Tài liệu Currency Trading Basics Everything you need to start profitable trading today pdf

knowledge that underpins all of our future forex trading and These four topics tell us: • What profits can be expected per pip • The basis of risk control and over-trading • Teaches you

Currency Trading Basics Everything you need to start profitable trading today

Published by Dean Watt at Smashwords

Copyright 2013 Dean Watt

Smashword Edition License Notes

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Table of contents

Learn forex trading

What is a currency pair?

Forex pips explained - What is a pip?

Forex Lots Explained - What is a lot?

Leverage

Forex margin explained - What is forex margin?

What is the risk of ruin?

Forex Money Management is the traders friend

Want to learn how to become an auto forex trader ?

About The Author

Learn forex trading

Trading the foreign exchange market is a great way to make extra income However to be able to earn consistent profits takes time, dedication and effort The only way we can become profitable is

through learning

When we take the time to learn we begin to understand how we can make money from the forex market As we learn we are developing essential skills that will make us money for life

Why learning and experience matters

When we are starting out on our journey to trading success We do not understand the trials and pitfalls that lay ahead We believe that

making money from the markets is easy All we need to do is follow a technique or an indicator and watch the profits flow

The reality is very different Instead of making profits we lose money

We keep losing money until we have learned enough skills to become successful

Only by trading and learning and learning and trading do we gain the understanding to become profitable How do I know? Well I have been

on this path too I have dedicated myself for years to learning and improving I have gained the skill and knowledge to become

consistently profitable in the forex market

Along the way I have learned that there is more than 1 way to make money in forex We are all unique and we have to find a way to trade that works for us Here I share my knowledge on all aspects of making money from the foreign exchange market

The basics – The foundations of success

One of the most important lessons I can give you is to learn your

basics When we understand these basic building blocks we have the

knowledge that underpins all of our future forex trading and

These four topics tell us:

• What profits can be expected per pip

• The basis of risk control and over-trading

• Teaches you how to maximize your profits with broker leverage while minimizing risk

• How our brokers lend us money to trade and how this effects our trading

Learning about advanced forex concepts

Now that we understand the building blocks we can move on to more advanced skills and concepts This is where we can start to learn the how to make money and develop the skills to keep it

The core advanced concepts are

• Money management

• Risk of ruin

Be a better trader with money management

On our road to successful trading we eventually discover the

importance of money management Every trader must learn this skill to

be successful However money management is normally learned the hard way After we have lost thousands of dollars and years of struggle trying to be profitable

Once we understand the power of these two concepts our trading will never be the same again Money management turns us into a

professional trader and using money management means we have

taken a giant step towards profitability

My 15 minute forex investing system is available to you for free on my website It has all the tools you need to start making money in forex It

is a complete money management system and can be used by all

traders to help control our risk and boost our profits

This gives us a professional way of managing our money

Follow a professional for accelerated results

One way we can accelerate our profits and short cut our learning is by following a professional trader As we know knowledge and

profitability takes time to learn It takes on average 3 years of hard work for a trader to become consistent enough to make money

Most people trade forex because they want to make money but most fail in the first year By following a professional we can start making money because a professional has found their own way of trading, they have learned the skills and persevered and become profitable

To follow a professional trader their trading account is linked to our trading account via the internet When they trade we trade and this gives us an automatic way of making money

How I make my money from the forex market

We have talked about finding our own way of earning profits from the forex market The way I make my money is by being a money manager and I use an investment approach I use my professional money

management strategy and combine it with professional signal

providers

I am looking to use a professional (or portfolio of professionals) to earn between 20% and 100% return per year I then use my money

management system to protect myself and control the trading signals I receive If a professional stops being profitable then I simply remove them and replace them with a more profitable trader

By making consistent returns every year I use the power of

compounding to multiply the money my trading account This gives me

an automated way of making consistent long term profits and is a true road to wealth

It takes me 15 minutes a day to control my traders and make my

money This is my 15 minute forex investing system You can sign up to use my system for free here

What is a currency pair?

All currencies are traded in pairs and these pairs tell us which to

countries currencies are being traded The pair is defined as the Base/Quote We read the the currency pairs as follows

EUR/GBP (Euro / British Pound)

USD/CAD (US Dollar / Canadian Dollar)

EUR/CHF (Euro / Swiss Franc)

GBP/USD (British Pound / US Dollar)

ETC

When we buy a currency pair we are buying the first part of the

currency pair which is called the base We are also simultaneously selling the other currency called the quote When we sell a currency

we sell the base and buy the quote

The base is always a fixed amount.

