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Course Module 1: Basics of Forex Trading 1 - An Introduction to the Forex

Market

24 Hour Liuidit!

Probably the biggest advantages that traders of the forex market will cite is that the

market is by far the largest market in the world, and that main currencies can be

traded actively 24 hours a day. The huge amount of volume traded in the world’s main

currencies each day, dwarfs the volume traded in the equities and the futures marketsmany times over. This combined with the 24 hour trading day gives traders the ability to

determine their own trading hours instead of having to trade within set hours as they

would have to when trading stocks andor futures. !ore im"ortantly than this however

is that as the market is more liquid than the futures and equities markets, "rice

sli""age #the di$erence between where you click to enter or exit a trade and where you

actually get in or out% in the forex market is normally much smaller than in the stock

and futures market.

The disadvantage here is that real market &unkies sometimes cannot "ull themselves

away from the screen while the market is trading and need the 'nite trading hours of

futures andor stocks to force them to ste" away from the market. (s my background is

in forex ) have seen many stock and futures traders burn out when trying to trade forex

for this reason.

Le"erage

There is more leverage "rovided to traders by most forex trading 'rms than any other

market in the world. !any 'rms o$er you u" to 2** to + leverage which if fully used

would essentially take a .- move in the market and turn it into a +**- gain or loss on

the value of the account.

 (s the most highly traded currencies rarely move more than a cou"le of "ercent in a

day, this allows traders to tailor the forex market to their needs, making it aconservative instrument when traded without leverage or the crack cocaine of 'nancial

instruments when making full use of the leverage available.

hile the availability of leverage is normally seen as an advantage in the above sense, it

is also one of the "laces where forex gets its bad name. !any times new traders are

lured to the market after seeing the ability to am"lify their returns by making use of all

that leverage. hat these traders do not fully understand however is that leverage is a

double edged sword causing greater losses &ust as quickly as it can cause greater

"ro'ts. (s a result of this lack of understanding and &ack"ot mentality, many beginning

forex traders loose their money very quickly as a result.

#nl! Macro $"ents A%ect the Forex Market

/nlike stocks where individual com"any events have a huge a$ect on "rice movements

the most highly traded currencies are only a$ected by macro events like the ca"ital

0ows between countries, and changes in government or central bank "olicies. This is

often "ointed to as an advantage by 1orex Traders who feel that this brings less

uncertainty to their trades than stock trades which can be thrown way o$ track if a

sur"rise ha""ens such as a 3 quitting or something similar in the micro "icture.

This combined with the fact that there is so much liquidity in the market also makes it a

much harder market for someone to come in and mani"ulate the "rice to their

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advantage and to the detriment of others.

The disadvantage here is that this also means less o""ortunities to gain an

informational edge and to "ro't from that edge as well.

&o '()ard Bias

ver the long term the /5 stock market has always gone u" giving stocks in the /5 an

u"ward bias when trading. (s currencies are traded in "airs when the value of one

currency is falling this automatically means that the value of another currency is rising.

This is an advantage from the stand"oint of there is equal o""ortunity for "ro't fromboth long and short trades. This is a disadvantage from the stand"oint of not having

that u"ward bias working for you when you are in a long trade.

The last characteristic that we will cover is how the fact that the forex market is an over

the counter market a$ects us as traders. will be our next to"ic of discussion.

2 -$xchange Traded *s+ #"er the Counter Markets 

)n our last lesson we began the )nformedTrades.com free video forex course with a look 

at the ma&or characteristics that make the foreign exchange market unique in

com"arison to other markets. )n today’s lesson we are going to continue this discussion

with a look at 3xchange Traded vs. ver the ounter !arkets and how the fact that

currencies trade over the counter a$ects us as traders.

hen trading stocks or futures you normally do so via a centrali6ed exchange such as

the 7ew 8ork 5tock 3xchange or the hicago !ercantile 3xchange. )n addition to

"roviding a centrali6ed "lace where all trades are conducted, exchanges such as these

also "lay the key role of acting as the counter"arty to all trades. hat this means is that

while you may be buying for exam"le +** shares of 9oogle stock at the same time

someone else is selling those shares, you do not buy those shares directly from the

seller but instead from the exchange.

The fact that the exchange stands on the other side of all trades in exchange tradedmarkets is one of their key advantages as this removes counter"arty risk, or the chance

that the "erson who you are trading with will default on their obligations relating to the

trade.

 ( second key advantage of exchange traded markets is that as all trades 0ow through

one central "lace, the "rice that is quoted for a "articular instrument is always the

same regardless of the si6e or so"histication of the "erson or entity making the trade.

This in theory should create a more level "laying 'eld which can be an advantage to the

smaller and less so"histicated trader.

:astly, because all 'rms that o$er exchange traded "roducts must be members and

register with the exchange, there is greater regulatory oversight which can make

exchange traded markets a much safer "lace for individuals to trade.

The downside that is often cited about exchange traded markets is cost. (s the 'rms

who o$er exchange traded "roducts must meet high regulatory requirements to do so,

this makes it more costly for them to o$er these "roducts, a cost that is inevitably

"assed along to the end user. 5econdly, as all trades in exchange traded "roducts must

0ow through the exchange this gives these for "ro't entities immense "ower when

setting things such as exchange fees which can also increase transaction costs for the

end user.

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/nlike the stock market and the futures market which trade on centrali6ed exchanges,

the s"ot forex market and many debt markets trade in what’s known as the over the

counter market. hat this means is that there is no centrali6ed "lace where trades are

made, instead the market is made u" of all the "artici"ants in the market trading

among themselves.

The biggest advantage to over the counter markets is that because there is no

centrali6ed exchange and little regulation, you have heavy com"etition between

di$erent "roviders to attract the most traders and trading volume to their 'rm. Thisbeing the case transaction costs are normally lower in over the counter markets when

com"ared to similar "roducts that trade on an exchange.

 (s there is no centrali6ed exchange the 'rms that make "rices in the instrument that is

trading over the counter can make whatever "rice they want, and the quality of

execution varies from 'rm to 'rm for the same instrument. hile this is less of a

"roblem in liquid markets such as 1; where there are multi"le "rice reference sources,

it can be a "roblem in less highly traded instruments.

hile the lack of regulation can be seen as an advantage in the above sense it can also

be seen as a disadvantage, as the low barriers to entry and lack of heavy oversight alsomake it easier for 'rms o$ering trading to o"erate in a dishonest or fraudulent way.

:astly, as there is no centrali6ed exchange the 'rm that you trade with when you trade

in an over the counter market like forex is the counter"arty to your trade, so if

something ha""ens to that 'rm you are in danger of loosing not only the trades you

have with that 'rm but also your account balance.

)t is for these reasons that there is so much focus among forex traders as to which 'rm

to trade with, with s"ecial attention being "aid to the 'nancial stability of the 'rm and

the execution that they "rovide.

 (s we "roceed through this forex trading course we will continue to gain a better

understanding of the structure of the market and traders should be well "re"ared aftergoing through those lessons to make an informed decision for themselves on this issue.

That’s our lesson for today, in our next lesson we are going to look at the structure of

the forex market so we can gain a better understanding of who actually controls the

market, so we ho"e to see you then. 

3 -The ,tructure of the Forex Market 

)n today<s lesson we are going to continue this discussion with a look at the structure of 

the forex market so we can learn who exactly controls the market and how the forex

broker and individual trader 't into this "icture.

 (s we discussed in our last lesson the forex market is an over the counter marketmeaning that there is no centrali6ed exchange where all trades are made. =ecause of

this, the "rice that someone receives when trading forex has traditionally di$ered

de"ending on the si6e of the transaction and the so"histication of the "erson or entity

that is making that transaction.

 (t the center or 'rst level of the market is something known as the )nterbank market.

hile technically any bank is "art of the )nterbank market, when an 1; Trader s"eaks

of the interbank market he or she is really talking about the +* or so largest banks that

make markets in 1;. These institutions make u" over >- of the over ?@ Trillion dollars

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in 1; Traded on any given day.

There are two "rimary factors which se"arate institutions with direct interbank access

from everyone else which areA

1+ Access to the tightest (rices+ e will learn more about transaction costs in later

lessons however for now sim"ly understand that for every + !illion in currency traded

those who have direct access to the )nterbank market save a""roximately ?+** "er

trade or more over the next level of "artici"ants.

2+ Access to the -est liuidit!+ (s with any other market there is a certain amount ofliquidity or amount that can be traded at any one "rice. )f more than what is available

at the current "rice is traded, then the "rice ad&usts until additional liquidity enters the

market. (s the forex market is over the counter, liquidity is s"read out among di$erent

"roviders, with the banks com"rising the interbank market having access to the

greatest amount of liquidity and then declining levels of liquidity available at di$erent

levels moving away from the )nterbank market.

)n contrast to individuals who make a de"osit into their account to trade, institutions

trading in the interbank market trade via credit lines. )n order to get a credit line from

a to" bank to trade foreign exchange you must be a very large and very 'nanciallystable institution, as bankru"tcy would mean the 'rm that gave you the credit line gets

stuck with your trades.

The next level of "artici"ants are the hedge funds, brokerage 'rms, and smaller banks

who are not quite large enough to have direct access to the )nterbank market. (s we

 &ust discussed the di$erence here is that the transaction costs for the trade are a bit

higher and the liquidity available is a bit lower than at the )nterbank level.

The next level of "artici"ants has traditionally been cor"orations and smaller 'nancial

institutions who do make foreign exchange trades, but not enough to warrant the better

"ricing

 (s you can see here, traditionally as the market "artici"ant got smaller and lessso"histicated the transaction costs they "aid to trade became larger and the liquidity

that was available to them got smaller and smaller. )n a lot of cases this is still true

today, as anyone who has ever exchanged currencies at the air"ort when traveling

knows.

To give you an idea of &ust how large a di$erence there is between "artici"ants in the

)nterbank market and an individual trading currencies for travel, )nterbank market

"artici"ants "ay a""roximately ?.***+ to exchange 3uros for Bollars where )ndividuals

in the air"ort can "ay ?.* or more. This may not seem like much of a di$erence but

think about it this wayA n ?+*,*** that is ?+ that the )nterbank "artici"ant "ays and?** that the individual "ays.

The landsca"e for the individual trader has changed drastically since the internet has

gone mainstream however, in many ways leveling the "laying 'eld and "utting the

individual trader along side large 'nancial institutions in terms of access to "ricing and

liquidity. This will be the to"ic of our next lesson.

4-The .ole of the .etail Forex Broker  

)n today<s lesson we are going to continue this discussion with a look at how the

internet and the invention of online trading "latforms has begun to level the "laying

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'eld, giving the individual trader much greater access to reasonable "ricing.

=efore the internet, very few individuals traded foreign exchange as they could not get

access to a level of "ricing that would allow them a reasonable chance to "ro't after

transaction costs. 5hortly after the internet became mainstream however several 'rms

built online trading "latforms which gave the individual trader a much higher level

access to the market. The internet introduced two main features into the equation

which were not "resent beforeA

1+ ,trea/ing 0uotes: The )nternet allowed these 'rms to stream quotes directly totraders and then have them execute on those quotes from their com"uter instead of

having to deal over the "hone. This automated trade "rocessing, and therefore made it

easier for 'rms to o$er the ability to trade fx to the individuals and still be "ro'table.

2+  Auto/atic Margin Calls: hat is not so obvious but what was "erha"s even more

key is that the internet allowed an automated margin call feature to be built into the

"latform. This allowed 'rms to acce"t cash de"osits from clients instead of having to

"ut them through the "rocess of signing u" to trade via a credit line. (s we discussed in

our last lesson it is very di$icult to get a credit line to trade 1; and for those who do it

is a lot of "a"erwork and hoo"s to &um" through before they can begin trading. Thiswould have made it im"ossible to o$er 1; trading to smaller individual traders as the

cost involved in getting them set u" to trade would not be worth it.

 (s the electronic "latform allowed clients to de"osit funds and then automatically cut

them out of "ositions if they got to low on funds, this negated the need for credit lines

and made the work to get an individual account o"en well worth it to the forex broker

from a "ro't stand"oint.

)f you don<t understand all the ins and outs of margin at this "oint don<t worry as this is

something that we are going to go into much more detail on in a later lesson.

1or now it is sim"ly im"ortant to understand that what these 'rms did was take all the

traders who were not big enough by themselves to get access to good "ricing androuted their order 0ow through one entity that was. This allowed these 'rms access to

much tighter "ricing than would otherwise have been "ossible which was then "assed

along "lus a little for the brokers to the end client.

5o now you can see why although the forex market has been around for a relatively

long "eriod of time, individuals have only started to trade the market over the last few

 years.

 (nther key thing that it is im"ortant to understand here is that the larger a 'rm gets in

terms of trading volume, the greater access that 'rm has to tighter "rices and liquidity

and the more likely that 'rm is to be able to "ass on better "ricing and execution totheir clients.

This is another reason that many traders will evaluate the si6e of a 'rm as one of the

key factors in deciding who to trade with.

5-Forex Market artici(ants 1: Central Banks 

)n today’s lesson we are going to continue our discussion on the structure of the 1;

market, with a look at who the di$erent "layers in the market are and how the motives

of each a$ect us as individual traders.

hile the +* largest banks which make u" the forex )nterbank market account for over

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>- of the over ?@ Trillion in daily trading volume, there is actually a level of

"artici"ants with even more clout in the market. hile generally no where near as

active as the banks &ust mentioned, the entral =anks of countries also "artici"ate in

the forex market, and as they have such dee" "ockets, have huge clout when they

decide to enter the market.

There are two main reasons why a central bank would "artici"ate in the forex market

which areA

1+ To x the "alue of its currenc! to a (articular le"elA /nlike the main currencieswhich we are going to be focusing on in this course, the currencies of many develo"ing

countries are 'xed in value to the dollar or to some other currency or basket of

currencies. This is done to try and "romote international com"etitiveness in the market

and a currency environment that is more conducive to economic stability.

Probably the most talked about exam"le of a country that does this is hina who u"

until recently maintained a 'xed value of their currency against the /5 Bollar. ( central

bank normally accom"lishes this by buying their own currency when the value gets too

weak creating more demand for the currency and therefore driving the value u", and

selling their own currency when it gets to strong creating a greater su""ly of thatcurrency and therefore lowering its value back to the desired level.

2+ To (rotect the "alue of a 3oating currenc! fro/ extre/e /o"e/ents: /nlike

hina and many other develo"ing economies in the world, the /5, The 3uro Cone,

 Da"an and the other ma&or economies of the world have what is known as a 0oating

exchange rate. Eery sim"ly what this means is that instead of having the value of the

currency "egged to something else which therefore determines its value, the value of

the currency is determined by market forces.

 (lthough the values of these currencies 0oat freely in the market most of the time, as a

currency’s strength or weakness in the market has such a dramatic a$ect on a

country’s international com"etitiveness, there are rare instances where a central bankwill intervene in the market even with the ma&or currencies. 7ormally this is only seen

after large one directional moves in the market over a long "eriod of time, to the "oint

where the country’s stability or com"etitiveness is being severely damaged. (s Da"an’s

economy relies heavily on ex"orts the most notorious central bank for interventions is

the =ank of Da"an, however both the 3uro"ean entral =ank and the 1ederal Feserve

have intervened in the currency markets in the "asts.

hile some interventions have limited a$ect on exchange rates others, as you can see

from the chart here of a "ast =ank of Da"an intervention, can have a dramatic a$ect on

the market.=ecause of this often times a central bank can do what is termed a verbal intervention,

where sim"ly the talk of intervention is enough to have the desired a$ect on the

market.

6-Forex Market artici(ants 2: Banks Hedge Funds and Cor(orations 

=ehind central banks in terms of si6e and ability to move the foreign exchange market

are the banks which we learned about in our "revious lessons which make u" the

)nterbank market. )t is im"ortant to understand here that in addition to executing

trades on behalf of their clients, the bank<s traders often times try to earn additional

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"ro'ts by taking s"eculative "ositions in the market as well.

hile most of the other "layers we are going to discuss in this lesson do not have the

si6e and clout to move the market in their favor, many of these bank traders are an

exce"tion to this rule and can leverage their huge buying "ower and inside knowledge

of client order 0ow to move the market in their favor. This is why you hear about quick

market &um"s in the foreign exchange market being attributed to the clearing out the

sto"s in the market or "rotecting an o"tion level, things which we will learn more about

in later lessons.The next level of "artici"ants is the large hedge funds who trade in the foreign

exchange market for s"eculative "ur"oses to try and generate al"ha, or a return for

their investors that is over and above the average market return. !ost forex hedge

funds are trend following, meaning they tend to build into longer term "ositions over

time to try and "ro't from a longer term u"trend or downtrend in the market. These

funds are one of the reasons that currencies often times develo" nice longer term

trends, something that can be of bene't to the individual "osition trader.

 (lthough not the ty"ical way that Gedge funds "ro't from the market, "robably the

most famous exam"le of a hedge fund trading foreign exchange is the exam"le of9eorge 5oros< Huantum fund who made a very large amount of money betting against

the =ank of 3ngland.

)n short, the =ank of 3ngland had tried to 'x the exchange rate of the =ritish Pound at a

"articular level buy buying =ritish Pounds, even though market forces were trying to

"ush the value of the Pound Bown. 5oros felt that this was a losing battle and

essentially bet the entire value of his ?+ =illion hedge fund that the value of the "ound

would decrease. The market forces which were already at "lay, combined with 5oro<s

huge "osition against the =ank of 3ngland, caused so much selling "ressure on the

"ound that the =ank of 3ngland had to give u" trying to "ro" u" the currency and it

"receded to fall over - in one day. This is a gigantic move for a ma&or currency, and amove which netted 5oros< Huantum 1und over ?+ =illion in "ro'ts in one day.

7ext in line are multinational cor"orations who are forced to be "artici"ants in the

forex market because of their overseas earnings which are often converted back into

/5 Bollars or other currencies de"ending on where the com"any is headquartered. (s

the value of the currency in which the overseas revenue was earned can rise or fall

before that conversion, the com"any is ex"osed to "otential losses andor gains in

revenue which have nothing to do with their business. To remove this exchange rate

uncertainty many multinational cor"orations will hedge this risk by taking "ositions in

the forex market which negate any exchange rate 0uctuation on their overseasrevenues.

