection:
1. The spread of a currency pair represents the difference between the

price at which it can be bought and the one at which it can be sold.
Consequently, you must locate Forex Brokers who offer the lowest spreads
as possible because this will save you money over the long haul.
For instance, the following diagram displays the spreads for both the
USD/YEN and the GBP/USD. You can locate these values as the numbers
shown to the immediate right of the currency pair identifier, i.e. the
USD/YEN has a spread of 3.0 whilst the one for the GBP/USD is 3.1.
2. Ensure that your Broker is backed by a quality financial institution and

that he or she is fully registered with the appropriate authorities.
3. Select a Forex broker who provides a trading platform featuring real-

time charts, technical analysis tools, real-time news and strong support
facilities. In addition, good Forex Brokers normally provide technical and
fundamental commentaries, economic calendars and other research tools as
displayed by the following menu bar:
4. Find a Forex Broker who can provide you with a healthy leverage
facility. This is necessary because Forex price movements represent only
fractions of a cent. Leverage counters this problem by allowing you to trade
sizeable positions with just a small deposit. For example, if you could obtain
a leverage facility of 100:1, then your Forex broker will lend you $100
against each of your own $1. You would then be able to open a $100,000
position, for example, backed by just $1000 of your own account balance.
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7.2. Forex Charting Software
You must ensure that your Forex Broker will provide you with an excellent
Forex Charting Software. You will then be able to use this analytical tool to perform
technical analysis on those currency pairs that interest you. Consequently, you will
then be in a better position to predict their potential directions. You should seek the
answers to the following types of questions when evaluating a charting software:
· What technical indicators are available?
· Is the software internet (HTML or Java), Macintosh or Windows or

based?
· Can you trade from the charts?
· Is historical data made available through the software?
· Do you find that the Graphical User Interface (GUI) is visually

pleasing?
· Does the GUI allow you to monitor many trading parameters at the
same time?
Most Forex brokers permit their potential clients to open demo trading
accounts so that they can experiment with their software facilities. The following
diagram is a good example of charting software in action showing how technical
indicators, such as candlesticks, pivot points and the exponential moving averages
can be utilized to track and predict the price direction of currency pairs. These
technical indicators are defined in free articles on www.ivancavric.com.
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If you are a novice and this is your first time performing the above tasks
then you must seek expert advice in helping you make the best selections.
Fundamentally, you need to locate a Forex specialist with whom you can place your
full trust.
32
Chapter 8
Different Ways To
Analyze The Forex Market
33
Chapter 8 - Different Ways To Analyze The Forex Market
Forex Analysis is used to design trading strategies and consists of two

elements which are fundamental and technical analysis. Ideally, you should use
both to some degree or another when constructing a Forex trading strategy.
8.1. Technical Analysis
This is a method used to evaluate currency pairs by analyzing their historical

data generated by their market activity. Technical analysts do not attempt to
determine the intrinsic value of a currency pair but instead use trading charts to
help identify patterns that can suggest future directions.
This technique assumes that currency pairs produce non-random price

formations and trends which can be defined and exploited. While many different
strategies are utilized, the central theme of technical analysis is based on the study
of trading charts portraying historical price and trading activity.
In addition, you will discover that the emotional responses of Forex traders
to price movements tend to generate recognizable price formations and patterns.
When you use technical analysis, you will not be concerned about the exact
monetary value of a currency pair but that its potential price direction is only an
extrapolation from its historical price patterns.
There are a large number of technical indicators that can be used to help you
achieve these tasks including Stochastic, RSI, Bollinger Bands, MACD, Moving
averages plus many more. However, you must understand that not one of them
can always predict the Forex Market accurately all of the time.
The following diagram shows how the Relative Strength Index is used to
forecast future price trends.
34
8.2. Fundamental Analysis
Fundamental analysis involves the study of the economic data and reports
released by a country in order to evaluate its currency against those of other
nations. A fundamental event is created after any news is posted that can influence
the economy of its host country. This is done every time a government publishes an
economic indicator that provides key information concerning the current economic
performance of its country. This information is also used by Forex traders to assess
the value of the applicable currency against others. Examples of such releases are
US Non-Farm Payroll, US Trade Balance, US Unemployment Claims and the
National Interest Rate Changes.
Fundamental events, especially those classified as of high importance, are

closely monitored by Forex traders because they can generate rapid large price
movements known as spikes. Fundamental data is released at pre-scheduled times
during the month and provide important insights into whether the economies of the
affected countries are improving or deteriorating. For particularly large price
movements to occur, the released value must surprise the market by registering a
notable discrepancy compared to its predicted figure. The following diagram shows
a number of Fundamental releases:
35
You can dramatically improve your prospects of achieving consistent profits if

you design a Forex trading strategy using fundamental and technical analysis. The
FOREX FRONTIERS: The Essentials of Currency Trading shows you exactly
how to achieve this objective by utilizing straightforward explanations supported by
real live examples of trading strategies that are explicitly illustrated by aesthetical
and highly relevant charts and diagrams.
36
Chapter 9
You Must Learn How To