The base is always 1

Forex pips explained - What is a pip?

A pip is the 4th decimal place when looking at a currency pairs price A pip is 0.0001 move in the currency So if we are trading EUR/USD at 1.2984 and the currency moves to 1.2985 it has moved 1 pip This is important as profit and loss are calculated using pips

Let’s say we have a pip worth $10 and we have a profitable trade of 10 pips $10 X 10 pips would give a profit of $100 on the trade

The exception to the rule

When trading the Japanese Yen (JPY) In this case the 2nd decimal point is the pip A Yen pip is a 0.01 move in the currency Let’s say we are trading USD/JPY at 78.15 and the currency moves to 78.14 it has moved one pip

Let’s say a pip is worth $10 If on a 5 digit broker the currency moves 0.00001 which is the smallest move in any currency This move is worth

$1

What about the Yen?

On a five digit broker the yen (JPY) has 3 decimal places and the 3rd decimal is the pipette Again it is 1/10th of a pip

Forex Lots Explained - What is a lot?

A lot is often called a Standard Lot, but there is also a Mini Lot and a Micro Lot A Standard Lot is 100,000 units of currency A Mini Lot is 10,000 units and a Micro Lot is 1000

CBT means this lot size is unavailable and Cannot Be Traded

As we can see lot size and the lot size we choose to trade can affect how much of a currency we are trading This in turn controls our risk profile

It is worth noting that 0.01 of a standard lot is the same as 0.1 of a mini lot and 1 of a micro lot

They are all 1,000 units of currency

It doesn't matter which we choose for our account however be careful when selecting lot sizes as some trading platforms ask us to select the scale we are using

We must select the scale which is either standard, mini or micro However when we us a lot size of 0.1 with different scales it produces different results It means 10,000 when using a standard lot, 1,000 for mini and 100 for a micro lot

If we are using the micro lot scale and are using 1 lot (1000 units) and

we change the scale to trade mini lots instead If we forget to change the lot size from 1 to 0.1 we will be trading (10,000 units) which is 10 times more risk

This can be an easy though expensive mistake

Choose the lot size that is right for us I have provided free calculators

on my site that have all 3 scales available

Leverage

Most forex brokers will offer you leverage, this can be as low as 1:1 or

as high as 1:500 There are 2 types of leverage, margin leverage and real leverage

Margin leverage

When you open any trade you have to give you broker a deposit from your trading account If you wish to open 1 standard lot you are buying 100,000 units of currency Let’s say we want to open 1 standard lot USD/CAD and we trade with a dollar account

Without leverage we would have to deposit $100,000 with our broker

to open a single trade To trade safely we would need account size in excess of $4,000,000 Without margin leverage it is almost impossible for private traders to trade the forex market

The leverage offered by brokers allows private traders to open trades that would normally be too large for their accounts Say we open 1 standard lot of USD/CAD but this time we have a leverage of 1:100 Now instead of needing $100,000 we only need 1% to open our trade, which is $1,000

Margin leverage allows private traders access the forex markets

Real Leverage

Margin Leverage can be a double edged sword This happens because margin leverage allows you to open lot sizes far in excess of what your account can manage Therefore we have to be careful to not over trade and blow up our accounts.

Real leverage is the amount of risk you are taking per trade

Example 1

$10,000 account

$10 per pip per standard lot USD/CAD

Stop loss 200 pips

We open 1 trade with 5 standard lots and we are using 1:500 leverage

on our account This means we are buying 500,000 units of currency

To open the trade we would need to deposit only $1,000 This would leave $9000 dollars for our account margin (See margin section for more detailed explanation)

The trade goes against us and hit its stop loss of 200 pips

$10 (per pip per lot) x 5 (lots) = $50 per pip for this trade

$50 x 200 pips = $10,000 loss

A margin call would have happened when the losses hit $9,000

On this trade Real leverage combined with margin leverage has wiped the trader out

Example 2

$10,000 account

$10 per pip per standard lot USD/CAD

Stop loss 50 pips with a 5% maximum account loss ($10 pip x 50 stop loss)

We open 1 trade with 1 standard lots we are using 1:100 leverage on our account We buying 100,000 units of currency

To open the trade we would need a deposit of only $1,000 This would leave $9,000 dollars for our account margin

Again we hit our stop loss This time however the result is different

$10 (per pip per lot) x 1 (lots) = $10 per pip for this trade

$10 x 50 pips = $500 loss for trade

This time the trader has managed their real leverage risk to a

maximum of a 5% loss Even though we have a losing trade this trader has survived and is able to make another trades

How to control your real leverage.