5econdly these cor"orations also buy other cor"orations overseas, something which is

known as cross boarder mergers and acquisitions. (s the transaction for the com"any

being bought or sold is done in that com"any<s home country and currency, this can

drive the value of a currency u" as demand is created for the currency to buy the

com"any or down as su""ly is created when the com"any is sold.

:astly are individuals such as you and ) who "artici"ate in the forex market in three

main areas.

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1+ As In"estors ,eeking 5ield: (lthough not very "o"ular in the /nited 5tates,

overseas and "articularly in Da"an where interest rates have been close to 6ero for

many years, individuals will buy the currencies or other assets of a country with a

higher interest rate in order to earn a higher rate of return on their money. This is also

referred to as a carry trade, something that we will learn more about in later lessons.

2+ As Tra"elersA bviously when traveling to a country which has a di$erent currency

individual travelers must exchange their home currency for the currency of the country

where they are traveling.6+ Indi"idual s(eculators )ho acti"el! trade currencies trying to "ro't from the

0uctuation of one currency against another. This is as we discussed in our last lesson a

relatively new "henomenon but most likely the reason why you are watching this video

and therefore a growing one.

That<s our lesson for today. )n tomorrow<s lesson we are going to look at the main cities

and time 6ones where the ma&ority of forex trades 0ow through and the di$ering

characteristics of the 24 hour trading day so we ho"e to see you in that lesson 

7- A Breakdo)n of the Forex Trading 7a!  

/nlike the futures and equities markets, the forex market trades actively 24 hours a day

with active trading hours following the sun around the globe to each of the ma&or

money centers.

 (s the foreign exchange market is an over the counter market where two

counter"arties can trade with each other whenever they want, technically the market

never closes. !ost electronic trading "latforms however o"en for trading at around

P! 3astern Time on 5unday, which corres"onds to the start of !onday’s business hours

in (ustralia and 7ew Cealand. hile there are certainly banks in these countries which

actively make markets in foreign exchange, there is very little trading done in these

countries when com"ared to other ma&or money centers of the world.The 'rst ma&or money center to o"en and there fore the start of the 'rst ma&or session

in the forex market is the (sian Trading session which corres"onds with the start of

business hours in Tokyo at >"m 3astern Time on 5unday.

hile still considered + of the three ma&or money centers, only >.I- of forex

transactions 0ow through Tokyo trading desks, so the (sian trading session is the least

active of the three. hile there is active trading in 8en based currency "airs during

 (sian hours the market for currencies outside of 8en based "airs is relatively thin,

making (sian trading hours a time when the larger banks and hedge funds in the

market will sometimes try and "ush the market in their favor.

7ext in line is the 3uro"ean trading session which begins with the start of :ondon

business hours at 2 (! 3astern 5tandard Time. hile 7ew 8ork is considered by most

to be the largest 'nancial center in the world, :ondon is still king of the forex market

with over @2- of all forex transactions taking "lace in the city. =efore the 3uro there

were more than a do6en additional currencies in 3uro"e making foreign exchange "art

of every day life for both individuals and businesses o"erating in the region. )n addition

to this, :ondon is situated "erfectly from a time 6one stand"oint with business hours for

both the large eastern and western economies taking "lace during :ondon trading

hours.

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 (s :ondon is the most active session in the forex market it is also the session with the

most volatility for all the currency "airs which we will be studying in this course.

:ast but not least is the /5 session which begins with the start of 7ew 8ork business

hours at J (! 3astern 5tandard Time. 7ew 8ork is a distant second to :ondon in terms

of forex trading volumes with a""roximately +K- of all forex transactions 0owing

through 7ew 8ork Bealing Fooms.

The most active "art of the /5 Trading session, and the most active time for the forex

market in general, is from about Jam to +2"m when both :ondon and 7ew 8ork tradingdesks are o"en for business. 8ou can see very large volatility during this time as in

addition to both 7ew 8ork and :ondon trading desks being o"en, most of the ma&or /5

economic announcements are released during these hours as well.

The trading day winds down after +2"m 7ew 8ork time with most electronic "latforms

closing for business at around 4 P! 3astern 5tandard Time on 1riday. 

8- An #"er"ie) of the 8orld9s Main Currencies 

)n our last lesson we learned about the @ ma&or money centers of the world and the

characteristics of the three, eight hour trading sessions which make u" the forex

market’s 24 hour trading day.. (lthough there has been much "ress recently about the /5 Bollar loosing its status,

there is no doubt that as of this lesson and most likely for the foreseeable future, the /5

Bollar still reigns su"reme over all other currencies of the world. The "rice for the

ma&ority of traded commodities such as oil is quoted in /5 Bollars and the /5 Bollar

re"resents over I*- of the worlds currency reserves #the currency held by central

banks to back their liabilities%. These facts combined with the fact that the /5 3conomy

is by far the largest economy in the world has resulted in a market where over J*- of

all currency transactions involve the /5 Bollar. (s you can "robably imagine after

hearing this, currency traders "ay heavy attention to what is ha""ening with the /5

3conomy, as this has a very direct a$ect not only on the /5 Bollar but on every othercurrency in the world as well.

The rising "ower of the currency world is the 3uro which was introduced in +KKK as

"art of an overall "lan to unify 3uro"e into something known as the 3uro"ean /nion. )n

short the di$ering laws and currencies of the di$erent 3uro"ean countries were making

them less com"etitive in the global market "lace. To try and 'x this "roblem and create

one entity with a common set of laws and a common currency, + countries &oined what

is now referred to as the 3uro"ean /nion and +2 of those countries ado"ted the 3uro as

their common currency. hile the economies of the individual countries that make u"

the 3uro Cone don’t come anywhere close to the si6e of the /5 3conomy, whencombined into one 3uro Cone economy they do, and therefore some say the 3uro will

eventually rival or even re"lace the Bollar as the main currency of the world.

 Da"an, which is the second largest individual economy in the world, has the third most

actively traded currency, the Da"anese 8en. (fter ex"eriencing im"ressive growth in the

I*’s, >*’s and early J*’s Da"an’s economy began to stagnate in the late +KJ*’s and has

 yet to fully recover. To try and stimulate economic growth, the central bank of Da"an has

ke"t interest rates close to 6ero making the Da"anese 8en the funding currency for

many carry trades, something which we will learn more about in later lessons. )t is also

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im"ortant to understand at this stage that Da"an is a country with few natural energy

resources and an ex"ort oriented economy, so it relies heavily on energy im"orts and

international trade. This makes the economy and currency es"ecially susce"tible to

moves in the "rice of oil, and rising or slowing growth in the ma&or economies in which

it trades with.

hile the /nited Lingdom is a member of the 3uro"ean /nion it was one of the three

countries that o"ted out of &oining the 3uro"ean !onetary /nion which is made u" of

the +2 countries that did ado"t the 3uro. The /L’s currency is known as the Pound5terling and is a well res"ected currency of the world because of the entral =ank’s

re"utation for sound monetary "olicy.

7ext in line is 5wit6erland’s currency the 5wiss franc. hile 5wit6erland is not one of

the ma&or economies of the world, the country is known for its sound banking system

and 5wiss bank accounts, which are basically famous for banking con'dentiality. This,

combined with the country’s history of remaining neutral in times of war, makes the

5wiss 1ranc a safe haven currency, or one which attracts ca"ital 0ows during times of

uncertainty.

hen traded against the /5 Bollar, the 3uro, 8en, Pound, and 5wiss 1ranc make u"known as the Mma&or currency "airsN which we will learn more about in coming

lessons.

1or the "ur"oses of this course we will focus on currencies that trade actively 24 hours

a day allowing the trader to move in and out of "ositions during the trading week at

anytime as he or she "leases. (lthough not considered "art of the ma&or currencies

there are three other currencies in addition to the ones &ust listed which trade actively

24 hours a day and which we will be covering in this course. Lnown as the commodity

currencies because of the fact that they are natural resource rich countries, the

 (ustralian Bollar, 7ew Cealand Bollar and the anadian Bollar are the three 'nal

currency "airs we will be covering. (lso known as MThe (ussieN the (ustralian Bollar is heavily de"endant u"on the "rice of

gold as the (ustralian economy is the world’s @rd largest "roducer of gold. (s of this

lesson interest rates in (ustralia are also among the highest in the )ndustriali6ed world

creating signi'cant demand for (ustralian Bollars from s"eculators looking to "ro't

from the high yield the currency and other (ustralian Bollar denominated assets o$er.

:ike the (ustralian Bollar the 7ew Cealand Bollar which is also known as MThe LiwiN is

heavily de"endant on commodity "rices, with commodities re"resenting over 4*- of

the countries total ex"orts. The economy is also heavily de"endant on (ustralia who is

its largest trading "artner. :ike (ustralia, as of this lesson 7ew Cealand also has one ofthe highest interest rates in the industriali6ed world, creating signi'cant demand from

s"eculators in this case as well.

:ast but not least is the anadian Bollar or otherwise a$ectionately known as MThe

:oonyN. :ike its commodity currency brothers, the anadian 3conomy, and therefore

the currency, is also heavily linked to what ha""ens with commodity "rices. anada is

the th largest "roducer of gold and while only the +4th largest "roducer of oil,

unbeknownst to mostO it is also the largest foreign su""lier of oil to the /nited 5tates.

)ts relationshi" with the /5 does not end here either as the country ex"orts over J*- of

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its goods to the /nited 5tates, making the economy and currency very susce"tible to

what ha""ens not only with commodity "rices, but to the overall health of the /5

3conomy as well. 

Course Module 2: Logistics of Forex Trading 

9-,etting '( 5our 7e/o Forex Trading Account 

ne of the great things about the forex market for individual traders and one of thereasons we are starting with the forex market as our 'rst market s"eci'c course is the

availability of real time demo accounts. /nlike the equities and futures markets where

one must "ay the exchanges to get access to real time data, most forex brokers not only

"rovide free real time quotes and charts but they also give you access to the same

"latform that their live traders trade on and the ability to trade there with virtual cash.

This is a nice "erk es"ecially for beginner traders, as it allows them to get to know the

market and the logistics of "lacing trades in a real time environment but without

risking any real money.

1or the "ur"oses of our lessons we will be using the 1;! demo "latform and ) haveincluded a link to the free registration link where you can register to receive this demo

as well if you would like to follow along for the rest of this course.

)f you are watching this video on )nformedTrades.com then sim"ly click the link above

the video to get to the registration "age and if you are watching on 8outube then sim"ly

click the link in the descri"tion section of this video which will also take you to the

registration "age.

nce at the registration "age 'll out your information which will take you to a "age

where you get your username and "assword as well as download the software.

 (fter 'lling out your information and clicking submit the next "age that comes u"

should have your demo username and "assword which you will want to make note of. (lso on this "age you should see the software download link where you want to click to

download the installation 'le.

This should take a minute to download and then once com"leted you can click the

installation 'le on your deskto" to begin the installation "rocess.

 (fter doing this you should see an icon on your deskto" that says M1;! Trading

5tation ))N. lick that icon which will launch the login box, enter the login information

that you received when you downloaded the software and click login.

 (fter logging in you will see the exact same "latform with the exact same real time

quotes and charts as if you were trading live com"lete with ?*,*** in virtual dollars totrade with.

 (s we are now getting into the nitty gritty of things ) am going to start giving out short

homework assignments, the 'rst of which is to "lay around with the "latform for a few

minutes to see if you can get a feel for how currencies are quoted and how you would

go about buying or selling.

10-Ho) to .ead Currenc! 0uotes 

)n our last lesson we started the second module of our forex trading course with a

lesson on how to set u" a free realtime demo trading account so we can learn the

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logistics of trading forex in realtime without risking any money. )n today’s lesson we

are going to begin to learn the logistics of trading foreign exchange, with a discussion

of how to read a currency quote.

The 'rst thing we are going to do here is login to our demo trading account so if you

have not registered for a demo yet "lease "ause the video here and click register for a

free demo at the link above this video if you are watching on )nformedTrades.comor in

the descri"tion section if you are watching on 8outube.

nce logged into the "latform the 'rst thing you are "robably going to notice is theMBealing Fates indowN which has a bunch of currency "airs listed and rates which are

u"dating u" and down. (s you will also notice in this window each currency "air has

two rates listed which are moving u" and down together in tandem. This is what is

known as the bid and ask quotes. 1or the "ur"oses of this lesson we are going to look at

only the ask or second quote for each currency "air as we are going to go over what the

bid and ask is in a later lesson.

The 'rst thing that it is im"ortant to understand about trading the forex market is that

currencies are quoted in "airs. (nother way of looking at this is that the value of a

currency is always determined by com"aring it with another currency.5o for exam"le the 'rst currency "air which you should see in your quotes window is

3/F/5B or the 3uro/5 Bollar currency "air. (s of this lesson as you can see in the

quote window here the 3uro Bollar currency "air is trading at right around +.>**.

)n the foreign exchange market the 'rst currency in the "air is referred to as the M=aseN

currency and the second currency in the "air is referred to as the counter currency. 5o

with this in mind the quote that you see here is how many of the second or counter

currency it takes to buy + of the 'rst currency in the "air.

)n this exam"le where we are looking at a quote for the 3/F/5B of +.>** what this

means is that it takes +.>** /5 Bollars to buy + euro.

!oving across the quote window to the right the next currency "air that we should seeis /5BDP8 or the /5 Bollar Da"anese 8en currency "air. 7otice that in this exam"le the

/5 Bollar is the base currency and the Da"anse 8en is the counter currency. (s of this

lesson the /5BDP8 currency "air is trading at +*2.@I.

5o remembering that the currency quote shows how many of the counter currency in

the "air it takes to buy + of the base currency we know that a quote of +*2.@I for

/5BDP8 means that it currently takes +*2.@I DP8 to buy + /5B.

 (s we discussed in our lesson on the main currencies of the world, the 3uro, 8en,

Pound, 5wiss 1ranc, (ustralian Bollar, 7ew Cealand Bollar, and anadian Bollar are the

most actively traded currencies in the world, and the ones that can be traded actively24 hours a day as a result. (s you can see in the quote window here they are all there

quoted against the /5B.

 (s you will also notice here however there are currency "airs which include two of

these currencies and which do not include the /5 Bollar. (n exam"le here would be

3/FG1. urrency "airs which do not include the /5 Bollar are referred to as cross

currenciesO however the quoting convention works exactly the same.

5o as one 'nal exam"le here as of this lesson 3/FG1 is trading at +.K2+. 1rom the

above exam"les we know that this quote is how many of the counter currency it takes to

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buy one of the base currencies. 5o with this in mind we know that this quote means that

it takes +.K2+ G1 to buy + 3/F.

1or tonight’s homework session ) would like everyone to "ick two currency "airs

quickly and sim"ly list what the current quote is and what that means as ) have &ust

done above. )f you would like feel free to list it in the comments section &ust below this

 video. That’s our lesson for today.

)n tomorrow’s lesson we are going to look at what it means when a quote for a

"articular currency "air increases and what it means when it decreases so we ho"e tosee you in that lesson. 

11-'nderstanding Currenc! .ate Mo"e/ents 

)n our last lesson we learned how to read a currency quote. )n today<s lesson we are

going to continue our discussion on the logistics of trading forex with a look at what an

increase or decrease in a currency quote means to us as traders.

7ow that we understand how to read a currency quote the next thing that it is

im"ortant to understand is what an increase or decrease in the quote for a "articular

currency "air tells us about the value of the currencies which make u" that "air. (s we

discussed in our last lesson, currencies are quoted in "airs or in terms of how much onecurrency is worth in terms of another currency. hen we read a currency quote what

we are seeing is how much of the second or counter currency in the "air it takes to buy

one of the 'rst or base currency in the "air.

ith this in mind if the quote for a "articular currency "air increases this means that it

now takes more of the counter currency to buy + of the base currency. (nother way of

looking at this is that when the quote for a "articular currency "air increases this

means that the 'rst or base currency in the "air has strengthened and the second or

counter currency in the "air has weakened.

onversely, when the quote for a "articular currency "air decreases this means that it

now takes less of the counter currency to buy + of the base currency. (nother way oflooking at this is that when the quote for a "articular currency "air decreases this

means that the 'rst or base currency in the "air has weakened and the second or

counter currency in the "air has strengthened.

 (lthough a sim"le conce"t, this is one of the most confusing as"ects of trading foreign

exchange and something that "eo"le still mix u" even after years of following the

market. 1rom my own ex"erience the best way to think of things is sim"ly that if the

rate is increasing this means that the base currency is strengthening which

automatically means that the counter currency is weakening. onversely if the rate is

decreasing this means that the base currency is weakening, which automatically meansthat the counter currency is strengthening.

To hel" solidify our understanding of forex quote movements lets login to our demo

trading "latforms and look at a few di$erent currencies "airs on a "rice chart. )f you

have not done so already ) encourage you to "ause this video now and register for a

free demo trading account by clicking the link above this video if you are watching

on )nformedTrades.com or in the descri"tion section of this video if you are watching on

 8ouTube.

 (fter logging into your real time demo trading account you should see a button in the

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u""er right hand corner of the trading station that looks like a yellow clock circle and

says create market shot over it. 5elect that button which should bring u" a chart

"references window. 5elect minute there for the timeframe and then click create

market shot.

 (fter doing this you should get a realtime minute chart of the 3/F/5B. :ets take the

exam"le on this chart of earlier today when the market for the 3/F/5B increased in

"rice. 1rom the above we should now no that this increase in "rice means that the 3/F

has strengthened against the /5B during this time "eriod. onversely if we look at thechart we can see a decline in "rice. e should now also know that this means that the

3/F has weakened against the /5B in this exam"le.

The im"ortant thing to remember here is that if the "rice is going u" in the quotes

window and therefore the chart this means that the base currency is getting stronger

and the counter currency is getting weaker. )f the "rice in the chart is going down this

means that that the base currency is getting weaker and the counter currency is getting

stronger.

7ext lets switch the chart to a minute chart of the /5BDP8 currency "air. Gere we

can see that the "rice for the /5BDP8 currency "air has decreased. (s the /5B is thebase currency in this case this means that the /5B has weakened in relation to the DP8.

onversely we can also see that the rate for the /5BDP8 currency "air has increased

which means that the /5B has gotten stronger and the DP8 has gotten weaker.

12-'nderstanding the Bid Ask ,(read 

)n our last lesson we looked at what an increase or decrease in the quote for a

"articular currency "air means to us as traders of the forex market. )n today<s lesson

we are going to continue our discussion on the logistics of forex trading with a look at

what the bid and ask for each currency "air means. )n most 'nancial markets there are

always two "rices for a "articular 'nancial instrument at any one time which are known

as the bid and the ask "rice. The bid "rice is the "rice at which the market maker #theactual entity that is on the other side of your trade% will buy and therefore the rate at

which you the client can sell. The ask "rice is the "rice at which a market maker will

sell and therefore the rate at which you the client can buy.