Use Leverage Properly
37
Chapter 9 – You Must Learn How To Use Leverage Properly
As already stated, you will need to be able to use leverage in order to acquire
worthwhile profits. However, you must proceed with caution because the poor
utilization of leverage could expose your account balance to excessive levels of risk.
For instance, some Forex Brokers offer leverage as high as 400:1. Although this
sounds impressive and very desirable, you must appreciate how to exploit such a
facility accurately before trying to use it in full earnest. Here are some important
features about leverage that you must be fully aware of:
1. You must crucially remember that using larger levels of leverage also
increases your risks significantly. You must always monitor your account
balance regularly and utilize stop-loss orders on all your open positions in
order to restrict your risk exposure.
2. Although using stops is good practice, you must still understand that you will
increase your risk exposure significantly if you start leveraging in a recklessly
manner.
You must always know exactly how much you are risking with all of your
trades. Very importantly, when you determine your risk exposure for each trade
that you intend to open then you must base this calculation on your own account
balance and not on your leverage facility. You may be surprised to know that many
Forex novices use the latter and then wonder why they lose their equity so quickly.
For example, if you have $5,000 in equity and your Forex broker provides
you with a 100:1 leverage facility then you will have a leveraged balance of
$500,000. Consequently, if you use your own $5,000 to determine your risk per
trade then you will be able to provide the optimum protection for equity. However,
if you were to foolishly use your leveraged account of $500,000 for this purpose
then you could expose your account to unsubstantiated levels of risk.
For instance, suppose your money management policy sensibly advises that
you should only risk 1% of your account per trade. However, you could still incur
serious problems if you attempt to determine your risk exposure by utilizing your
full leveraged facility to support this action. This is because you would risk $5,000
on just one trade. In other words, you will be gambling all your equity on one
position! You must agree that such an action could be the equivalent of committing
financial suicide.
38
You are well-advised that under no circumstances should you ever

contemplate utilizing your leveraged account because you will eliminate any real
possibilities of earning consistent Forex profits over the long haul by doing so. In
fact, this is one of the main reasons why novices lose all their equity shortly after
they commence their Forex trading careers. Fundamentally, they were using too
much leverage per position which caused them to overtrade. You can overcome this
problem by developing a well-tested risk and money management strategy.
You will find many free articles on www.ivancavric.com that not only
advise you on how to design such risk and management strategies but also show
you how to integrate them into well-tested Forex trading strategies. The book
FOREX FRONTIERS: The Essentials of Currency Trading explains how you can
provide optimum protection for your equity by adopting the professional trading
practices utilized by large institutional Forex investors.
39
Chapter 10
Surviving Your First

Months Of Forex Trading
40
Chapter 10 – Surviving Your First Months Of Forex Trading
One of the main reasons why Forex trading has become so popular is the
availability of leverage, as just discussed, which provides traders with financial
resources that are multiple times bigger than their own account balances. Without
such facilities, Forex trading would be out of reach for most small players because
the fiscal amounts required to realize reasonable profits would be too great.
As such, after you open a Forex account you will then be able to invest your
broker’s money to leverage your own balance so that your chances of achieving
worthwhile profits are substantially improved. However, there are serious risks
involved as explained in the last chapter.
In order to commence Forex trading, you must open a margin account with a
Forex broker. You must then deposit a sum into your Forex account which is equal
to the margin percentage agreed upon with your broker. For example, if you want
to trade a $100,000 currency position and you have a 1% margin account, then
you will need to deposit $1,000. The remaining 99% is provided by your broker.
You must realize that you will not have to pay any interest directly on this
borrowed amount and that your broker will use your deposit as security. The
amount of borrowing power your Forex margin account provides you is known as
leverage. If you are new to Forex then it is vital that you understand that trading
on margin increases both your profit and loss potential significantly.
You should realize that one of the biggest differences between the way Forex
novices and experts trade is as follows. Novices have a tendency to focus on how
much profit that they can gain while experts evaluate, as their primary objective,
how much they could potentially lose. As such, these two groups approach their
Forex trading with two completely different mindsets and philosophies. You must be
aware that when you are utilizing leverage and margin accounts then you must
assess your risks as your top priority. If you fail to do so then you could just add to
the depressing statistic stating that almost 90% of all Forex novices lose their
entire equity within months from startup.
However, although the potential exists for you to experience serious losses
you can restrict your risk exposure and protect your account balance by taking
sensible safeguards. You should also understand that your Forex broker will
terminate your open Forex positions if their losses become so great that they
extend beyond your margin deposit.
41
As already mentioned, trading using a Forex margin account provides you