This is what this book and companion website is about Controlling your risk while keeping you trading Take a look at money

management, risk of ruin and forex margin explained to see how you can reduce your real leverage whilst making the most of margin

leverage

By controlling our trading risk we are allowing our trading systems the time to make money

Forex margin explained - What is forex margin?

When we trade currencies we are effectively trading very small

amounts of a currency So small that if we were to trade a single unit

of currency we would find it extremely difficult to make any money

We need to trade large volumes of a currency to make any meaningful gains.

For instance a 1 standard lot is 100,000 units of currency To trade this

we would have to buy 100,000 of the base currency e.g $100,000 if trading 1 standard lot of USD/CAD As most private traders could not afford to buy $100,000 worth of currency our forex broker offers us a margin trade

Let’s say we wish to open 1 standard lot of USD/CAD Your broker

offers us 1:100 leverage Instead of needing $100,000 dollars to open the trade we only need 1% which is $1,000 This makes it possible for private traders to trade in the forex market

Our broker is lending us the rest of the money required to open the trade However to do this our broker requires an initial deposit No deposit no trade Our broker will also look to protect themselves from any loss by monitoring our trading account If our trading account

reaches zero they can close all of our open trades therefore protecting themselves from loss This is called a margin call

When a trade opens we will have the initial margin deducted from our trading account

Margin is a representation of our account size and margin is essentially how much money we have in our account Margin divides our account into 2 parts, the 1st is the initial margin or deposit required to open a trade The 2nd is the remaining account balance called account

margin If both of these combined falls below our trading account balance we have a margin call

We have to protect ourselves from the margin call

What is the initial margin?

Initial margin is the amount of currency (deposit) that our broker

requires from us to open our trade

The amount of money requested from our broker depends on the

amount of leverage we have If we trade 1 standard lot of 100,000 units of currency The initial margin is a percentage of this amount

Leverage size to initial margin

NOTE the initial margin is in the base currency If we open USD/CAD it would in USD If you opened EUR/GBP it would be EUR etc

We have a free margin calculator with this e-book The calculator

stops over trading and margin calls To start we enter our leverage into the calculator

Remember the currency comes as a pair The first currency is the base and the second the quote.

To work out how much our initial margin is we look at our leverage

We can see from the table that we need to give the broker $1,000

deposit for each USD/CAD trade opened at 1 standard lot

As we open our USD/CAD trade $1,000 dollars is deducted from our account and held by the broker Until the trade is closed we have

$9,000 in our account Once the trade is closed the $1,000 will be

returned

If 2 USD/CAD trades were opened $2,000 would be deducted from our account We would have $8,000 left in our trading account Once again the money is returned once the trades are closed

What if your account currency is different to the base currency?

If our account currency is different from the base currency We would have to convert the base initial margin into our account currency

We now convert this to our account currency in this case USD First we find out what the EUR/USD exchange rate is (Current exchange rates can be found on the side bar of the companion website.)

It is 1.29315 (at time of writing)

We enter the exchange rate (1.29315) into the margin calculator The calculator will tell us how much initial margin is required for 1

standard lot

You would need £1,293.15 of initial margin (deposit) to buy 1 standard lot of EUR/CHF

Why do we need to know about margin?