The di$erence between the rate at which you can sell #the bid% and the rate at which

 you can buy #the ask% is referred to as Qthe s"readQ. !arket makers such as the "eo"le

that sit on the 0oor of the 7ew 8ork 5tock 3xchange in the stock market make their

money from the s"read, or buy charging traders more when they sell a stock than they

do when they buy a stock.

 (lthough this is changing with the advent of online trading "latforms, the conce"t of abid and ask "rice is foreign to most, because traders are most familiar with the stock

market where they have traditionally called their brokers whenever they wanted to

"lace a trade who then "laced the trade on their behalf with the market maker. hen

they call their broker they say they would like to buy x amount of xy6 stock, the stock

broker sim"ly gives the client the ask "rice for that stock since the client has asked to

buy.

 (s you can see here however on this online stock trading "latform, when requesting a

quote for Det =lue stock the quote window returns two "rices, showing both the bid and

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the ask.

The stock market is in the "rocess of going from indirect access where clients trade

through a broker to get to the market maker to a more direct access environment

where online trading "latforms allow them to trade directly with the market maker. (s

the forex market for individual traders really started with the internet, the market did

not have to go through the same transition. =ecause of this most forex trading

"latforms show both the bid and the ask "rice and make their money through the

s"read, charging clients 6ero commissions to trade.7ow that we understand this lets login to our realtime demo trading "latforms and

look at some exam"les. )f you have not registered for a free demo trading account yet )

encourage you to "ause this video now and click the free demo registration link above

this video if you are watching on )nformedTrades.com or in the descri"tion section of

this video if you are watching on 8outube so you can follow along as well. nce logged

into the "latform you will see the quotes window where you can see that the current bid

"rice for the 3/F/5B currency "air is +.>I* and the current ask "rice is +.>I@. This

means that currently you can sell the 3/F/5B at +.>I* and buy at +.>I@. The

di$erence between those "rices is the s"read.!oving to the right across the currency window we see that the /5BDP8 currency "air

is currently trading at +*+.JK by K2 which is another way of saying that the bid for the

/5BDP8 is and the ask is +*+.JK and the ask is +*+.K2 . This means that we can

currently sell /5BDP8 at +*+.JK and buy at +*+.K2.

 (s some of you may have noticed, there is a 'fth digit there that ) have not included in

my exam"les. Bon<t be confused about this at this "oint as we are going to learn about

in a future lesson.

7ow that we have a solid understanding of currency "airs, the currency quote, and the

bid and ask "rices the next thing that we are going to do is look at actually "lacing

some currency trades. ith this in mind the homework assignment for tonight is to"lace a trade on your demo trading account which would re0ect the o"inion that you

think that the 3/F is going to 5trengthen against the /5 Bollar.

13-lacing 5our First Forex Trade 

)n our last lesson we continued our forex trading course by learning about the bid ask

s"read. 7ow that we have some of the terminology and basic logistics out of the way it

is going to get a little exciting as we look at actually "lacing some forex trades.

 (t the end of our last lesson ) gave the homework assignment of "lacing a trade which

re0ected an o"inion that the 3uro is going to strengthen against the /5 Bollar.

)f you remember from our lesson on currency rate movements, if the rate for a"articular currency "air is going u" this means that the base currency in the "air is

getting stronger and the counter currency in the "air is getting weaker. ith this in

mind, if we are seeking to "lace a trade which re0ects the o"inion that the 3uro is

going to strengthen against the /5 Bollar, then we want to "lace that trade so we

bene't from an increase in the quote for the 3/F/5B currency "air.

)f you think of all currency "airs in terms of the base currency then you can use the

same rationale to trade the forex market as you would any other market. )f my analysis

tells me that the base currency should strengthen against the counter currency, this

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means that ) am ex"ecting the quote for the currency "air to increase, which means )

want to buy to enter the "osition.

onversely, if ) my analysis tells me that the base currency should weaken against the

counter currency then this means ) am ex"ecting the quote for the currency "air to

decrease, which means ) want to sell to enter the "osition.

ith this in mind we should now know that to execute a trade which re0ects the

o"inion that the 3uro is going to strengthen against the /5 Bollar, we are going to buy

to enter the "osition.:et’s go ahead and login to our real time demo trading accounts and do &ust that. )f you

have not registered for a free demo trading account yet then ) encourage you to "ause

this video and click the free demo registration link directly above this video if you are

watching on )nformedTrades.com or to the right of this video are watching on 8outube

so you can get a free demo and follow along as well.

:uckily, most forex trading "latforms including this one make it very easy to execute a

trade once logged in. There are several ways to do this on this "articular "latform but

the easiest in my o"inion is to sim"ly left click on the buy rate for the 3/F/5B

currency "air in the dealing rates window, which will bring u" a market order windowalready 'lled out with everything you need to enter the trade. nce that is u" sim"ly

click ok and you have executed your 'rst real time virtual currency tradeR

 (s noted above we will now bene't if the quote for the 3/F/5B increases which would

indicate that the 3uro has strengthened against the /5 Bollar.

)f we were ex"ecting the 3uro to weaken against the /5 Bollar this would have meant

that we were ex"ecting the rate to decrease so we would have sold to enter the

"osition. The key thing to remember here is that if you are ex"ecting the base currency

in any currency "air to strengthen then buy to enter. )f you are ex"ecting the base

currency in any currency to weaken then sell to enter.

1or tonight’s homework assignment establish a fake or real o"inion on what you think isgoing to ha""en with a "articular currency "air and "lace some trades which re0ect

that o"inion. )f you would like to list your trades in the comments section below we

would love to see them.

That’s our lesson for today. )n tomorrow’s lesson we are going to be covering something

which is known as a P)P as well as the di$erent contract si6es in the forex market so we

ho"e to see you in that lesson. 14

Calculating 5our osition ,i;e 

)n this lesson we are going to continue our discussion on the logistics of forex trading

with a look at how "ositions are si6ed in the forex market. (s with any market you need to s"ecify the amount of a currency "air that you are

going to trade as a "art of the trading "rocess. (lthough technically in the s"ot 1;

market there are no contract standards since the market trades over the counter, most

1orex Trading 'rms standardi6e the minimum "osition si6e in which you can trade.

nce this minimum "osition si6e is established then the trader can trade the minimum

or any increment thereof going u" from there.

 (lthough it varies by 'rm, most forex trading 'rms o$er at least one of, if not all of, the

following o"tions for "osition si6ingA

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#(tion 1: ,tandard Account ( standard account trades QstandardQ contract si6es

which in the retail fx market are +**,*** of the base currency. 5o for exam"le if you are

trading 3/F/5B then the minimum "osition si6e you could trade would be + contract

which would equal +**,*** 3uro<s against the equivalent amount in /5 Bollars. (s the

3/F/5B is trading at +.I>J as of this lesson that would be +**,*** 3/F against

+I,>J* /5 Bollars.

 (s a second exam"le if you were trading /5BDP8 in a standard account then the

minimum you could trade would be +**,*** /5 Bollars against the equivalent amountof Da"anese 8en. (s the Da"anese 8en is currently Trading at +*+.2> against the /5

Bollar this would be +**,*** /5B against +*,+2I,*** DP8.

#(tion 2:Mini Account ( mini account trades QminiQ contract si6es which are ++*th

the si6e of standard contract si6es or +*,*** of the base currency. 5o using our

exam"les above if you were trading 3/F/5B the minimum you could trade on a mini

account would be +*,*** 3/F against ?+,I>J /5B.

)f you were trading /5BDP8 in in a mini account then the minimum amount you could

trade would be +*,*** /5B against +,*+2,>** DP8.

#(tion 6 Flexi Account: ( 0exi account allows you to trade any si6e you would like.5o for exam"le instead of having to trade a 'xed "osition si6e in a 0exi account you

could trade a "osition si6e of ,>I 3/F/5B which would be ,>I 3/F against the

equivalent amount of /5B.

 (s you can see from these exam"les one of the great things about the forex market is

the ability to trade very small "osition si6es, which allows traders to start with a smaller

account balance and avoid being over leveraged, something we will discuss in later

lessons.

5econdly, as normally the s"read which you "ay does not increase as the trade si6e gets

smaller and there are no commissions, the transaction cost you "ay for the trade gets

smaller as the trade gets smaller as well. (s a quick exam"le lets login to our demo trading accounts and "lace another quick

trade. )f you have not done so already ) encourage you to "ause this video now and

register for a free demo trading account which you can do by clicking the link above

this video if you are watching on )nformedTrades.com or to the right of this video if you

are watching on 8ouTube.

nce logged into the account choose the currency "air that you want to trade and click

in the dealing rates window to bring u" the market order box. )n this box you will see a

line that says Q(mount LQ. (s you will notice if you "ull down the dro" down menu there

it goes in increments of +**L or +**,*** of the base currency. (s you should now knowfrom learning about the three ty"es of accounts that we &ust covered as we are trading

a contract si6e of +**,*** of the base currency we are currently on a standard account.

 (s you can see from the market order window if you would like to trade more than +**L

then sim"ly "ull down the dro" down menu and select the amount you would like to

trade in any increment of +**,*** of the base currency and you are good to go.

15- An $x(lanation of i(s and Fractional i(s 

Traditionally a + "i" move in the market was the smallest move that a currency could

make. (nother way of looking at this is that a + "i" move in the market is a move u" or

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down by + of the number sitting the furthest to the right of the decimal "oint in the

forex quote.

 (s most currency "airs have 4 decimal "laces a + "i" move in the market would be a

move u" or down by + of the number sitting in the 4th decimal "lace s"ot in the quote.

5o for exam"le the 3/F/5B currency "air is trading at +.I>J as of this lesson so a

move to +.I>K would be a + "i" increase in the quote and a move to +.I>> would be a

+ "i" decrease.

)n the DP8 based currency "airs where there are two decimal "oints, a + "i" move in the

market would be a move u" or down by + of the number sitting in the second decimal

"oint s"ot. 5o for exam"le as of this lesson /5BDP8 is currently trading at +*+.2J. ith

this in mind a move to +*+.2K would be a + "i" move u" in the market and a move to

+*+.2> would be a + "i" move down in the market.

)f you noticed at the beginning of this lesson ) said that a + "i" move in a currency "air

has traditionally been the smallest move that a currency "air could make. ) say this

because as electronic "latforms have brought greater "rice trans"arency to the forex

market and "rice com"etition has heated u" some "latform including the one that we

have been using have added an additional decimal "lace to their quotes. Lnown as

1ractional "i"s, now many of the currency "airs which have traditionally been 4

decimal "laces quoted out to decimal "laces and the "airs which have traditionally

been quoted out to 2 decimal "laces quoted out to @ decimal "laces.

:ets quickly login to our demo trading "latforms to see what ) am talking about. )f you

have not done so already ) encourage you to "ause this video now and click the demo

registration link above this video if you are watching on )nformedTrades.comor to the

right of this video if you are watching on 8outube.

nce logged into your demo trading "latform you can see this extra digit in the u""er

right hand corner of the quote for each currency "air. 1ractional "i" "ricing is anadvantage to the individual trader as it allows the market maker to quote in increments

of less than + "i", o$ering for exam"le a s"read of 2. "i"s on 3/F/5B instead of @

and saving the trader a half a "i" on the trade.

16-Ho) to Calculate rots and Losses in the Forex Market 

 (s the forex market does not have a standardi6ed trade si6e and because many

currency "airs are not quoted in terms of /5 Bollars the method for calculating "ro'ts

in the forex market is a little more di$icult than in many other markets.

:uckily most forex trading "latforms list out how much the value of a + "i" move in the

market is on the "latform so clients do not have to calculate this themselves. ith this

in mind lets quickly login to our real time demo trading "latforms so we can see where

this is listed. )f you have not done so already ) encourage you to register for a free

realtime demo account which can be done above this video if you are watching

on )nformedTrades.com or in the descri"tion section if you are watching on 8outube.

nce in the "latform you will see the dealing rates window and in that window you

should see two tabs at the to", one that says Qadvanced dealing ratesQ and one that says

Qsim"le dealing ratesQ. lick the tab that says sim"le dealing rates, which will switch

over to a di$erent looking dealing rates window with a bunch of columns in it. )f you

scroll over to the right you will see a column that says Q"i" costQ. The numbers listed

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under this column are the value of a + "i" move in the market for each currency "air.

To calculate your "ro't or loss all you really need to do is take that number and multi"ly

it by the number of "i"s of "otential "ro't and loss you have on the trade, and then

multi"ly that by the number of contracts you are trading. This will give you the total

"otential "ro't and loss on the trade in /5 Bollars.

 (s an exam"le lets say that ) am trading @ standard contracts of /5BG1. !y "ro't

target on this trade is +** "i"s and my sto" loss is * "i"s away from my entry "rice. To

get the total dollar amount of "otential risk and reward on this trade, ) would sim"lymulti"ly the "i" value of /5BG1 which as of this lesson is ?K.K by +** which would

give me ?KK. This is my "otential "ro't on the trade "er + contract. (s ) am trading @

contracts ) would then multi"ly ?KK times @ which would give me ?2KJ in "otential

"ro't on the trade.

To get my "otential loss on the trade ) would sim"ly multi"ly the "i" value of K.K by *

which would give me a "otential loss of ?4K>.* for each contract traded. (s ) am

trading @ contracts ) would then multi"ly that ?4K>.* by @ which would give me

?+4K2.* in "otential loss on the trade.

 (s you will notice if you scroll down the Pi" ost column of the realtime demo trading"latform, the value of a + "i" move in currency "airs where the /5 Bollar is the counter

or second currency in the "air is always ?+*. This is because, as we have learned in

earlier lessons, a currency quote re"resents how many of the second currency in the

"air it takes to buy + of the 'rst currency. (s we are trading contract si6es of +**,*** of

the base currency a + "i" move in 4 decimal "lace currency "airs is equal to .***+ S

+**,*** which equals ?+* in currency "airs where the /5B is the second currency in

the "air.

 (s you will also notice for currency "airs where the /5 Bollar is not the second

currency in the "air the value of a + "i" move in the market varies. This is because in

those instances the counter currency is not the /5 Bollar and therefore the value of a +"i" move has to be converted back into /5 Bollars at the current exchange rate.

5o for exam"le if we are trading /5BG1 and a + "i" move in the market is equal to .

***+ G1 S +**,*** which gives you +* G1. 5o, as &ust stated, in order to get the "i"

 value for the /5BG1 currency "air in /5 Bollars you must then convert the +* G1

back into /5 Bollars.

5ince the calculations are done for you on the "latform we are not going to get into all

the math here it is sim"ly im"ortant to know that for any currency "air where the /5

Bollar is the second currency in the "air then the value of a + "i" move in the market

will always be ?+*. 1or any currency "air where the /5 Bollar is not the countercurrency, the value of a + "i" move in the market will vary de"ending on the exchange

rate of whatever currency is the second currency in the "air and the /5 Bollar.  

Course Module 2: Logistics of Forex Trading Continued

17- An Introduction to Le"erage  hile the

forex market has a re"utation for being a very risky and volatile market, when talking

about the main currency "airs of the world it is actually one of the least volatile markets

there is. hile a 2- move in a day is fairly common in many stocks and futures

contracts, this would be considered a "retty large move in most of the main currency

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"airs and their crosses.

5o if this is true then it begs the question of why the forex market has such re"utation

for being a very volatile and risky market to trade. The answer to this question has to

do with something which is known as leverage and the fact that in the forex market

traders are given access to a much higher amount of leverage than in most other

markets.

hen we talk about leverage in the 'nancial markets we are talking about the ability to

am"lify the gain or loss on a trade through the use of either borrowed ca"ital, or a'nancial instrument which is structured to accom"lish this.

To "oint to an exam"le that many "eo"le are familiar with lets look at what ha""ens

when most "eo"le go to buy a house. (s most "eo"le do not have all the cash they need

on hand to sim"ly "ay for the house out of "ocket, they go to the bank and get a

mortgage so that they can a$ord to buy the house. To obtain this loan the buyer of the

home will generally "ut down some ca"ital u"front, a common number for which is 2*-

of the "urchase "rice.

5o lets say for exam"le that ) go and take out a mortgage for a ?+ !illion house and "ut

u" 2*- #?2**,***% in order to obtain a mortgage from the bank for the balance of?J**,***.

7ext lets say that over the next year the value of my house goes u" by - of the

"urchase "rice, so that the house which was worth ?+ !illion is now worth ?+,**,***.

hile the value of my house in this exam"le has gone u" by - the return on the money

that ) invested in the house #?2**,***% is actually much higher than this.

The reason for this is something which is known as leverage. (s we can see from this

exam"le leverage allowed me to buy an asset #in this case a house% with only +th the

money that ) would have needed had ) "ut u" all the money myself.

5o in this exam"le the return on my investment is not - but the increase in the value

of the "ro"erty #?*,***% divided by my down "ayment #?2**,***%. This equals a returnof times the - gain on the value of the "ro"erty or 2-.

hen "eo"le 'rst see the "ower of leverage they normally get very excited, as the

gambler seeking the slot machine &ack"ot that is in all of us starts to take over the

brain. hat it is im"ortant to reali6e however is that &ust as in this exam"le a - gain

in the value of the house resulted in a 2- gain on the original investment, if the value

of the house falls by - in this exam"le this would re"resent a loss of 2- on the

original investment.

 (s we continue our discussion on leverage it will become clearer that one of the main

reasons the forex market has a bad name, and why so many traders blow themselves u"early on in the market, is because they over leverage themselves. hile this may work

to am"lify their gains initially, eventually a loosing streak which always eventually

comes does come along and knocks them out of the game com"letely.

1or your homework assignment tonight ) encourage you to "lace a few more trades on

 your demo trading accounts and notice how the di$erent columns in the accounts

window of the "latform react when you do this. )f you have not done so already you can

register for a free real time demo account in the link above this video if you are

watching on )nformedTrades or to the right of this video if you are watching on

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 8ouTube.

18-Ho) Trading on Margin 8orks 

 (s we discussed in our last lesson many "eo"le "ut down 2*- in cash to obtain their

mortgage, which "uts their leverage at to +. The 2*- down "ayment that many home

buyers "ut down to obtain their mortgage is the equivalent to the margin that a trader

"uts u" to "urchase a 'nancial instrument such as a currency "air when trading on

margin.