with increased buying power and the potential for more profits although at higher
risk. How does this work exactly? This is because a 1% margin account allows you
to open a Forex position worth $100,000 for $1,000. As such, you must now
realize that just small changes in the price of a $100,000 currency block can
generate significant profits or losses.
For example, when you trade the EUR/USD currency pair, the value of each
pip is equal to $0.0001. This means that if you were to trade just your own deposit
of $1,000, then a pip would be worth only 10 cents. However, if instead you use a
leverage facility of 100:1, you then will be trade currency worth $100,000 which
will provide you with a pip value of $10.
Consequently, should the value of the EUR/USD appreciate from 1.3256 to

1.3356 then you will record a profit of 100 pips. As a result, your leveraged account
would produce for you a $1,000 profit if you had gone long. In comparison, if you
did not utilize a leverage facility, then the same pip movement would only have
produced for you a profit of $10. As you must admit, this second result is not so
exciting. In conclusion, this example should confirm to you that the great benefit of
a margin account is that it provides you with leverage that can greatly increase
your profit potential.
However, you must focus on the fact and as already been advised there are
significant downsides to using a margin account because its leverage facility also
increases your risk exposure. If you are not cautious then you could lose your
entire equity very quickly. For example, if you have a 1% margin account and price
moves against your traded currency by just one cent, you would lose $1,000.
There are a number of different Forex order types that you can utilize that
can limit these losses as explained in Section 6.3. For instance, a stop-loss order
can automatically close your position if price advances against it by a pre-
determined number of pips. Stop-loss orders allow you to limit your losses by a
specified amount while still allowing potential for profits.
You must also appreciate that your broker could close your position if your
potential losses equal or exceed the balance of your margin account. For instance,
you may be trying to ride out a downtrend with the expectations of a market
reversal. However, should this event not happen then you could find that your
position has been automatically closed because your margin balance has become
exhausted.
42
For example, imagine that you have shorted a 1 standard EUR/USD lot at
1.4700 with the expectation that the euro will fall in value. This means your
100,000 Euro is worth $147,000. Also, assume that you have a 1% margin account
which means that your own required margin is $1,470.00. If you have only $1570
in your Forex account, then your available margin would now be $100.00 should
you have been so reckless as to open such a position.
Now imagine that in this state of complete insanity, you also did not set a
stop-loss order and the euro suddenly rallied to 1.5600. As your 100,000 Euros
would now have appreciated to US$156,000, your 1% margin requirement would
have risen to $1,560.00. Under such circumstances, your Forex broker would have
issued a margin call causing your position to be automatically closed down and you
would have incurred a loss of $100.
You must also be aware of the spreads that Forex brokers charge when you
use a margin account because they can affect your profits over the long haul. For
example, imagine that Broker 1 charges 2 pip spreads on its 1% margin accounts
while Broker 2 charges 10 pips. Broker 1 could provide you with a quote on the
EURUSD, for example, of 1.4500/02. In comparison, Broker 2 would only offer a
quote of 1.4500/10.
As such, if you buy from Broker 1 then you would incur just a loss of 2 pips
or $20 whereas if you buy from Broker 2 you would be charged a 10 pip spread or
$100. Your leveraged facility of 100:1means that each pip is worth $10. As such,
spread charges can accumulate easily if you are not on your guard.
As this chapter illustrates, you must make the protection of your equity your
top priority in order that you can survive your first few months of Forex trading.
Again, you will find great advice and strategies for achieving this objective by
spending some time at www.ivancavric.com and studying FOREX FRONTIERS:
The Essentials of Currency Trading.
43
Chapter 11
Summary
44
Chapter 11 – Summary
Although Forex offers some remarkable opportunities for achieving serious

profits, this booklet has tried to advise against the gung-ho approach that is
normally adopted by Forex novices. It has attempted to achieve this objective by
initially introducing you to a number of key Forex topics and then advising you
about methods that can help you survive your first few months of trading.
In particular, you have also been informed that FOREX FRONTIERS: The
Essentials of Currency Trading is the book that the Forex world has been
desperately awaiting. This is because it states precisely why you could experience
so much difficulty trading Forex as so many have done before you. However, this
book’s easy-to-understand format then proceeds to state exactly how you should
develop your Forex career by identifying all the crucial aspects of this subject. As a
consequence, The Essentials of Currency Trading will definitely have you saying
“Now I understand.”
One of the prime features of The Essentials of Currency Trading is that it