Opening trades requires a deposit which reduces our trading capital This in turn increases our trading risk therefore we need to control it The risk we are avoiding is the premature closure of our trades before they hit the stop losses This will cause catastrophic loss to our trading capital

As we have to give our broker an initial margin (deposit) to open a trade Let examine what happens during the trade

When we are trading our trading capital has been reduced because of the initial margin having been removed This gives us less money to withstand losses Therefore we have to be careful when we are in

draw-down to avoid a margin call

Remember winning or losing trades still costs the same initial margin

To reduce these costs we would either have to reduce our lot sizes, increase our leverage or increase our account size or a combination of the 3

The Dreaded Margin Call

This is when our broker can close our open positions or ask us for more money This happens when we have open losing trades and these losses are greater than our remaining account margin

Example

Let’s say we have 5 open trades on USD/CAD with 1 standard lot

We have a 10,000 dollar account

Leverage of 1:100

Value of each pip: $10 per pip with 1 standard lot

We know that 5 open trades require an initial margin of $5,000 This leaves $5,000 account margin to whether any losses

Each of the 5 trades goes against us We didn't know about managing risk so we had no stop losses We are losing $10 per pip for each

standard lot traded As we have 5 open trades of 1 lot, we are losing

$50 per pip

It only takes a loss of 100 pips (100 x $50 =$5,000) and our account margin is wiped out The broker will give us a margin call Note: A 100 pip move is an average move for most trading days

What happens next?

Either we have to add MONEY to our account to keep the trades open.OR

Our broker closes our trades and we will LOSE our account margin.Either way we are in trouble as we have to choose either to spend more money with no guarantee of success, or lose our account margin

So what can we do to reduce our risk?

To do this we need to make sure that our trades are not cut short by the margin call

How to protect ourselves from a margin call

As with money management and risk of ruin we have to work out and then minimize the risk The first part is knowing how much our initial margin will be Then we need to know what the maximum amount of open trades we are trading

As each time a trade is opened an initial margin is removed from our account We need to work out how much this will be I have included a FREE calculator on my companion website to help with the

calculations

First work out the initial margin for each currency pair we are trading

To do this we will need to know our leverage and the exchange rates for the base currencies to our trading account currency

Next we need to know how much initial margin we are using for our chosen lot size We will know our lot sizes from the money

management calculator Enter the lot sizes from the money

management calculator into the margin calculator

Next we enter the maximum number of open trades for our chosen system, and the percentage each that currency pair is traded (I have produced a series of FREE video tutorials to help you through this

process)

Once we have entered the lot size, maximum open trades and the percentage each currency pair is traded The calculator will tell us how much initial margin we will need to open the maximum number of trades

The final part of the process is to incorporate the draw-down process

We do this by entering into the margin calculator the size of our

trading account and what percentage risk we are taking per trade

Once this has been entered into the calculator you will have 2

numbers The first is our total margin risk This is how much money we would lose if the system opened its maximum number of trades and all trades hit their stop losses

The second number is your account balance What we are looking for is the margin risk to be lower than our account balance If the margin risk is greater than the account balance we have a risk of a margin call before we hit our stop losses

If the margin risk is greater then we can do a few things to lower the risk We can increase our leverage from our broker This will reduce the initial margin requirement We can also reduce the percentage risk per trade as this will lower the draw-down risk or reduce the number

of trades taken Finally we can add funds to our trading account or a combination of all 4

If we have maximum leverage and a low % per trade and the margin risk is still higher than our account balance Think about reducing the number of trades taken from our chosen system For how to do this see the FREE video tutorials

What is the risk of ruin?

Risk is an ever present part of trading It is something we have to live with but it is also one area of trading that we are able to control We cannot know if a trade will be successful or not when we open our trade but we can control our risk to the trade

It is conventional wisdom to think “the higher the risk, the higher the reward” and in some areas of finance this may be true In areas such

as bank lending and insurance However in trading the higher the risk the more chance you have of blowing your trading account (losing all your money)

To be successful in trading you need a trading system that has a

positive return (expectancy) and the time needed to make multiple

trades If either the positive expectancy system or the time are missing then we will not make any money.

This is why knowing and controlling our risk is the most important part

of trading Controlling our risk gives us the time we need to increase our account When combined with correct money management our profits will soar

Let’s take a look at risk and how to calculate it.

Take for example 2 traders both trading the same system with the same lot size and leverage One (trader A) has a $10000 account and the other (trader B) a $1000 account The system incurs a loss of $500.Trader A has lost 5% of his account but Trader B has lost a massive 50% Trader A has to grow their account by 5.27% to recoup the loss

However trader B's account has to grow by 100% just to break even

To reduce their risk trader B could either increase the size of the

trading account, reduce the lot size traded, reduce the real leverage used or a combination of all 3 However the question still remains how

do we know when we have reduced our risk to a safe level and what is the safe level?