!ost forex trading 'rms will o$er leverage of u" to +** to + or more, which requirestraders to "ut u" only ?+*** in margin for every ?+**,*** in "ositions traded. )f fully

used this would take a +- move in a currency "air and turn that move into a +**- gain

or loss on the value of your account.

The easiest way to understand this is by seeing it in real time by logging into our real

time demo trading accounts. )f you have not done so already ) encourage you to register

for a free demo using the link above this video if you are watching

on)nformedTrades.com or to the right of this video if you are watching on 8outube.

nce logged into the "latform, in the u""er right hand corner of the "latform you

should see a window that says Q(ccountsQ. )n this window from right to left you shouldsee the following columnsA

+. The (ccounts olumnA This lists your account number and if you were trading

multi"le accounts the other accounts you were trading would be listed here as well.

2. The =alance olumnA This lists the amount of money in your account not including

any "ro't or loss on o"en "ositions.

@. The 3quity olumnA This lists the amount of money in your account including any

"ro't or loss on o"en "ositions.

4. Bay P:A This is the gain or loss on any o"en "ositions for the trading day which

begins and ends at "m 3astern 5tandard Time on this "articular "latform.

4. The /sd !r olumnA This stands for /sed !argin and is the amount of money in youraccount which has been allocated for margining your o"en "ositions. )f you have no

o"en "ositions this column will read 6ero so go ahead and click on the dealing rates

window and o"en a + contract "osition. )f you have multi"le "ositions o"en go ahead

and close out the additional "ositions by clicking on the close rate in the close column

beside those "ositions so that you have only + "osition o"en.

nce you do this you should see the amount in the /sd !argin column at ?+***. )f you

remember from our "revious lessons we are trading a contract si6e of +**,*** of the

base currency, which "uts the leverage which has been extended to us on this "articular

demo account at exactly +** to + for currency "airs in which the /5 Bollar is the basecurrency and somewhere near +** to + for currency "airs in which it is not.

. )n the next column over you should see a column that says /sbl !r. This is the

amount of money that you have in your account including any "ro't or loss on o"en

"ositions, that is over and above the money allocated to margin any o"en "ositions in

the account.

 (nother way of looking at this is that the /sable !argin olumn is the 3quity olumn

minus the used margin olumn.

)f the number in this column dro"s to 6ero then the trading "latform will automatically

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generate a margin call and close the o"en "ositions on your account. ith this in mind,

it is im"ortant to always have a clear understanding of how much money you need in

 your account to o"en each new "osition so you do not over leverage yourself or worse

end u" in a margin call situation.

e are going to get into more in de"th exam"les in our next lesson but to quickly

demonstrate the relationshi" between the used margin and usable margin columns lets

left click in the dealing rates window and o"en a 2 lot "osition of 3/F/5B, which will

bring the total in our account to @ o"en contracts. nce that "osition is o"en thenumber in your /sed !argin column should have gone u" by ?2*** to account for the

two additional contracts we &ust o"ened, and the amount in the usable margin column

should have gone down by ?2***.

 (s we discussed in our last lesson, not res"ecting the amount of leverage o$ered in the

forex market is "robably the number + reason why many traders not only fail when

trying to trade the forex market but loose their entire account balance. hile the

market is not a volatile market in and of itself, you can turn it into a highly volatile

instrument by u""ing the amount of leverage used, which "uts your account balance

and therefore trading career at risk.19-Ho) to Calculate 5our Le"erage .atio 

 (s we covered in our last lesson the real time demo trading "latform which we are

using, comes with a default leverage maximum of +** to +. hat this means is that for

every contract of +**,*** of the base currency that you o"en, you need at least ?+***

of margin in your account to avoid receiving a margin call and having that trade closed.

The im"ortant thing to understand here is that this +** to + leverage is the maximum

o$ered on this "articular demo account and the level at which if you dro" below the

o"en "ositions on your account will be closed. ith this in mind it is my o"inion #which

was formulated from years of trading and watching other "eo"le trade% that most

successful traders would never "ut themselves in a "osition where they would receive amargin call. The reason behind this is that they em"loy a money management strategy

which controls the amount of leverage that they would use on any one trade, and for

their account as a whole, something which we talk in de"th about in !odule I of our

free beginner trading course in the free course section of the )nformedTrades.com site.

)n general most successful traders ) have seen trade use a maximum leverage at any

one time of to + and many would consider even this to be too highly leveraged. The

amount of leverage used really de"ends on trading style as much as anything as in

general traders who hold "ositions for short "eriods of time and cut losses quickly are

able to successfully em"loy higher amounts of leverage than longer term traders whoneed more breathing room in their trades. To hel" illustrate how this works from a

logistical stand"oint lets take a look at a cou"le of exam"lesA

The best way in my o"inion to think about leverage and trading on margin is to always

ask yourself the question ofA Q=y how much am ) am"lifying the gain or loss on my

account when o"ening this tradeQ

1or this exam"le lets say that ) start trading with ?+**,*** sim"ly because this is an

easy round number to work through the math with.

)f ) o"en + contract of /5BDP8 then ) am trading ?+**,*** against the equivalent

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amount of DP8 as we have learned in "revious lessons. 5o if ) have ?+**,*** in my

account and ) am trading ?+**,*** /5B against DP8, then ) am not leveraged as the

cash balance of my account equals the "osition si6e ) am trading.

ith this exam"le a +- movement in the currency "air would re"resent a +- gain or

loss in the value of my account. (s we learned in our last lesson the /sed margin

column of my account in this exam"le would show ?+*** and my /sable margin would

show ?KK,***.

)f ) o"en 2 contracts of /5BDP8 then ) am trading ?2**,*** against the equivalentamount of DP8. (s ) have ?+**,*** in my account and ?2**,*** in o"en "ositions ) am

leveraged at 2 to + as the "osition si6e ) am trading is twice the value of the cash in my

account.

ith this exam"le a +- move in /5BDP8 currency "air would re"resent a 2- gain or

loss in the value of my account, thus am"lifying the "otential gain or loss on this trade

by 2 times. )n this exam"le the /sed !argin olumn of my account would show ?2***

and my usable margin would show ?KJ,***.

)f ) o"en contracts of /5BDP8 then ) am trading ?**,*** against the equivalent

amount of DP8. (s ) have ?+**,*** in my account and ?**,*** in o"en "ositions ) amleveraged at to +.

ith this exam"le a +- move in the /5BDP8 currency "air would re"resent a - gain

or loss on the value of my account, thus magnifying the "otential gain or loss by

times.

1or tonights homework session ) recommend working through a cou"le of exam"les as )

have above with other currency "airs in which the /5B is the base currency in the "air.

5econdly ) encourage you to think about how to go about 'guring out the leverage used

when the /5B is not the base currency in the "air.

20-Ho) to Calculate 5our Le"erage .atio art 2 

)n our last lesson we looked at how to determine how much leverage you are using

when trading currency "airs in which the /5 Bollar is the base currency in the "air. )n

today<s lesson we are going to continue our free forex trading course with a look at how

to determine how much leverage you are using when the /5 Bollar is not the base

currency in the "air.

 (s we have learned in "revious lessons, in this "articular demo account we are trading

a contract si6e of +**,*** of the base currency in the "air. hen the /5 Bollar is the

base currency in the "air thats ?+**,*** "er contract which, as our accounts are based

in /5 Bollars, makes the leverage calculation fairly easy.hen the base currency is not the /5 Bollar however the com"utation for the amount

of leverage em"loyed becomes a bit more di$icult, as in these cases we are trading

+**,*** of of that currency, not the /5 Bollar. )n short, what this means is that to get

the amount of leverage utili6ed in these cases we must convert the trade si6e into /5

Bollars, and then divide that by the equity in our account.

To hel" illustrate this conce"t lets look at a cou"le of exam"les. :ets say ) am trading 2

contracts of 3/F/5B with an account balance of ?+**,***. (s we have learned in

"revious lessons 2 contracts of 3/F/5B is 2**,*** 3uros against the equivalent

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amount of /5 Bollars.

 (s we also learned, the rate in the dealing rates window for the 3/F/5B or any other

currency "air for that matter, is how much of the second currency in the "air it takes to

buy + of the 'rst currency. (s of this lesson 3/F/5B is trading at +.K>I so + 3uro is

worth ?+.K>I. (s we are trading 2**,*** 3uros we multi"ly +.K>I times our 2**,***

3uro "osition si6e to get our "osition si6e in dollars which equals ?@+K,2*.

7ow that we know our "osition si6e in /5 Bollars, to get the amount of leverage

utili6ed on this trade, we sim"ly divide ?@+K,2* by our ?+**,*** account balance,which gives us a leverage ratio of @.2* to +.

The "rocess to calculate the leverage em"loyed for currency "airs which do not include

the /5 Bollar at all is the same, but be sure to use the rate for the base currency and

the /5 Bollar to calculate the "osition si6e in /5 Bollars.

 (s an exam"le here if was trading + contract of 3/FDP8 then ) am trading +**,***

3uros against the equivalent amount of Da"anese 8en. (s our account is in /5 Bollars

we need to calculate how large a "osition this is in /5 Bollars, so we don<t really care

about the Da"anese 8en in this situation. ith this in mind we sim"ly take the rate of the

3uro /5 Bollar currency "air, which as of this lesson is ?+.K>I, and multi"lying this byour "osition si6e of +**,*** 3uros. e then take the result of this calculation

#?+K,>I*% and divide it by our account balance of ?+**,***, which gives us a leverage

ratio of +.I* to +.

To hel" make this "rocess easier ) have created a s"readsheet which you can 'nd

attached to this lesson if you are watching on )nformedTrades.com. )f you are watching

on 8ouTube ) have included a link to this lesson in the descri"tion section to the right of 

this video.

1or the homework assignment tonight ) encourage you to calculate the leverage utili6ed

on several trades in currency "airs which do not include the /5 Bollar in the "air, and

feel free to "ost your results in the comments section of this lesson.21-The 7i%erent T!(es of Market #rders 

The most basic ty"e of rder when trading the forex market or any other market for

that matter is something which is known as a market order. )f you have been following

our lessons u" to this "oint you should already have executed several trades on your

free real time demo accounts by clicking on the dealing rates window. hen doing this

 you are executing what is known as a market order, which is de'ned as an order to be

executed at the current market rate.

The advantage of a straight market order is that you "retty much will always be 'lled

on your order at some "rice. The disadvantage of a market order is that you can be'lled at a "rice that is way o$ the "rice that you clicked in the dealing rates window.

5ince the forex market is such a liquid market this is not normally an issue but is

something that we need to be aware of, es"ecially when trading around news

announcements or other volatile times in the market. Buring these times orders can be

'lled at "rices which are signi'cantly di$erent than the "rice the trader clicked,

something which is known as Qsli""ageQ.

To quickly demonstrate a straight market order lets "ull u" our free real time demo

trading accounts and execute a trade. )f you have not done so already ) encourage you

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to "ause this video now and register for a free real time demo account at the link above

this video if you are watching on )nformedTrades.com or to the right of this video if you

are watching on 8ouTube so you can follow along as well.

nce you have logged into the "latform choose a currency "air that you wish to trade

and click in the dealing rates window to bring u" the market order window. 7otice in

this window the bottom line which says Qat bestQ. This is how we know this is a true

market order, as this means that the order will be done at Qthe bestQ available "rice in

the market. )n the forex market this normally means you get the "rice which youclicked, however as we &ust stated there are exce"tions to this where sli""age is an

issue.

1or those who want to "rotect themselves against sli""age when using a market order,

which in my o"inion is a good idea, this "articular "latform allows you to change the at

best line to Qmarket rangeQ. 9o ahead and do that and once this is done you should see

a new box a""ear beside the market range box which allows you to enter a number.

hat this does is allow you to s"ecify the number of "oints of sli""age that you are

willing to acce"t on the trade in order to be executed.

)f for exam"le you set this number to 6ero then you will either be executed at the "rice you clicked or better, or not at all. )f you set this number at 2 then you will be executed

within two "oints of the "rice you clicked on or better or not at all, and so forth and so

on.

This is one of the things that ) like best about this "latform, as it allows you to tailor the

amount of sli""age that you are willing to acce"t, instead of having to choose between

either no sli""age and unlimited sli""age.

22-Ho) to lace a ,to( Loss and Take rot #rder  

 (s we<ve discussed extensively in the money management section of our basics of

trading course in the free course section of )nformedTrades.com, it is not normally how

good a trader is at 'nding entry "oints that se"arates the "ro'table traders from theun"ro'table traders, but how good a trader is at exiting their "ositions.

5uccessful traders know that no trader is right +**- of the time over the long term, so

they always have not only an entry "rice and "ro't target for their trade but also a

"rice at which they will close out their trade should the market move against them.

:uckily most electronic "latforms including the one that we have been "racticing on,

allow traders to leave standing orders on the "latform which will close their trade if

their sto" loss level or take "ro't level is reached. This allows traders to ste" away from

the com"uter if needed instead of having to sit and wait for the market to reach their

level. =ecause these orders are executed automatically, some traders also use them tobetter manage the emotions involved with closing out "ositions when their target "rice

or sto" loss levels are hit.

To see what ) am talking about lets login to our real time demo trading accounts and

"lace some more trades. )f you have not done so already ) encourage you to "ause this

 video now and click the link above this video if you are watching

on)nformedTrades.com or in the descri"tion section if you are watching on 8ouTube and

register for a free demo account so you can follow along as well.

:ets say for exam"le that your analysis tells you that the current "rice for 3/F/5B is a

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good sell "rice. 8our analysis also shows you that 2* "oints above the current "rice

would be a good level to exit the trade at a loss should the market move against you and

that * "oints below the trade is a good level to exit the trade at a "ro't should the

market move in your favor.

 (s we know from our "revious lessons the 'rst ste" in the "rocess to "lace this series of

orders is to "lace the market order, so go ahead and click on the buy rate for 3/F/5B

and execute a + lot trade in 3/F/5B.

nce that trade is executed it should show u" in the o"en "ositions window of the"latform where you can see the o"en and current close "rice for the trade. )n this

window you will also see a column that says Q5to"Q. :eft click on this column which will

bring u" the sto" loss window. )n this window you also have a line that says QrateQ in

this box you can change the rate to re0ect the rate at which you wish to be taken out of

the market should the market trade against you. )n this exam"le we said we would like

to be taken out of the market if it trades 2* "i"s against us so ad&ust the number in this

window to re0ect that and then click ok. nce you have done this you should see you

new sto" loss order a""ear in the sto" column of the o"en "ositions window where you

now have an order which will close out this "osition should it reach that level.7ext click the limit column in the o"en "ositions window which will bring u" the limit or

take "ro't order window. (s we said in our exam"le we want to be taken out of the

market at a "ro't if the market moves * "i"s in our favor so ad&ust the rate in the rate

line of the window to re0ect this and then click ok. nce you have done this you should

see a new limit order a""ear in the limit column of the "latform which will close this

"osition should the market reach that rate.

=oth the sto" loss and limit order on this "articular "latform are known as ne ancels

ther or orders which means that if your sto" loss or limit "rice is hit, not only will

the trade be closed but the o""osing sto" loss or limit order which was not hit will be

canceled as well.:astly if you wish to change the rate for either your sto" loss or limit order you can do

so by sim"ly clicking on the sto" or limit column again and ad&usting the rate

accordingly.

1or tonights homework assignment ) encourage you to use some of the tools we have

learned about in our trading basics course to 'nd trading o""ortunities and "lace a

trade with both a sto" and a limit using the knowledge we have learned here today. )f

 you would like to share your trade and analysis with

the)nformedTrades.com community ) am sure we would all love to see it.

23-Ho) to lace a ending $ntr! #rder  )n our last lesson we learned how to "lace sto" loss and take "ro't orders which allow

us the freedom to ste" away from the com"uter and have our exit orders automatically

execute should the market reach one of our targets. )n today’s lesson we are going to

continue our free forex trading course with a look at entry orders.

here the sto" loss and take "ro't orders automatically execute to take you out of an

existing "osition when the market reaches a certain level, the entry order automatically

executes to o"en a new "osition.

To hel" understand what ) am talking about lets log into our free real time demo

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accounts and "lace a cou"le more orders. )f you have not done so already, ) encourage

 you to "ause this video now and click the link above this video if you are watching

on )nformedTrades.com or to the right of this video if you are watching on 8ouTube,

and register for a free real time demo account so you can follow along as well.

1or this exam"le lets say that my analysis tells me if the 3/FDP8 reaches +I4.* then

this would be a good level to sell. ) do not however want to sit in front of my com"uter

and wait for the market to reach that level however. :uckily this and most other

electronic "latforms will allow you to "lace what is called an 3ntry order on this"articular "latform, which will o"en a trade for you only if the s"eci'ed rate in the

market is hit.

To the right of the dealing rates window you will see a window labeled QordersQ. Fight

click anywhere in this window which will bring u" a gray dro" down menu. )n this menu

 you should see an o"tion to Qcreate an entry orderQ. 5elect that o"tion by left clicking,

which will bring u" the entry order box.

hange the currency "air that you wish to trade to 3/FDP8, make sure the sell o"tion

is selected, and then change the rate in the rate line to +I4.*.

nce you do this click ok and you will see that order move into the orders window withthe word QwaitingQ in the status column. (s you can see you now have an order to sell +

contract of 3/FDP8 if the sell rate in the market touches +I4.*.

7ow this is a nice feature that will allow you to enter the market if you are away from

 your com"uter and a level you have been watching is reached, but as it is set u" now

that "osition will be com"letely un"rotected after entry, and we have not determined

how to close the "osition if it hits our "ro't target.

)f you notice in the order window however there is both a sto" and a limit column &ust

as there is in the o"en "ositions window. This allows us to enter both a sto" loss and

take "ro't order on this "ending order. The di$erence between these sto" loss and take

"ro't orders and a normal sto" loss or take "ro't order, is that these are what areknown as Qif done ordersQ. hat this means is that the sto" loss and take "ro't order

will only become active MifN the entry order "rice is hit. )f that "rice is not hit then

nothing ha""ens with these orders. )f the entry order "rice is hit then you will see that

"osition move from the entry order window into the o"en "ositions window, and the

sto" loss and take "ro't order will then be active there.