presents a step-by-step guide about how to design your own Forex trading strategy
by using all the concepts explained in its previous chapters. What’s more is that the
book also provides examples of real trading strategies that was developed using the
exact process outlined and backed by live data results.
If you are new to Forex then you should definitely read the Essentials of
Currency Trading because it will certainly place you on the right road to Forex
enlightenment by helping you safeguard your equity and ensuring that you adopt
the best trading practices from the outset.
This book is the first of a trilogy. The full set comprises the following titles:
Book 1 FOREX FRONTIERS: The Essentials of Currency Trading
Book 2 FOREX FRONTIERS: Proven Strategies for Success
Book 3 FOREX FRONTIERS: What the Pros Won't Tell You
The last two books will complete your Forex education with the prime aim of
improving both your trading skills and profits significantly.
I have been in the Forex business since it first began. If you are in search of
good materials to teach yourself the ins and outs of Forex, then I suggest you visit
my personal blog www.ivancavric.com and get yourself a copy of my book
45
“FOREX FRONTIERS: The Essentials of Currency Trading,” which is available

at Amazon. The first two sources will supply you with excellent quality and free
information about the above Forex topics, as well as many others. The book will
discuss in-depth the Forex topics outlined in this booklet and provide you with a
solid foundation on which to launch your Forex career.
I wish you all luck on your journey to the exciting and breathtaking world of
Forex. But before you dive head on, please remember to study and do your
research and, most importantly, learn from those who have spent a great deal of
time learning the art and science of currency trading.
46

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FOREX

By: IVAN CAVRIC

Copyright © 2010 by Ivan Cavric

MERRITT HOUSE PUBLISHING INC.

Author’s Contact Information

The Author of this book has strived to be as accurate and informative as

This book is strictly for educational purposes only.

Chapter 2: What Is Forex All About?

Chapter 3: Understanding Forex

Chapter 4: Important Forex Terminology

Chapter 5: Some Basic Features Of Forex Trading

Chapter 6: How Currencies Are Bought And Sold

6.1 - The Role Of The Forex Broker

Chapter 7: What You Need To Start Trading Forex

7.1 - An Account With A Forex Broker

Chapter 8: Different Ways To Analyze The Forex Market

8.1 - Technical Analysis

Chapter 9: You Must Learn How To Use Leverage Properly

Chapter 10: Surviving Your First Months Of Forex Trading

Chapter 11: Summary

Forex is an intriguing and exciting subject that attracts numerous new

You can study various Forex strategies by visiting my personal blog at

FOREX FRONTIERS: The Essentials of Currency Trading

FOREX FRONTIERS: Proven Strategies for Success

FOREX Frontiers: What the Pros Won't Tell You

What Is Forex All About?

Chapter 2 – What Is Forex All About?

Forex has a daily turnover that is reputed to be in excess of three trillion US

In a similar way to the Stock Market, currencies can be considered to be the

This website also promotes my book “FOREX FRONTIERS: The Essentials

Chapter 3 – Understanding Forex

Forex is unique because of its following features:

- Number and variety of traders

- Trading hours are 24 hours a day except weekends

- The variety of factors that affect the exchange rates

- The use of leverage

- The first currency of a pair is termed the base. In most major

- This second currency of a pair is called the counter or quote.

- If the value of a currency appreciates, it means that the base currency

Consequently, you may be surprised to discover that the remaining 95% of

Again, you can achieve this objective by visiting www.ivancavric.com

Chapter 4 – Important Forex Terminology

A bearish investor anticipates that a currency pair will decline in value.

A bullish investor expects that a currency pair will appreciate in value.

A strategy designed to reduce investment risk by investing in alternative

Leverage involves the use of various financial instruments or borrowed capital to

This is a method used to evaluate currency pairs by analyzing statistics generated

You can obtain a better understanding of these important terms as well as

Some Basic Features Of

Chapter 5 – Some Basic Features Of Forex Trading

Currency Code and Symbol % daily share (approx.)

1 United States Dollars USD $ 86%

2 Euros EUR € 37%

3 Japanese Yen JPY ¥ 17%

4 Pound Sterling GBP £ 15%

5 Swiss Franc CHF Fr 7%

6 Australian Dollar AUD $ 7%

7 Canadian Dollar CAD $ 4%

8 Swedish Krona SEK kr 3%

Currency Pair Nickname

Even though the majority of currency transactions involve the US Dollar,

Although these currency pairs are quoted independently, you must

In order for you to trade Forex successfully, you must achieve an

A PIP (Percentage in Points) is the smallest price unit of a Forex currency

Forex Frontiers: The Beginners' Booklet

Forex Frontiers: The Beginners' Booklet