The safe level is a personal thing For 1 trader it could be 100% of their account and for another it could be a draw-down of 30% You will know what is right for you Whatever the amount that you have chosen, this

is the amount that you use when working out your risk of ruin

Example

£10000 trading account and the trader is willing to risk 33% then £3333

is used to work out our risk of ruin

£10000 trading account and the trader is willing to risk 50% then £5000

is used to work out our risk of ruin

Risk of Ruin Calculator

Above is a link to the website which has the risk of ruin calculator All you need is to enter the Win, Loss percentage of our trading system

and the percentage risked per trade and the calculator will do the rest.

% win of system

% Loss of system

% of account risked per trade

In the above examples let’s say the system being used has a statistical 60% win to 40% loss and $500 is being risked on each trade

This formula uses an average win to loss ratio of 1 or parity Check systems pages for average win loss ratio for each system

Risk of Ruin Calculator

Trader A

$10000 in account

$500 risked on each trade

5% risked per trade

Risk of ruin 0.03%

Trader A has a risk of ruin of 0%

(Note: this is a statistical concept and there is always some risk in trading)

Trader B

$1000 in account

$500 risked on each trade

50% risked per trade

Risk of ruin 44.44% (per trade)

Trader B has a risk of ruin of 44%

The acceptable level of risk for your trading account is 0% Anything other than 0% will result in a blown account and a serious loss of

money You may be thinking that this will not happen to me

Remember unless you have a risk of ruin of 0% it is just a matter of time

How to find the win loss % and how to work out number of units of money?

The website shows you where to find the information you need to be able to use all of the 3 calculators provided

On the risk of ruin calculator you will be asked to input our trading account size You will also be asked for the percentage we are willing

to risk on each trade Enter these figures into the calculator along with the win loss % and the calculator will do the rest

Now that we understand the risk of ruin and how we can use it to

protect our account Read the money management section to learn how to increase our profits

Forex Money Management is the traders friend.

Correct money management is a fantastic tool in trading In essence it reduces risk when we are losing money and magnifies profits when we are winning There are 2 types of money management

Martingale

Anti martingale

The perils of a martingale system

Martingale is a concept from gambling theory It is when we double our position after each losing trade Bet $100 and lose, the next bet would have to be $200, then $400, then $800 etc

In theory we could keep doubling up after a loss until we break even

In real world trading there is a very high chance that we will run out of money before we can break even So instead of keeping us trading Martingale has had the opposite effect, it quickens our demise

Example

$10,000 trading account with $500 risked per trade

Loss 1, next trade $1,000 (account size $9,500)

loss 2, next trade $2,000 (account size $9,000)

Loss 3, next trade $4,000 (account size $7,000)

Loss 4, Next trade £8,000 (account size $3,000) can’t trade not enough capital

As we can see we cannot continue trading as our account will not

support the next martingale trade We have reduced our account by 70% in only 3 losing trades

So instead of reducing risk a martingale money management system increases it and can lead to a total account loss

Anti martingale is the correct money management strategy It uses a system called geometric profits This allows us to increase your lot

sizes when we are winning and reduce our lot sizes when losing This is essential to manage our risk.

Correct Money Management

The system we will be using is called fixed percentage money

management It is not the only money management system however I find that it works well with forex trading Fixed percentage has the ability to generate large profits and lower risk This makes fixed

percentage a good all round money management system

What is a fixed percentage money management system? Simply it is a fixed percentage of our trading account that is risked per trade This can be any percentage the trader wishes It all depends on how much risk per trade we are willing to accept

The percentage risked per trade gives us a maximum number of trades

we can make out of our trading account If we wish to risk 5% of our account per trade we would have 20 trades (100 x 5% = 20) If we wanted to risk 2% per trade then we would have 50 trades (100% x 2%

On the calculator just enter our account balance and the percentage you wish risk per trade The calculator will tell us how much money we are risking per trade and this helps us calculate our lot size.

How to work out our fixed percentage money management

First we need to decide what percentage we wish to risk Most traders would have a minimum of 20 trades or 5% Once this has been decided

we can work out how much this is in trading capital

Note: the money management calculator works this out for us All we need to know is how much trading capital we have and what % risk we are willing to take Enter this into the boxes provided and the

calculator will know tell us how much trading capital we are risking per trade