1or your homework assignment tonight ) encourage you to analy6e the market using the

techniques we learned in our free basics of trading course and then "lace a few entry

orders using the technique we &ust learned here. )f you would like to share your trades

with the )nformedTrades.com community ) am sure we would all love to see them, so"lease feel free to "ost them in the comments section of this lesson

on)nformedTrades.com.

24-.ollo"er for Beginners art I 

hat you are actually trading in the forex market is a contract which requires one

currency to be exchanged for another and delivered in two business days. 1or exam"le,

if ) buy + contract of 3/FDP8 then ) am buying +**,*** worth of 3uros and selling the

equivalent amount of Da"anese 8en. This technically requires me to deliver the

equivalent amount of Da"anese 8en "ortion of the trade to the bank account of the "arty

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) am trading with. The "arty that ) am trading with is then technically required to

deliver the +**,*** 3/F "ortion of the trade to my bank account in two business days.

 (s we are trading sim"ly for s"eculation however, we do not want actual "hysical

delivery of the currency, so the "latform which we are using in our exam"les, and "retty

much any other retail forex trading "latform, will automatically role this "osition over

to the next delivery date if the "osition is held "ast "m 3astern 5tandard Time.

)t is not really im"ortant to understand all the details here as this "art is done

automatically. hat it is im"ortant to understand however is that there is a /5 Bollardebit or credit made to your account for any "osition held "ast "m 3astern Time, to

account for the interest "ortion of the transaction.

 (s with most other transactions which involve holding or borrowing money, trading

currencies also involves an interest "ayment or credit de"ending on whether you are

the holder of a currency or the borrower of a currency.

hat this means is that if ) buy /5BDP8 which means ) have bought /5 Bollars and

sold Da"anese 8en, then ) earn interest on the /5 Bollars ) have bought and "ay interest

on the Da"anese 8en that ) have sold in order to buy those /5 Bollars. The reason for

this is technically what ) am doing when ) sell a currency, is borrowing that currencyand then exchanging the borrowed currency for the equivalent amount of the currency

that ) am buying.

) am oversim"lifying things a bit here but basically the interest rates that you "ay and

receive on the currencies involved in the trade, is two days worth of interest derived

from the overnight interest rates of the countries whose currencies you are trading.

)f you remember from module J of our basics of trading course in the free course

section of )nformedTrades.com, overnight interest rates in the /nited 5tates for /5

Bollars are set by the 1ederal Feserve. Dust as the /nited 5tates has the 1ederal

Feserve, other countries around the world also have central banks which set the

overnight rates for their currencies.hen trading forex if you buy the currency with the higher interest rate and sell the

currency with the lower interest rate, then you earn money for holding a trade "ast

"m when rollover occurs, because the interest rate di$erential is in your favor.

onversely if you sell the currency with the higher interest rate and buy the currency

with the lower interest rate then you "ay interest if you hold the trade "ast "m,

because the interest rate di$erential is not in your favor. )f you o"en and close the

"osition before "m then nothing ha""ens as there is no rollovernecessary.

 (s noted above we are trading a 2 day contract in the forex market, so the interest that

 you either "ay or receive at rollover is 2 days worth of interest, calculated based on theinterest rates as set by the central banks in the countries of the currency "airs which

 you are trading.

/sing our /5BDP8 trade as an exam"le, overnight interest rates in the /nited 5tates

are at 2.2- as of this lesson, and rates in Da"an are at .-.

 (s you can see here when we are trading the /5BDP8 currency "air, if we buy then we

are long #holding% /5 Bollars at an interest rate of 2.2- and we are short #borrowed%

 Da"anese 8en at an interest rate of .-. 5o in this exam"le the interest rate di$erential

is in our favor by +.>-, so we will earn interest if we hold this "osition "ast "m 78

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Time.

)f we were to sell the /5BDP8 then we are short #borrowing% /5 Bollars at an interest

rate of 2.2- and long #holding% DP8 at an interest rate of .-. 5o in this case the

interest rate di$erential is against us by +.>- so we will "ay interest if we hold this

"osition "ast "m 78 Time. ) have tried to make this as sim"le as "ossible but to be

u"front this is "robably the most di$icult conce"t for traders who are new to the forex

Thats our lesson for today. )n tomorrow<s lesson we are going to continue our rollover

discussion with a look at where you go to 'nd out whether you are going to "ay orreceive money for holding "ositions "ast rollover and the basics of how traders leverage

this rollover conce"t to their advantage so we ho"e to see you in that lesson.

 (s always if you have any questions or comments "lease leave them in the comments

section below, and good luck with your tradingR market to gras", so if it takes a little bit

of time don<t worry you are not alone. )f you have questions ) am sure that others have

similar ones so "lease be sure to "ost them in the comments section below so we can all

learn together. 

25-.ollo"er for Beginners art II 

)n today<s lesson we are going to continue our discussion on rollover with a look at how

we know when we will be "aying or receiving interest for holding "ositions overnight,

and how much that will be.

 (nother nice feature of the "latform we are using here is that it is very trans"arent in

the way that rollover is done. (s this is one of the more com"licated things about

trading forex, some 'rms will take advantage of trader<s lack of understanding, and

charge them more than they should when the trader is long the currency with the lower

interest rate and "ay them less than they should when the trader is long the currency

with the higher interest rate.

To see what ) am talking about lets login to our free real time demo accounts. )f youhave not done so already ) encourage you to click the link above this video if you are

watching on)nformedTrades.com, or to the right of this video if you are watching on

 8ouTube, and register for a free demo so you can follow along as well.

nce you are logged into the "latform change the dealing rates window from advanced

to sim"le view by clicking the sim"le dealing rates tab in the u""er right hand corner of 

the window. nce you do this scroll over to the right and you will see two columns

which say Foll 5 and Foll =. Foll 5 stands for the Foll amount you either "ay or receive

if you sell to enter the trade, and Foll = stands for the Foll amount you either "ay or

receive if you buy to enter the trade.

)f the number beside the currency "air and under the a""ro"riate roll column has a

"ositive number, then this is the amount in /5 Bollars that will be credited to your

account, "er contract, for any "osition held "ast "m 78 time. )f the number is negative

this this is the amount that will be debited from your account, "er contract, for any

"osition held "ast "m 78 time.

Femember if you o"en and close a "osition before "m 78 time then the "osition does

not need to be rolled over, so your account will not be debited or credited.

 (s a quick exam"le lets say ) want to know the amount of interest that ) will either "ay

or receive if ) buy 2 contracts of 9=PDP8, and hold that "osition "ast "m 78 time. (ll )

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would do here is scroll down to 9=PDP8 and then over to the F:: = column of the

"latform where ) see that as of this lesson ) would earn ?* "er contract. 5ince in this

"articular exam"le ) am trading 2 contracts ) would earn ?+** for holding that "osition

"ast "m 78 Time.

nce this trade is o"ened and held "ast "m 78 time the interest credit will show u" in

the QFollQ column of the "latform.

ne last thing that it is im"ortant to understand about the logistics of rollover is that

trades held "ast "m 78 Time on ednesday take into account the weekend interestwhen the market is closed, so the rollover amounts are going to be tri"le on that day.

 (lso if there is a banking holiday in one of the countries whose currency you are

trading, then this will a$ect the role amounts as well.

The im"ortant thing to understand however is that all you need to do to know how

much you will either "ay or receive for holding a "osition "ast "m 78 time is look in

the Foll 5 and Foll = columns of the "latform.

 (s you can "robably tell from this lesson, because interest rates cause currency traders

to either earn or "ay money for holding "ositions, they have a dramatic a$ect on the

 value of currencies, something which we will talk more about in our next module. 1orthose of you who have heard of the carry trade, this comes from the conce"t we have

learned about here today, where traders buy currencies with high interest rates and sell

currencies with low interest rates to earn the interest rate di$erential or carry.

1or your homework assignment tonight ) encourage you to "lace a few trades in

di$erent currency "airs, and hold them "ast "m 78 time so you can see how the rolls

work. (s you do this think about the "ower of leverage and what you could "otentially

do using some of the leverage available to you to try and bolster the returns from the

rolls if you are long the currency "air with the higher interest rate.

26-Ho) to 'se 5our Free .eal Ti/e Forex Charts 

)f you have not done so already ) encourage you to "ause this video now and click thelink above this video if you are watching on )nformedTrades.com or to the right of this

 video if you are watching on 8ouTube, and register for a free demo account so you can

follow along with us as well.

nce you are logged into the "latform in the u""er left hand corner you will see a menu

item that says QchartsQ. lick that which will bring u" a dro" down menu where you can

select Qcreate marketshotQ. This will bring u" the Qcreate marketshotQ window where

 you can select the currency "air that you would like to make a chart of, the time frame

of the candles or bars of the chart and the time frame for which you would like the data

dis"layed.1or this exam"le select 3uro /5 Bollar for the currency "air, I* minutes for the time

frame of the bars or candles, and ("ril + through today for the time frame you would

like the data dis"layed for. (fter doing this click ok which will bring u" a window with

the 3/F/5B chart in it. (s you can see on the right hand axis of the chart, this is a

real time chart which u"dates in lockste" with the dealing rate for 3/F/5B in the

dealing rates window of the trading "latform.

The fact that you get free real time charts with this and many other "latforms in the

forex market is another great bene't for us as traders.

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9oing across the to" menu of the chart you will see in the u""er right hand corner

where you can change the currency "air and time frame of the chart if you would like.

!oving across to the right you can see where you can change the ty"e of chart that is

dis"laying, from the default candlestick chart to whatever chart ty"e you would like.

1or more information on this see our lesson on the di$erent ty"es of chart in module +

of the basics of trading course in the free course section of )nformedTrades.com.

 (s there is both a bid and an ask "rice dis"layed in the dealing rates window of the

"latform the chart allows you to select whether you would like to show the bid as the"rice on the chart or the ask. !ost charts will default to the bid "rice which is

im"ortant to remember when analy6ing where the market it in relation to sto"s etc.

Femember that if you o"en at the bid then you are going to be closed at the ask and

 vice versa.

7ext are the 6oom in and 6oom out buttons which allow you to focus in or out on the

chart as you "lease.

!oving over to the right the next button of im"ortance is the add indicator button. (fter

clicking this button you will see a menu of over 4* indicators come u" which you can

choose from to do your analysis. (ll of the indicators which we cover in our basics oftrading course in the free course section of )nformedTrades.com are here as well as

many others.

7ext to this is where you can go to draw and erase trend lines on the chart.

 (nother nice feature of the charting "latform here is the ability to launch multi"le

charts, which you can do by clicking on charts in the u""er right hand menu of the

"latform and then launch market shot. (fter doing this you will see the new chart o"en

u" in a new tab in the charts window of the "latform. :aunch two additional charts and

then select QwindowsQ in the menu and then QtileQ. This will allow you to change the

 view so that you can see all the charts you would like in one window and avoid having

to scroll through the di$erent tabs. (ll features on the "latform are "retty customi6able from the 'le menu by selecting

o"tions. Gere you can change the background colors of the chart, add remove grid lines

and "retty much anything else that you would want to do with the charts.

Course Module 6: 8hat Mo"es the Forex Market 27-Ho) Trade Flo)s Mo"e the

Forex Market 

 (s most of you are aware, when the market for something is allowed to o"erate in an

unrestricted manner, "rice is set by the intersection of su""ly and demand. This means

that if there is more demand than su""ly for something then "rice should rise.

onversely if there is more su""ly than demand for something, then "rice should fall.

hen su""ly and demand are equal then "rice should stay the same.

urrencies are no exce"tion to this basic economic conce"t. (t its core the value for a

free 0oating currency is determined by the demand for a "articular currency in relation

to its su""ly. hile this is a sim"le conce"t, determining what the su""lydemand

situation for a "articular currency is, and trying to forecast changes in that equation, is

a little bit more di$icult of a "ro"osition, and is what currency traders who focus on

fundamentals try to ascertain.

ith this in mind ,whenever anything ha""ens such as an increase or decrease in the

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amount of goods and services im"orted or ex"orted by a country, an economic news

release, s"eech by a fed o$icial, or geo"olitical event, a currency trader will always ask

the questionA QGow does this a$ect the su""ly demand situation, and therefore the

 value of the currency that ) am tradingQ

)n order to kee" this straight in our heads its best to think of things that can a$ect the

su""lydemand equation as 'tting into one of two categories. The 'rst, which we are

going to discuss in this lesson, is what is known as trade 0ows. Trade 0ows are

anything that involve money moving in and out of a country as a result of globalcommerce. This basically means money 0owing out of countries as a result of goods and

services being im"orted from other countries, and money 0owing into countries as a

result countries ex"orting goods and services to other countries.

hen a country im"orts goods this adds currency of the im"orting country to the

market and creates demand for the currency of the ex"orting country. The reason for

this is that the goods are normally bought in the currency of the country where they are

"roduced, so the entity im"orting the goods must exchange their currency for the

currency of the entity that is ex"orting the goods.

 (s an exam"le lets say that a /5 or"oration is im"orting + !illion /5 Bollars worth ofsteel from a anadian steel "roducer. )n order to "urchase this steel, the /5

or"oration must "ay the anadian cor"oration in anadian dollars. (s the /5

or"oration most likely does not have cash sitting around in anadian Bollars, they will

go out into the market and sell /5 Bollars and buy anadian dollars.

 (s you can see here, the buying and selling of currencies which takes "lace as "art of

this transaction, creates an increase in demand for anadian Bollars while

simultaneously adding su""ly to the market for /5 Bollars. hile a transaction of this

si6e would not have much if any a$ect on the market, if this ty"e of transaction was

multi"lied many times over, you could see how the two currencies of the countries

involved in the transactions would be a$ected.)n general countries which rely heavily on im"orts will see a weakening a$ect on their

currency as a result of this, all else being equal, and countries who have economies

which are more ex"ort oriented will see a strengthening a$ect as a result, all else being

equal.

28-Ho) Ca(ital Flo)s Mo"e the Forex Market 

a"ital 0ows encom"ass all of the money moving between countries as a result of

investment 0ows into and out of countries around the world. Gere instead of money

0owing between countries to buy each others goods and services, we are talking about

money 0owing into and out of the stock and bond markets of countries around theworld, as well as things such as real estate and cross boarder mergers and

acquisitions.

 Dust as the im"orting or ex"orting of goods shifts the su""ly demand balance for a

"articular country, so do the 0ows of money coming into and out of the country as a

result of ca"ital 0ows. (s the barriers to investing in foreign countries have come down

as a result of the internet and other factors, it is much easier for fund managers and

other investors to take advantage of o""ortunities not only in their domestic markets,

but anywhere in the world. (s this is the case, when a market in a "articular country is

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showing above average returns, foreign investors will often 0ood the market with

ca"ital, buying u" the assets of that country looking to earn above average returns as

well. hen this ha""ens it not only a$ects the markets of that country, but also the

 value of its currency, as foreign ca"ital must be converted into local currency in order

to "artici"ate in the markets there.

hile most "eo"le are more familiar with the equities markets, an im"ortant thing to

note here is that the bond markets in most countries are much larger than the equities

markets, and therefore can have a greater a$ect on the currency. hen the interestrates being "aid for the bonds in a "articular country are high, this tends to attract

ca"ital to that country from foreign investors seeking to take advantage of that higher

 yield, creating a demand for the local currency here as well.

:astly, cross boarder mergers and acquisitions are also "art of the ca"ital 0ows

category and when they ha""en on large levels can move the market as well. (s an

exam"le, if Beutsche bank #a large 9erman bank% were to buy ashington !utual here

in the /nited 5tates, this would create a large demand for dollars and increase the

su""ly of 3uros on the market as Beutsche =ank sold 3uros for dollars in order to

com"lete the transaction. (s you can "robably imagine there are a myriad of factors that can a$ect both trade

and ca"ital 0ows for a "articular country, and therefore its currency. (s currency

traders it is our res"onsibility to know what to ex"ect in terms of a reaction in the 1;

market when di$erent things ha""en, so always think of things in terms of how

something e$ects the su""ly demand relationshi". nce you understand this it is next

im"ortant to understand whether that e$ect 'ts into the trade 0ow or ca"ital 0ow

category since, as we will learn in later lessons, some countries are a$ected more by

trade 0ows than ca"ital 0ows and vice versa.

29-The Current Account and Measuring Trade Flo)s

hile the conce"t that we are going to be covering here is fairly involved, ) am coveringthis not because ) feel we need to know all the details, but because having a general

understanding of how the 0ows of money in and out of a country are measured, is

im"ortant to hel" understand how the value of currency is a$ected by those 0ows. 7ow

that we have an understanding of both trade and ca"ital 0ows we are going to learn

how each is measured starting with the current account.

The basic formula for calculating the current account for a country, is ex"orts im"orts

of goods and services #also referred to as the balance of trade% U 7et 1actor )ncome

from (broad #basically interest and dividends% U net transfer "ayments #like aid given

to foreign countries%.)n general for the countries whose currencies we are focused on, the balance of trade

"ortion of the formula is the main com"onent we are concerned with and very little if

anything will ever be heard about the other two com"onents.

hen thinking about a countries im"orts and ex"orts #balance of trade%, you will often

hear a country described as having either a current account sur"lus or a current

account de'cit. ( current account sur"lus basically means that a country is ex"orting

more than they are im"orting which, as we learned in our lesson on trade 0ows, should

strengthen the value of the currency all else being equal. ( current account de'cit

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basically means that a country is im"orting more than it is ex"orting which should

weaken the value of its currency all else being equal.

)f you remember from our lesson on trade 0ows ) gave the exam"le there of a /5

com"any needing to im"ort + !illion Bollars worth of steel from a anadian steel

"roducer. Dust to give a sim"le exam"le lets say for a second that this was the only

transaction that both the /nited 5tates and anada did with foreign countries. )f this

were the case then the /nited states would have a current account de'cit of + !illion

Bollars and anada would have a current account sur"lus of + !illion dollars.7ow obviously there are millions of transactions &ust like this one which go on between

countries all over the world. The current account measures these transactions so we as

traders can have an idea of whether the value of a countries currency should be

increasing or decreasing based on the trade 0ows of that country, all else being equal.

 (s of this lesson hina has the largest current account sur"lus at ?@I@ =illion and the

/nited 5tates had the largest current account de'cit at ?>4> =illion. )t is because of

this that many argue hina<s currency is too weak and the /5 Bollar is too strong, two

imbalances which have started to right themselves over the last year.

Gere is a gra"h of the current accounts of some of the ma&or countries whosecurrencies we are focused on, so you can have an idea of whether those countries are

more im"ort or ex"ort oriented. (s we will learn this is something which is going to be

im"ortant when analy6ing economic data relating to those currencies.

 Da"anA ( 5ur"lus of ?2*+ =illion

9ermanyA ( 5ur"lus of ?+J =illion

5wit6erlandA ( 5ur"lus of ?I> =illion

anadaA ( 5ur"lus of ?2J =illion

7ew CealandA ( de'cit of ?+* =illion

1ranceA ( de'cit of ?@ =illion (ustraliaA ( Be'cit of ?* =illion

)talyA ( Be'cit of ?J =illion

/nited LingdomA ( Be'cit of ?+++ =illion

30-The Ca(ital Account and Measuring Ca(ital Flo)s 

The basic formula for calculating the ca"ital account isA )ncrease in 1oreign wnershi"

of Bomestic (ssets #things such as real estate, cross boarder !V(, and )nvestments by

1oreign om"anies in local o"erations% )ncrease in Bomestic wnershi" of 1oreign

 (ssets U Portfolio )nvestment #things such as stocks and bonds% U ther )nvestment

#things such as loans and bank accounts%.

 (s with the current account it is for our "ur"oses not im"ortant to understand all the

intricate details of the ca"ital account, but sim"ly that where the current account

measures money 0owing in and out of a country as a result of trade 0ows, the ca"ital

account measures money 0owing in and out of the country as a result of ca"ital 0ows.

 (s we discussed in our lesson on ca"ital 0ows, when a market in a country is

out"erforming the markets in other areas of the world, money will 0ow into the country

from foreigners seeking to "artici"ate in those out si6ed returns. These ca"ital 0ows are

re0ected in the country<s ca"ital account. This is the case whether we are talking about

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a country<s stock market, bond market, real estate market etc.

 (s a quick exam"le lets say that a mutual fund located in the /nited 5tates invests ?+

!illion Bollars in the anadian 5tock !arket, and a anadian real estate 'rm buys the

equivalent amount of real estate in the /nited states. Dust for sim"licities sake, if these

were the only transactions that took "lace between these two countries and any other

country, the a"ital (ccount for both the /nited 5tates and anada would show a

balance of 6ero, as the two transactions would have exactly o$set themselves.

 (s with the current account when a country sees strong in0ows or out0ows of ca"ital,this has a direct a$ect on its currency. hen there are signi'cant in0ows this creates

demand for the currency, "ushing the value of the currency u", all else being equal.

onversely, when there are signi'cant out0ows, this creates a market su""ly of the

currency, "ushing its value down all else being equal.

 (s you may be able to tell by now, it is the interaction of both the current account and

the ca"ital account that fundamental traders focus on, as it is the imbalances here that

theoretically cause the value of a currency to rise and fall over the long term.

31-The Balance of a!/ents 

)n our last lesson we learned about the ca"ital account and how this measures 0ows

relating to foreign investment into and out of a country. )n today<s lesson we are going

to combine what we have learned about the current and ca"ital accounts by looking at

something which is known as the balance of "ayments.

 (s we discussed brie0y in our last lesson it is the interaction of 0ows of money relating

to international trade and investment that ultimately determines the value of a currency

over the long term. hen demand strengthens for the ex"orts of a "articular country

andor investments by foreigners into that country increase, then, all else being equal a

currency should strengthen. onversely, when demand weakens for the ex"orts of a

"articular country andor investment by foreigners in that country falls, then, all else

being equal a currency should weaken.

)t is the interaction of the current account and the ca"ital account that measures this,

and when combined these make u" a country<s balance of "ayments. The balance of

"ayments is very sim"ly the total transactions by a country with all other countries in

the world, or in other words the combination of both trade 0ows and ca"ital 0ows into

one re"ort. =y following a country<s balance of "ayments and its related indicators, an

1; trader can gain great insight into the "otential future direction of a country<s

currency.

To hel" understand this better lets look at the exam"le of the /5 Bollar. (s we<vediscussed in "revious lessons, the /nited 5tates has run a very large current account

de'cit for quite some time, meaning that the country has im"orted many more goods

and services than it has ex"orted. (s this chart of the /5 Bollar )ndex shows however,

for a number of years the /5 Bollar continued to strengthen, des"ite this large current

account de'cit.

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 (s you can see here going u" into 2*** although the /5 ran a "ersistent current

account de'cit, the currency overall continued to strengthen before starting to sell o$

from late 2*** forward. 7ow ) am making some "retty signi'cant generali6ations here

for sim"licities sake, but there are two ma&or reasons that fundamental traders will

"oint to as reasons for thisA

+. (lthough this is starting to change somewhat, there has for many years been a strong

demand for /5 Bollars because the /5 Bollar is the currency of choice for many ma&orcentral banks to hold as their reserve currency, with Da"an and hina being the

countries you will hear most about in this regard. This creates a demand for dollars on

the ca"ital 0ows side of the equation that hel"ed to o$set the "ersistent current

account de'cit going into 2***.

2. (s most of you will remember the 7(5B(H to" which ha""ened in !arch of 2***

was "receded by a ma&or bull market in the /nited 5tates, one in which foreign

investors were active "artici"ants. (s we learned about in our lesson on ca"ital 0ows

this also created a large demand for dollars, further hel"ing to o$set the large current

account de'cit. (fter the sell o$ of the 7(5B(H however, foreign investors 0ed the /5 5tock market

along with a lot of other traders and investors. (s there was no longer as much foreign

ca"ital 0owing in to o$set the large current account de'cit, the /5 Bollar began to

weaken. (s the dollar began to weaken this created a chain reaction with the central

banks who began to diversify into the 3/F and other currencies, further exacerbating

the dollar<s sell o$.

This created a situation where the current account de'cit in the /nited 5tates

remained large #creating a market sur"lus of /5 Bollars from an international trade

stand"oint% and the in0ows of ca"ital into the /5 stock and bond markets began to fall,

lowering the demand for dollars which was o$setting the current account de'cit.hile it is not im"ortant to understand all the intricate details at this "oint, what you do

need to understand is that in order to have a feel for the long term fundamentals of a

currency, it is im"ortant to have a general understanding of what is ha""ening from

both a trade 0ows and a ca"ital 0ows stand"oint, and how these two things interact

with one another. (s we will learn in coming lessons all fundamentals with currencies

can be related back to these two basic conce"ts, so for your homework assignment for

this lesson ) encourage you to consider the following questionA

 (s the value of the /5 Bollar falls what e$ect if any should this have on the large

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current account de'cit in the /nited 5tates and why

)f you would like to "ost your answer in the comments section of this lesson

on)nformedTrades.com for discussion this is something that ) always encourage.

32-Ho) Interest .ates Mo"e the Forex Market 

)n our last lesson we continued our discussion on what moves the forex market with a

look at something which is known as the balance of "ayments. 7ow that we have an

understanding of how trade 0ows and ca"ital 0ows interact with one another to

establish the longer term direction of a currency, we are going to continue our freeforex course with a look at some s"eci'c exam"les from the current market

environment, starting with an ex"lanation of how interest rates move the forex market.

:ike current and future earnings "ros"ects are the most im"ortant factors to consider

when trying to forecast the long term direction of a stock, current and future interest

rate "ros"ects are the most im"ortant factors to consider when trying to forecast the

long term direction of a currency. =ecause of this fact, currencies are highly sensitive to

any economic news that can a$ect the country<s interest rates, an im"ortant factor for

traders of all time frames to understand.

 (s we learned in module J of our free basics of trading course located in the free coursesection of )nformedTrades.com, when the central bank of a country raises interest rates

this not only a$ects the short term rate that they target, but the interest rates for all

ty"es of debt instruments. )f the central bank of a country raises interest rates then

debt instruments of all ty"es are going to become more attractive to investors, all else

being equal. This not only means that foreign investors are more likely to invest in the

debt of that country, but also that domestic investors are less likely to look outside the

country for higher yield, creating more demand for the debt of that country and driving

the value of the currency u", all else being equal.

onversely, when a central bank lowers interest rates, then interest rates on all ty"es of

debt instruments for that country are going to be less attractive to investors, all elsebeing equal. This not only means that both foreign and domestic investors are less

likely to invest in the debt of that country, but that they are also more likely to "ull

money out to seek higher returns in other countries, creating less demand for, and a

greater market su""ly of that currency, and driving its value down, all else being equal.

nce this is understood, it is next im"ortant to understand that foreign investors are

ex"osed to not only the "otential "ro't or loss from interest rate changes on the debt

instrument they are investing in, but also to "ro'ts and losses which result from

0uctuations in the value of that country<s currency. This is an im"ortant conce"t to

understand, as it generally will work to increase the "ro'ts for investors when interestrates increase, as the increase in the value of the currency is reali6ed when they sell the

investment and convert back into their home country<s currency. This gives the foreign

investor that much extra return on their investment, and that much extra incentive to

invest when interest rates rise, driving the value of the currency u" further all else

being equal.

onversely when interest rates decrease, there will be less demand for the debt

instruments of a country not only because of the lower yield to investors, but also

because of the decrease in the value of the currency that normally comes with a

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decrease in interest rates. The additional whammy of a loss to the foreign investor from

the currency conversion that results as "art of the investment, further incitivi6es them

to "ut their money elsewhere, decreasing the value of the currency further, all else

being equal.

33-Ho) Interest .ates Mo"e the Forex Market art 2 

1or our exam"le we are going to say that ) am a savvy investor located in the /nited5tates who is seeking a good "lace to "ark some savings where ) can earn a decent

return on my money. 1or this "articular slice of my "ortfolio ) am looking for an interest

"aying instrument that will "ay me a steady stream of cash on my money.

 (s many of you already know a government or cor"orate bond will do &ust this "aying

me whatever the interest rate is as set by the country<s central bank that ) am investing

in, "lus an additional interest rate de"ending on the length of the bond that ) am

investing in #for exam"le a + year bond is generally going to "ay me a lower rate of

interest than a +* year bond% and for the extra risk that ) take on for di$erent ty"e of

bonds #for exam"le a government bond is normally going to "ay me less than a

cor"orate bond because there is less chance that the government is going to default onthe loan%.

5o, knowing this, ) decide that ) would like to invest in a bond that "ays me a good rate

of interest, and ) am not looking to get too s"eculative about this investment, so ) "refer

a government bond over a cor"orate bond. 1or our exam"le we are going to say for

sim"licity<s sake, that the bonds of the countries that we have available to invest in "ay

an interest rate equal to the interest rate in the country as set by the central bank.

7ow with this in mind the next thing that ) do is list out all the di$erent interest rates

for the ma&or countries of the world and ) come u" withA

'nited ,tates: 2+<<=

$uro >one: 4+<<=

 ?a(an: +@<=

'nited ingdo/: @+<<=

 Australia: +2@=

Canada: 6+<<=

&e) >ealand: +2@=

,)it;erland: 2+@=

 (fter reviewing my o"tions its seems "retty clear that if ) am &ust going on interest

rates, then 7ew Cealand is the "lace to "ut my money as this will earn me an extra

I.2- in interest each year over investing that same money in the /nited 5tates. 7ow )

am not going to drag the lesson out by including all the history of the interest rates in

7ew Cealand here, but ) will tell you they have been in a high interest rate environment

relative to the /nited 5tates for quite some time. ith this in mind if ) would have have

followed this logic in the "ast then it would have "layed out very well for me not only

from an interest rate stand"oint but also, as this chart shows, from a currency

a""reciation stand"oint. =ecause ) would have been investing in 7ew Cealand bonds )

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would have been holding 7ew Cealand dollars and also bene'ting from the large run u"

in the 7ew Cealand BollarA

7ow obviously hindsight is 2*2* and ) have sim"li'ed things here for our

understanding, but this is not too far o$ from how international investors including

large market moving hedge funds and other "layers think. )t is also a great exam"le of

the forces we have s"oken about in our lessons on ca"ital 0ows and in our last lesson

on interest rates at "lay in today<s market.

That<s our lesson for today. )n our next lesson we are going to continue our discussion

on how interest rates move the forex market with a look at something which is known

as the carry trade, which is also one of the more "o"ular trading strategies in the forex

market, so we ho"e to see you in that lesson. (s always if you have any questions orcomments "lease leave them in the comments section below, and good luck with your

tradingR 34-Ho) to

Trade the Carr! Trade ,trateg!  

 (s we learned about in our lessons on how rollover works in module two of this course,

when holding a "osition "ast "m 78 time traders earn interest when they are long the

currency with the higher interest rate. onversely, when traders are long the currency

with the lower interest rate they "ay interest when holding a "osition "ast "m 78

time.

:ike the /5 investor in the exam"le from our last lesson who took his /5 Bollars and

invested them in 7ew Cealand =onds to earn a higher return, currency traders can alsotake advantage of countries which o$er higher interest rates. :uckily for us however

taking advantage of interest rate di$erences between countries is generally much

easier for currency traders who can do so with a sim"le click of the mouse.

To hel" demonstrate this lets look at the interest rates as set by the central banks for

the main currencies which we are interested in. (s you can see here and as we went

over in our last lesson, rates as set by the 1ederal Feserve in the /nited 5tates are

currently at 2-, and rates as set by the =ank of 7ew Cealand are currently at J.2-.

7ow lets bring u" a screen shot of the sim"le dealing rates window of the 1;!

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"latform and locate the 7ew Cealand Bollar/5 Bollar urrency "air. )f we buy this

currency "air, then we are long the 7ew Cealand Bollar which is the higher yielding

currency, and short the /5 Bollar which is the lower yielding currency. ith this in

mind we earn ?+* "er contract held "ast "m 78 time as shown in the Foll = column of

the sim"le dealing rates window. onversely, if we sell this currency "air then we are

short the higher yielding 7ew Cealand Bollar and :ong the lower yielding /5 Bollar, so

we "ay ?+ dollars "er contract held "ast "m 78 Time, as shown in the roll s column

of the window. (s you can see here, we can take advantage of the higher interest rates in 7ew Cealand

by buying 7ew Cealand Bollars and 5elling /5 Bollars with the click of the mouse, and

without having to go through the trouble of 'guring out how to buy 7ew Cealand bonds

as we would have had to in our last lesson.

=ecause of the sim"licity of this strategy and the fact that in addition to the interest

that one earns by being long the currency with the higher interest rate there is the

o""ortunity for ca"ital a""reciation should the higher yielding currency move in one<s

favor, this is a hugely "o"ular strategy. This is im"ortant to us as traders not only

because it is a strategy that we may want to consider trading at some "oint, but alsobecause a huge amount of ca"ital 0ows in and out of currencies based on this strategy,

making it a ma&or market mover in both the long and short term time frames.

:astly, it is im"ortant to us as traders to understand that when a trader is long the

carry, meaning that he or she is long the currency "air with the higher interest rate,

then that trader is normally trading with the wind at their back as they are getting "aid

every day they hold their "osition, regardless of what ha""ens to the exchange rate.

onversely when a trader is short the carry, meaning that they are long the currency

"air with the lower interest rate, then they are generally trading with the wind in their

face as they are "aying money every day, regardless of what ha""ens with the exchange

rate.Thats our lesson for today, in our next lesson we will continue our discussion of the

carry trade with a look at the role that leverage "lays in the strategy, as well as some

other factors that need to be considered so we ho"e to see you in that lesson.

35-Ho) to Trade the Carr! Trade ,trateg! art 2 

 (s we saw in yesterday<s lesson, if a trader buys the 7CB/5B currency "air, then as of

this lesson, they will earn ?+ "er contract held "ast "m 78 time on !onday, Tuesday,

Thursday, and 1riday. (s we learned in our lesson on rollover in module two of this

course, they will earn @ days worth of rolls or ?4 on ednesday to take into account

5aturday and 5unday when the market is closed. This brings the total interest "aid forthe > days in the week to > S + W ?+*. (s there are 2 weeks in a year if a trader held

this "osition for an entire year and the rollover rate did not change, they would earn

#+* S 2% W ?4I* in interest from the rollover "ortion of the trade.

 (t the current market rate for 7CB/5B as of this lesson of .>IJ> this is an annual

return from &ust the rollover "ortion of the trade of ?4I*?>I,J>* W >.+-. This of

course makes the large assum"tions for sim"licity<s sake that the exchange rate and

rollover rate will remain the same as they are today for the + year "eriod that the trader

is in the trade.

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7ow you may be thinking to yourself at this "oint, Qwell Bave ) was kind of excited

about this whole carry trade thing and was seeing how it was so "o"ular until ) see a

>.+- return "lus all the caveats. To be honest with you this does not get me too excited

and ) don<t really see why this is all that "o"ular.Q

 (s some of you may have already reali6ed however, if we were to utili6e some of the

leverage that is available to us in the forex market as we learned about in module two

of this course, then we might be able to take that >.+- return and &uice it u" into

something a little more interesting. 5o with this in mind, lets say ) leveraged this"osition 2 to +, which most traders ) think would agree is still "retty conservative. This

would double the return from the rollover "ortion of the trade to +4.2-, a return that if

generated consistently would out "erform the long term average return of the /5 5tock 

market. Taking this a bit further, if ) increased the leverage to a more aggressive @ to +,

that would "ut my return from rollover at 2+.@-, and if ) u""ed the leverage to an even

more aggressive 4 to + that would "ut me at 2J.4-, a return that if ) consistently

generated year after year, would "ut me among the to" traders in the world.

hen "eo"le 'rst see this many times their initial reaction is one of excitement, which

makes them want to &um" right into a trade. (s with most things however, if makingmoney was this easy then everyone would be a millionaire, so while this is an enticing

return, and while there has been a lot of money made by "eo"le em"loying carry trade

strategies, there are other things to considerA

1+ $xchange .ate Fluctuations which can cause additional "ro'ts or wi"e out all

"ro'ts and cause losses on the trade.

2+ Changes in Interest .ates which can increase the "ositive rollover, decrease it, or

cause a trader to end u" "aying for holding the "osition instead of earning.

6+ The 'se of Le"erage am"li'es any gains made on the strategy but also am"li'es

any loss should the trade begin to work against the trader.

)t is how traders deal with these unknowns that se"arates traders who consistentlymake money with carry trade strategies from those who do not, a to"ic which we will

discuss in our next lesson.

That<s our lesson for today. (s always if you have any questions or comments "lease

leave them in the comments section below, and good luck with your tradingR  

36-Ho) to Trade the Carr! Trade art 6 

)n our last lesson we looked a little dee"er into one of the more "o"ular strategies

traders use in the forex market, the carry trade. )n today<s lesson we are going to

continue our discussion on the carry trade with a look at some of the factors outside of

current interest rate di$erences that must be considered to have a full understanding ofall the factors included in a carry trade strategy.

 (s we have learned in our 'rst two lessons on the carry trade, it is the si6e of the

di$erence between interest rates in the countries whose currencies we are trading that

ultimately determines how much we either "ay or receive for holding a "osition "ast

"m 7ew 8ork Time. ith this in mind it is only logical that if the di$erence in interest

rates between two countries changes, then so will the rollover amount that is either

"aid or collected when trading those country<s currencies.

 (s a quick exam"le lets take another look at the 7CB/5B. (s of this lesson if we were

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to buy the 7CB/5B currency "air then we would earn ?+* for each contract we held

"ast "m 78 time. (s we have learned in our 'rst two lessons the reason why we would

earn ?+* is because we are long the 7CB where currently interest rates are at J.2-

and short the /5B where interest rates are currently 2- as of this lesson. 5o with this

in mind we are long the "ositive interest rate di$erential of J.2-2- which equals

I.2-.

7ow lets say in our exam"le that interest rates in the /nited 5tates went u" by +- to

@-, while interest rates in 7ew Cealand stayed the same. )f this were to ha""en thenour "ositive interest rate di$erential of I.2- would dro" to .2-. Eery sim"ly here,

as the "ositive interest rate di$erential has decreased the amount of money that we

earn for holding the "osition has decreased as well.

onversely, if rates were to rise in 7ew Cealand and stay the same in the /nited 5tates

then the interest rate di$erential would grow in our favor, and the amount we earn for

holding a "osition "ast "m should grow as well. 5o you can see here that one of the

'rst things that must be considered when thinking about a carry trade is what the

current interest rates are, and what they are ex"ected to be for the life of the trade.

 ( second thing which must be considered when thinking about a carry trade is theexchange rate 0uctuation that may occur while a trader is in the "osition. Traders may

consider a number of things here, the most "o"ular of which are one of or a

combination ofA

1+ Ca(ital Flo)s: !ost im"ortantly here is interest rate ex"ectations which as we

discussed in our lesson on how interest rates move the forex market, when interest

rates rise in a country, interest bearing assets generally become more attractive to

investors, which will many times drive the value of a currency u" all else being equal,

and vice versa when interest rates fall.

7otice here that ) say interest rate Qex"ectationsQ. (s we have talked about extensively

in module J of our free basics of trading course, markets antici"ate fundamentals so ingeneral once an interest rate increase or cut is announced, it has already been "riced

into the market.

2+ Trade Flo)s: !ost im"ortantly here is a$ects on the current account.

e will be discussing how traders go about forcasting changes in ca"ital and trade

0ows in the coming lessons. The third thing which traders focus on and which we have

already covered in our basics of trading course isA

6+ Technical Anal!sis: (s carry trades are generally longer term trades many traders

will look at the overall trend in the market and use technical analysis to try and

determine when they think the trend is going to be in their favor if they o"en a carrytrade.

The im"ortance of develo"ing a "lan to trade the exchange rate 0uctuation "ortion of

the carry trade in addition to the sim"le holding of a "osition overnight to earn interest

cannot be overstated. To hel" drive this "oint home lets have another look at the chart

for the 7CB/5B.

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 (s you will notice from this chart, in a little over @ months the 7CB/5B has fallen over

** "i"s. (s we learned in module 2 of this course the value of a + "i" move in the

7CB/5B currency "air is ?+* meaning that in /5 Bollar terms this is a ?*** loss had

a trader entered a long "osition at the to" of the market to try and take advantage of

the "ositive carry. )f you remember from our last lesson at the current rate of ?+* "er

lot held "ast "m 78 Time a trader would earn ?@I4* for holding a "osition for + year,

which in this case would unfortunately not be enough to o$set the ?*** loss that was

taken in @ months.

 (s a homework assignment for tonight ) would like everyone to think about the

following questionA

hat are some "ossible reasons that the currency "air has sold o$ so much, and could

they have been "redicted

)f you would like to "ost your thoughts in the comments section of this lesson

on)nformedTrades.com we would love to see them and ) will "ersonally re"ly to all

comments.

37-Magic9s Three art ,eries on the Carr! Trade(NOT) 

Course Module 4: Trading the ', 7ollar  

38-Funda/entals "s+ Technicals in Forex  

)n our last lesson we wra""ed u" module @ of our free forex trading course with a look

at some of the ma&or factors that need to be considered when trading the carry trade

strategy. )f you have followed all of our lessons u" to this "oint you should now have a

good understanding of the basics of forex trading, the logistics of executing trades on a

forex trading "latform, and how trade 0ows and ca"ital 0ows are the two broad

categories of things that move the forex market. )n today<s lesson we are going to start

a new module on the fundamentals of forex trading with a look at the question of should

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traders focus on fundamentals or technicals in their trading

 (s we learned in our free basics of trading course in the free course section

of)nformedTrades.com, traders analy6e any 'nancial market including the forex market

in one of @ waysA

+. Through 1undamental (nalysis

2. Through Technical (nalysis

@. Through a ombination of fundamental and technical analysis

hile which method a trader chooses is ultimately u" to them and their trading"ersonality, it is my o"inion that a trader who at least has an understanding of both

technical and fundamental analysis is in a better overall "osition to trade "ro'tably,

than someone who focuses on only one school of thought.

To hel" understand this lets say that ) am a trader who studies technical analysis and

believes that at least in the short term, which is the time frame that ) trade on, that

technicals are all that matter. 7ext lets say that ) am looking at a chart of the 3/F/5B

at JA2* (! on the 'rst 1riday of the month, and my technicals are telling me that the

trade is a good buy.

)f ) focused "urely on technical analysis then ) would "robably enter that "osition notknowing that at JA@* (! ) may be in for a sur"rise that ) was not ex"ecting. (s those of

 you who have been through module J of my basics of trading course know, at JA@* (!

on the 'rst 1riday of the month 7on 1arm Payrolls #71P<s% are released, which

historically has been one of the most market moving fundamental releases in the forex

market.

hile ) am not saying that a trader who trades on technicals should not take a trade

that looks good to them from a technical stand"oint because of weak fundamentals,

what ) think this shows is that technical traders who at least have an understanding of

fundamentals have the ability to decide whether or not they should factor in a s"eci'c

"iece of fundamental information or no. )n my o"inion this gives them a big leg u" ontechnical traders who dismiss fundamentals altogether.

7ow lets say that ) am a trader who trades a carry trade strategy which trades based

o$ of a model ) built to forecast interest rates based on fundamental news releases.

7ext lets say that my model generates a buy signal at +.4>** which ) have included on

the chart on your screen. ould my trading not be better served if ) at least knew that

there was a ma&or head and shoulders to" in "lace, so technically the market is very

weak here

 (s with our technical analysis exam"le what ) am not saying is that a trader who trades

on fundamentals should not take a trade that they feel is good from a fundamentalstand"oint when the market is weak from a technical stand"oint. hat ) am saying

however is that fundamental traders who at least have a basic understanding of

technical analysis have the ability to decide this for themselves. )n my o"inion this gives

them a big leg u" on fundamental traders who dismiss technicals altogether.

 (s you have "robably reali6ed if you have been following my courses, they are designed

to give traders a knowledge of both fundamental and technical analysis because )

believe a knowledge of both "uts traders in the best "osition to learn to trade "ro'tably.

) also believe that you can<t really make a decision if you are going to trade based

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mainly o$ of technicals, fundamentals, or a combination of the two unless you have a

sound understanding of the basics of both fundamental and technical analysis. .

39-Beginner Forex Funda/entals 0ui; =uy Lathy<s :ien<s =ookA Bay Trading The

urrency !arket

)n our last lesson we began a new module on the fundamentals of the forex market with

a look at how traders who have an understanding of both technical and fundamental

analysis are in the best "osition to be successful in the foreign exchange and other

markets. )n today<s lesson we are going to continue our free forex trading course with areview of what we have learned u" to this "oint so we can make sure that everyone has

an understanding of the basics which they will need throughout the rest of this course.

 (s we now have a basic understanding of how trade 0ows and ca"ital 0ows move the

forex market, the next ste" is to look at each of the individual currencies we will be

focusing on so we can gain an understanding of their backgrounds, and the makeu" of

their economies. nce we have an understanding of this it will become clear what

fundamental factors are the most im"ortant drivers of individual currencies, and

therefore what we as traders should watch for.

=efore we get into this however it is very im"ortant that everyone has a soundunderstanding of how trade 0ows and ca"ital 0ows move the forex market #which is

covered in module @ of this course% as well as the following conce"ts, all of which are

covered in module J of our free basics of trading course located in the free course

section of )nformedTrades.comA

e all need to understand what the business cycle is.

The di$erence between monetary and 'scal "olicy.

hat a central bank is and how they go about changing interest rates. )n module J of

the basics of trading course we cover the 1ederal Feserve which is the central bank in

the /nited 5tates. hile the central banks that we are going to be covering going

forward may di$er in how aggressive they are with monetary "olicy in relation to the1ederal Feserve, the methods they use to conduct monetary "olicy, and the reactions of

the forex market that monetary "olicy generates, is basically the same no matter what

central bank you are looking at.

The 'rst currency we will be covering will be the /5 Bollar, so you should have a good

understanding of the basic com"onents of the /5 3conomy.

) am going to give everyone +* questions here that you should now have the knowledge

to answer if you have been through module J of my free basics of trading course, and

module @ of this course. To hel" make it interesting for everyone, ) will o$er a free co"y

of Lathy :ien<s excellent book Bay Trading the urrency !arket, to the 'rst "erson that"osts the correct answers to all +* questions in the comments section of this lesson

on )nformedTrades.com. )f you are watching this video on 8outube you can 'nd a link to

this lesson on )nformedTrades to the right of the video. k so here we goA

+. )f in0ation is low and a entral =ank is concerned about recession, what would the

ex"ected monetary "olicy res"onse be

2. )f in0ation and growth are both high what would the ex"ected monetary "olicy

res"onse be

@. )f a central bank raises interest rates, what a$ect if any is this ex"ected to have on

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the currency of that country, all else being equal

4. )f a central bank lowers interest rates, what a$ect if any is this ex"ected to have on

the currency of that country, all else being equal

. )f a country<s im"orts grow and all other trade and ca"ital 0ows remain equal, what

a$ect would this have on the current account and what would be the ex"ected a$ect on

the currency if any

I. )f a country<s ex"orts grow and all other trade and ca"ital 0ows remain equal, what

a$ect would this have on the current account and what would be the ex"ected a$ect onthe currency if any

>. )f a country is a ma&or ex"orter of gold and the "rice of gold moves u" by *- over

the course of a year, what would be the ex"ected a$ect if any on that country<s currency

all else being equal

J. Da"an is a ma&or im"orter of oil and anada is a ma&or ex"orter of oil. )f the "rice of

oil goes u" by *- over the course of a year, then what a$ect if any should this have on

the (BDP8 currency "air all else being equal

K. Traders who follow /5 Bollar fundamentals "ay "articular attention to any numbers

which re0ect the overall health of the consumer. hy+*. The /5 3conomy in the "ast was referred to as an )ndustrial 3conomy, now it is

referred to more as a XXXXXXXXXXXXXXXX 3conomy.

nce the 'rst "erson "osts the right answers to all +* questions ) will send a "rivate

message to them via the forum to request the mailing address where they would like

their free co"y of Bay Trading the urrency !arket sent.

40-Factors That 8ill 7eter/ine if the ', 7ollar .e/ains ing 

)n our last lesson we continued our free forex trading course with a look at why the /5

Bollar is still king of the currency world. (s ex"ected, this lesson generated a lot of

debate, so in today<s lesson we are going to look at whether or not the /5 Bollar will

remain the king of the currency world. (s we discussed in our last lesson the /5 Bollar is involved in a""roximately JK- of all

forex transactions, so the fate of the /5 Bollar has huge im"lications not only on the /5

Bollar, but on the forex market as a whole. hile currently the /5 Bollar is still king of

the currency world, many argue that the tides are changing, and that the /5 Bollar is in

danger of losing this status. hether or not this ha""ens, to what extent it ha""ens,

and if it does ha""en how quickly or slowly it ha""ens, is of huge im"ortance to

currency traders.

The most im"ortant reason why the /5 Bollar is king of the currency world is the fact

that, as we learned about in our last lesson, it is the world<s reserve currency. (ccording to iki"edia.com, as of 2**> there is a""roximately ?>. trillion worth of

currencies held as reserves by central banks around the world. f that ?>. trillion I@-

or 4.> trillion is held in /5 Bollars. This is an enormous amount of dollars being held by

central banks outside of the /nited 5tates, so forex traders watch closely anything that

could show a decrease in the a""etite of central banks for /5 Bollars.

:ike with individuals and com"anies, other countries willingness to lend money to the

/nited 5tates #by holding /5 Bollar Benominated Bebt as reserves% is based on the

'nancial soundness of the /nited 5tates as a whole. (s we learned about in module @ of 

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this course, the /5 has run a large current account de'cit for years. )n addition to this,

the country<s government has also run large budget de'cits. :ike an individual who

runs u" large amounts of debt, this makes the debt of the /nited 5tates less attractive,

and has the "otential to decrease other countries willingness to fund these activities, by

holding /5 Bollar Benominated debt as reserves.

5econdly, many consider the monetary "olicy of the /nited 5tates to be 0awed, citing

the 1ederal Feserve<s increase of the money su""ly to hold interest rates low, as a

ma&or factor in the dollar<s decline. (s we learned about in our lessons in module @ ofthis course, the lowering of interest rates tends to weaken the value of a currency all

else being equal. (s the value of the currency falls, countries around the world who

hold that currency, see wealth eva"orate due to the falling value of their reserves. This

obviously has the "otential to make the /5 Bollar less attractive for them to hold as

their reserve currency, which means a decrease in demand, and a decrease in the value

of the currency all else being equal.

 (s of this lesson the /5 Bollar has fallen over @- in the last several years, as

measured by the /5 Bollar )ndex. (s we &ust discussed, this decreases the wealth of the

countries who hold the /5 Bollar as their reserve currency, and has the "otential toreduce their a""etite for /5 Bollars, regardless of the reason for the decline in value.

This "otentially means a decrease in demand from the central banks to hold /5 Bollars

as their reserve currency, and a decrease in the value of the currency, all else being

equal.

', 7ollar Index 

ith these three factors in mind, traders will watch carefully anything they feel will

a$ect the willingness of other countries to continue to accumulate and hold the /5

Bollar as their reserve currency. !ost im"ortantly here are statements from any central

bank or government o$icials in regards to this. hile a statement from "otentially any

country in su""ort of the /5 Bollar, or that they are diversifying away from the /5

Bollar has the "otential to move markets, traders are es"ecially sensitive to any hints

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from the largest holders of /5 Bollars which are listed hereA

The 'nal factor which "eo"le "oint to as a reason why the /5 Bollar may lose its status

as king of the currency world, is because of the rise in "rominence of the 3/F, and itsrelative strength in com"arison to the dollar. =efore the introduction of the 3/F, there

was not really another currency which had the "otential to com"ete on the same level

as the dollar, as the reserve currency of the world. The famous former chairman of the

/5 1ederal Feserve (lan 9reens"an, has even been quoted as sayingA Qit is absolutely

conceivable that the 3/F will re"lace the dollar as reserve currency, or will be traded

as an equally im"ortant reserve currency.Q (s you can see from the chart below, while

the 3/F still comes no where close to the /5 Bollar<s dominance as the world<s

reserve currency, it is slowly gaining ground on the Bollar, an im"ortant "oint traders

will be watching.

41-7eter/ining the Fate of the ', 7ollar art II 

)n our last lesson we discussed the main factor which will determine whether or not the

/5 Bollar remains the king of the currency worldO its status as the world<s reserve

currency. )n today<s lesson we are going to continue this discussion with a look at how

countries who "eg their currency to the /5 Bollar have a large a$ect on whether or not

the /5 Bollar remains the reserve currency of the world.

ne of the main reasons why many countries hold so many /5 Bollars, is so they can

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use those dollars to 'x the value of their currency to the /5 Bollar. They do this to try

and give their currency and economy more credibility, which they ho"e will lead to a

more stable economic environment, andor to kee" the "rices of their goods low in

com"arison to other countries, so their ex"orts will be com"etitive.

 (s a quick exam"le lets say that country ( "egs their currency at a value of + to + with

the /5 Bollar. hile it is all 'ne and dandy for country ( to say they are "egging their

currency to the /5 Bollar at + to +, it is still the market that sets the true "rice of

ountry (<s currency in relation to the /5 Bollar. =ecause of this, country ( has toQdefendQ its currency "eg, by buying its own currency and selling /5 Bollars when the

 value of their currency weakens below a + to + rate, and by selling their currency and

buying /5 Bollars when it strengthens above the + to + rate. Gere is a sim"le

illustration of thisA

  (s some

of you who are a little more ex"erienced in the markets "robably know, some "roblems

can arise with the above scenario, and there have been many exam"les in history of

countries who were not able to hold their currency "egs. Probably the most famous

exam"le of this is referred to as =lack ednesday, when the famous s"eculator 9eorge

5oros was credited with forcing the =ank of 3ngland to abandon their currency "eg,

causing the =ritish "ound to fall over 2- relative to the /5 Bollar in a matter ofweeks.

5o what does all this have to do with the /5 Bollar<s 5tatus as the world<s reserve

currency ell, one of the main reasons that countries have in the "ast chosen to "eg

their currencies to the /5 Bollar, is because of the relative stability of the /5 Bollar in

relation to other currencies. )t is im"ortant to understand that not only do the

currencies of countries who "eg to the /5 dollar 0uctuate in value along with the /5

Bollar, but their own monetary "olicy is basically tied to the monetary "olicy in the

/nited 5tates.

This is all 'ne and dandy so long as the monetary "olicy of the /nited 5tates is

considered sound, and so long as the currency does not 0uctuate in a manner thatadversely a$ects the economy of the country "egging to the dollar. Problems arise

however when the dollar 0uctuates in a way that adversely a$ects the economy of the

country with the "eg, andor the monetary "olicy of the /nited 5tates is set in a way

that is not bene'cial to those same countries.

There is a "erfect exam"le of this going on as of this lesson, with oil "roducing

countries in the !iddle 3ast. (s the "rice of oil has been high for so long, the

economies of countries such as 5audi (rabia are booming, and money is 0owing into

those countries at a rate never seen before, creating all sorts of demand for the Fiyal

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#5audi (rabia<s urrency%. (t the same time, the /nited 5tates, the currency of which

5audi (rabia "egs their currency to, is going through an economic slowdown.

5o what you have here is a situation where, if anything, monetary "olicy should be

tightening in 5audi (rabia, and their currency should be strengthening. (s their

currency is "egged to the /5 Bollar however, they are a$ected by the loose monetary

"olicy of the /nited 5tates, throwing fuel on an already hot economy, and weakening

their currency when it really should be strengthening. (s we learned in our lessons on

monetary "olicy in module J of our basics of trading course, this is a reci"e for massivein0ation, which it seems they are starting to see signs of now.

5cenarios such as this can cause countries to abandon their currency "egs or switch the

currencies that they "eg to something which is of ma&or im"ortance to the status of the

/5 Bollar as the orld<s reserve currency.

There are many di$erent scenarios such as the one above which can arise from

countries who "eg their currency to another. )t is im"ortant for us to have a

fundamental understanding of how to s"ot these scenarios, as whether or not countries

continue to "eg their currencies to the /5 Bollar, or move to a basket of currencies or

another currency all together, will have huge a$ects on the value of the /5 Bollar goingforward.

42-7eter/ining the Fate of the ', 7ollar art III 

)n our last lesson we 'nished u" our discussion on the most im"ortant factor which will

determine the fate of the /5 Bollar, its status as the reserve currency of the world. )n

today<s lesson we are going to wra" u" our discussion on the fate of the /5 Bollar, with

a look at the other three factors traders watch when analy6ing the long term fate of the

dollar.

)f you remember from our 'rst lesson on Qhy the /5 Bollar is 5till Ling of the

urrency orldQ, we listed 4 main contributing factors. (s we &ust discussed, the mostim"ortant factor is its status as the world<s reserve currency. 7ext in line in im"ortance,

is the fact that so many foreigners invest in /5 (ssets, andor hold their savings in /5

Bollars. (ccording to Lathy :ien<s book Bay Trading the urrency !arket "Foreign

direct Investments into the United States are equal to approximately 40% of total

global net ino!s for the US #n a net basis$ the US absorbs &% of total foreign

savings"This is a huge amount of money being held in /5 Bollars, to the "oint where

foreign individuals and institutions taken together, have enormous control over the fate

of the /5 Bollar.

ith this in mind, there are several things that traders watch for when trying to detect

any change, which would a$ect foreigners a""etite for /5 assets, andor the /5 Bollar.

 (s individuals and cor"orations have many of the same concerns that a central bank

has in holding /5 Bollars, we have already covered most of the factors that will a$ect

"rivate individuals and institutions a""etite for the dollar. These are things like return

on their investments #so basically stock market "erformance and bond yields%, anything

they feel may a$ect those returns #things such as monetary "olicy and general

economic soundness%, and the relative value of the dollar itself.

ne factor which we have not discussed yet is the general stability of the /nited 5tates.

=efore 5e"tember ++th, the /5 Bollar was considered a safe haven currency, which

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would strengthen in times of global uncertainty, as the /5 was considered one of the

safest and most stable "laces in the world. The events of 5e"tember ++th diminished

the /5 Bollar<s status as a safe haven currency some what, a status which it has

struggled to regain ever since.

7ext in line of im"ortance is the /5 Bollar<s role in international trade. !any

commodities such as gold and oil are quoted in /5 Bollars in the international markets,

and because of this many countries use the /5 Bollar in international transactions. (s

we discussed in our lesson on why the /5 Bollar is 5till the Ling of the urrency world,this creates a lot of demand for the /5 Bollar, which hel"s kee" foreigner<s a""etite for

the currency strong. (s a result, traders are very wary of any talk from countries

outside the /5, about moving away from the dollar as the de facto currency for

international transactions. This is es"ecially true about countries that are a "art of

P3, the oil cartel made u" "rimarily of the oil "roducing countries in the !iddle

3ast.

e should now have a good understanding of each of the factors which traders watch

when trying to determine the long term fundamental "osition of the dollar, which areA

+. )ts status as the reserve currency of the world,2. ountries willingness to use the /5 Bollar in their currency "egs, and the soundness

of those "egs

@. 1oreign interest in the /5 Bollar, and /5 Bollar denominated assets, from individuals

and cor"orations,

4. The "ricing in dollars of commodities in international markets

That wra"s u" this lesson and our series on the factors which will determine whether or

not the /5 Bollar remains the king of the currency world. )n our next lesson we will

look at some of the key fundamental data which tends to move the dollar outside of

these four factors, so we ho"e to see you in that lesson.

43-$cono/ic &u/-ers that Mo"e the ', 7ollar  )n our last lesson we 'nished u" our series on what traders watch for when analy6ing

the long term direction of the dollar. )n today<s lesson we are going to continue our free

forex course, with a look at where to go to 'nd the economic data releases that move

the dollar.

 (s you can "robably imagine, we could s"end many lessons and multi"le hours going

over each of the economic indicators that a$ect the "rice of the /5 Bollar. )t is for this

reason, that before getting into any of the actual indicators, ) wanted to give everyone

an overview of the broad things that move the market. (s we have discussed in "revious

lessons the two broad categories that "retty much everything that moves the forexmarket 'ts into, are trade 0ows and ca"ital 0ows, as covered in module @ of this

course.

nce you have an understanding of this, all that is necessary to understand how

economic numbers move the dollar, is to understand which numbers are im"ortant to

the market at the time, whether those numbers 't into the trade 0ows or ca"ital 0ows

category, and how they should a$ect the dollar as a result.

 (s we learned in module J of our basics of trading course, how the market reacts to

economic releases is generally determined by two factorsA

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+. Gow im"ortant the market considers a "articular release to be.

2. Gow close to market estimates the number comes in at. Femember that markets

antici"ate news, so generally if an economic release comes out as ex"ected, there is

 very little if any market reaction to that release.

Gow im"ortant the market considers a "articular economic release to be, is something

that changes over time de"ending on what is ha""ening from a /5 Bollar fundamentals

stand"oint. )f there are worries that the economy is going into recession, then the

market is going to be extra sensitive to any numbers, such as non farm "ayrolls andconsumer s"ending, which may "rovide early warning signs that this is the case.

onversely, if the economy is heating u" and the markets are worried that in0ation may

become a "roblem, then the most market moving numbers may be "rice data releases,

such as the P) and the PP). 1or your reference, according toBailyfx.com the most

market moving indicators for 2**>, in order of im"ortance wereA

+. 7on 1arm Payrolls

2. 1! Feleases

@. Fetail 5ales

4. )5! !anufacturing. )n0ation

I. Producer Price )ndex

>. The Trade =alance

J. 3xisting Gome 5ales

K. 1oreign Purchases of /5 Treasuries #T) Bata%

e have discussed most of these indicators already, and for those which we have not, a

quick google search, and review of the indicator in the context of whether it 'ts into

trade 0ows or ca"ital 0ows, should answer the question of why they move the market.

 (lthough ) am "robably a little biased since ) used to work with the "eo"le who run the

site, ) am a very big fan of Bailyfx.com as the "lace where ) go to 'nd out whateconomic data is due for release, and for commentary on the number after the release.

They have a great global calendar which you can 'nd at the to" of the site as well as

tons of both technical and fundamental commentary on everything that a$ects the /5

Bollar and forex market in general.

1or this lesson s"eci'cally, if you click the calendar button at the to" of the site you will

see they have all of the economic data releases from the ma&or countries of the world

with the time of the release, the "revious number, the forecasted number and the actual

number which is u"dated after the release. 8ou will also notice here they have links for

the more im"ortant numbers giving a de'nition of the release, the relative im"ortanceof the release, and the latest news release relating to that release.

)f you click back to the home"age of the site you will see lots of fx related re"orts which

the Bailyfx sta$ "uts out throughout the day. Two of my favorite re"orts are the Baily

1undamental re"ort by Lathy lien, and the /5 "en !arket Points by =oris 5chlossberg

which you can 'nd in the middle of the "age.

 (s we discussed in module J of our basics of trading course, the best way to get a feel

for how economic numbers a$ect the market, and which numbers are in focus, is to

start following the market on a daily basis and seeing how it reacts to various news

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events. (s this is the case, ) highly recommend following the commentary

onBailyfx.com as well as the forex commentary on )nformedTrades.com, and start

"utting your analysis to "ractice on your real time demo accounts. )f you have not

registered for a free realtime demo account ) have included a link above this video

where you can do so.

Course Module @: Trading the $uro 44 A Trader9s Introduction to the

$uro art I  )n our last lesson we

'nished u" our discussion of the /5 Bollar, with a look at some of the economicindicators which move the currency, and where traders go for commentary on those

numbers. )n today<s lesson we are going to begin our discussion on the next most

traded currency in the world, the 3uro.

The 3uro is now the o$icial currency of + of the 2> member states in the 3uro"ean

/nion #3/%, which makes it the currency used by over @2* !illion "eo"le. :ike 3uro"e

itself, the 3uro has an interesting history, which we as traders must understand to have

a full understanding of the fundamentals of the currency. There are two ma&or factors

which lead to the eventual formation of the 3uro"ean /nion, and therefore the 3uro,

which are im"ortant for traders to understand.+. The ma&or "owers in 3uro"e had been battling each other for hundreds of years "rior

to orld ar )). 7othing like the decimation that the orld ars brought to 3uro"e had

ever been seen before however, so after orld ar )), there was a reali6ation that a

drastic reordering of the "olitical landsca"e was needed, in order to "ut nationalistic

rivalries to bed once and for all.

2. (lso as a result of orld ar )), the world<s "ower structure had shifted, and the

ma&or 3uro"ean countries who were once the su"er"owers of the world, were re"laced

by two new su"er"owers. The /nited 5tates and The 5oviet /nion were now the

unrivaled su"er"owers of the world, and as a result there was a keen awareness among

the former world "owers of 3uro"e, that banding together was the only way for 3uro"eto have com"arable clout on the world stage.

)t was "rimarily as a result of these two factors that the 3uro"ean oal and 5teel

ommunity #which eventually became the 3uro"ean 3conomic ommunity, the

"redecessor to the 3uro"ean /nion% was founded in the +K*<s with the general goals

ofA

+. :owering trade barriers and facilitating economic coo"eration for the bene't of the

member nations.

2. )ncreasing 3uro"e<s clout on the world stage

@. )ntegrating the economies of the ma&or countries in 3uro"e to the "oint where theywere too reliant on one another to go to war again.

Buring the next several decades many things ha""ened from a di"lomatic and trade

stand"oint that are very interesting, and which can be read about by doing a search on

google for the history of the 3uro"ean /nion. The next im"ortant event for us as

traders however, came with the rati'cation of something which is known as the

!aastricht Treaty in the +KK*<s. /" to this "oint, the idea of a tie u" between nations in

3uro"e was "rimarily focused on removing trade barriers and "romoting economic

coo"eration. ith the !aastricht treaty, member countries moved from a sim"le

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economic coo"eration, to the much grander ambition of "olitical integration between

member nations.

This is im"ortant to us as traders as it was here that "lans for a single currency to be

used among member nations was introduced, and therefore here that the basic

fundamentals of the 3uro were laid out. There were three ste"s outlined in the

!aastricht treaty that had to be com"leted before the currency could be released which

wereA

+. 1ree circulation of ca"ital among member countries.2. The second, and most im"ortant ste" for us as traders to understand, was the

coordination of economic "olicies. nce the 3uro was introduced, each of the member

countries would be bound by the monetary "olicy as set by the 3uro"ean entral =ank.

ith this in mind, you could not have countries with extremely di$erent levels of

in0ation and interest rates, re"lace their currency with the 3uro, without undermining

the credibility and fundamentals of the currency. To make the currency credible, and to

make its introduction as smooth as "ossible, member countries were required to kee"

in0ation, interest rates, and debt below certain levels. :astly, they were also required to

maintain an exchange rate that was basically a banded "eg, allowing their currency to0uctuate only within a narrow band.

@. )n +KKK the 3uro"ean entral =ank was established and the eleven countries listed

here began to use the 3uro in electronic format only.

5"ain, Portugal, )taly, =elgium, the 7etherlands, :uxembourg, 1rance, 9ermany,

 (ustria, )reland and 1inland.

These countries formed what is known as the 3uro"ean !onetary /nion, which is

com"rised of countries who are members of the 3uro"ean /nion, and use the 3uro as

their currency.

9reece, the /nited Lingdom, 5weden, and Benmark #the other members of the

3uro"ean /nion at the time% remained outside the 3uro"ean monetary /nion fordi$erent reasons.

hile this may seem a bit like a history lesson rather than a lesson in trading, it is very

im"ortant for traders of the 3uro to have an understanding of the history we have &ust

gone over. (s we will learn in coming lessons, it is because of this history that the 3uro

is where it is today, and many of the conce"ts we have &ust outlined still a$ect the value

of the currency in today<s market.

45- A Trader9s Introduction to the $uro art II 

)n our last lesson we began our discussion on the 3uro, with a look at the history

leading u" to the formation of the 3uro"ean /nion and the criteria that had to be metbefore the 3uro<s launch. )n today<s lesson we are going to continue our discussion on

the 3uro, with a look at the introduction of the currency, as well as some of the factors

which a$ect its long term fundamentals.

 (s we discussed in our last lesson, the 3uro was launched as an electronic currency on

 Danuary +st +KKK. (s you can see from this chart, the markets initial con'dence in the

3uro, and really the 3uro"ean /nion as a whole, was initially not very high. ver the

next year the currency sold o$ from &ust above +.+I** dollars to + 3uro at its ince"tion,

to a low "oint of around .J2** cents to + 3uro towards the end of 2***. hile the tables

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have turned now in the 3uro<s favor, it actually took the 3uro"ean entral =ank

intervening in the markets and buying 3uros, to kee" the currency from sliding further

in 2***.

The launch of the 3uro was the largest monetary changeover ever, and as you can see,

was not guaranteed success. (s we touched on in our last lesson, getting a do6en

countries, which varied widely in their economic and "olitical clout, to give u" control

over their own monetary "olicy and switch to a more centrali6ed monetary system, was

no easy task.

 (s we learned about in module J of our basics of trading course, one of the most"owerful tools that countries have to try and manage their business cycle is monetary

"olicy, a tool which those ado"ting the 3uro were essentially giving u". (lthough we

have not seen a real test of this yet, you can imagine a situation where the economy of

one of the ma&or countries in the 3!/ such as 9ermany, goes into recession, but overall

growth in the rest of the 3!/ is steady. )f 9ermany were not "art of the 3!/, they

could cut interest rates to try and bring their economy out of recession. 5ince they are

however, their hands would be tied in this situation from a monetary "olicy stand"oint,

which may drive their economy dee"er into recession than would otherwise be the case.

 (s we also learned about in module J of our free basics of trading course, countries

have a second tool to manage the business cycle, which is 1iscal "olicy. (s the 3!/nations are still "rimarily inde"endent from a 'scal "olicy stand"oint, they do still have

this in their toolbox. The issue here however, is that one of the ongoing requirements

established in the !assstricht treaty for countries which &oin the 3!/, is that member

country<s budget de'cits must be less than @- of 9BP. 5o here again member nations

are someone limited in what they can do to hel" their own economies, should it falter.

f all the things to understand about the 3uro from a fundamentals stand"oint, it is this

that is the most im"ortant, as it is here that a true test of the 3uro, will eventually

come.

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5o far ) think most would agree that the 3uro has been a resounding success, and since

the original +2 countries re"laced their currencies with the 3uro as their "a"er

currency in Danuary of 2**2, @ more 3/ member nations have &oined the 3!/, and

other countries outside the 3/ have ado"ted the 3uro as their o$icial currency.

 (s a result of its success and the large combined economies that the currency

re"resent, many feel that the 3uro will one day re"lace the /5 Bollar as the "remiere

currency of the world. )f you have thoughts on this ) would love for you to share them in

the comments section below.46-Ho) to Trade $uro Funda/entals 

)n our last lesson we continued our discussion of the 3uro with a look at its

introduction, and the ma&or factors which will determine the long term fundamental

direction of the currency. )n today<s lesson we are going to continue our free forex

trading course, with a look at the ma&or economies in the 3uro6one and how each

a$ects the value of the 3uro.

 (s you can see from this gra"h, member countries 9ermany, 1rance, )taly, and 5"ain

make u" over >- of the 3uro6one<s 9BP. (s a result of this economic data out of these

countries has the tendency to move the 3uro the most, so traders naturally "ay themmore attention.

There are literally thousands of economic numbers released in the 3uro6one however,

like we covered in module @ of this course, those that a$ect the current account #trade

0ows% or interest rates #ca"ital 0ows% are going to have the greatest "otential to movethe currency. (ll of the indicators which we cover in module J of our basics of trading

course, have a counter"art in the 3/. !ost of the time they are also named the same,

and as they show the same things, traders can ex"ect the market to react accordingly.

The only thing to kee" in mind here is that the economic climate in the /nited 5tates

 vs. the 3uro6one will di$er at times, so traders and therefore the market may react

di$erently to the same number out of the 3/ than they do out of the /5.

The second thing that it is im"ortant to understand about 3/ economic releases, is the

di$erent mandate of the 3uro"ean entral =ank, versus the 1ederal Feserve. here

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the 1ederal Feserve has a dual mandate of maximi6ing em"loyment and maintaining

"rice stability, the 3=<s mandate is solely to maintain "rice stability. ith this in mind,

the 3= is normally seen as more hawkish than the federal reserve, meaning they are

more likely to hold steady or raise interest rates when economic data show "rice

increases, and less likely to cut interest rates as quickly as the fed when growth in the

3uro6one slows.

) could s"end many lessons covering each of the economic indicators and their relative

im"ortance to the market but in the interest of maximi6ing our learning ) am going toinstead defer to two free sites which do an excellent &ob here.

1xwords.com and s"eci'cally their "age on 3uroCone 3conomic )ndicators which )

have included a link to below this video. (s you can see here they categori6e the ma&or

economic re"orts and then list them out with stars re"resenting the relative im"ortance

of the indicator to the market. )f you click on the link for each indicator it will take you

to a "age giving a de'nition as well as commentary on how traders should ex"ect the

release to a$ect the market.

nce you have an understanding of the economic indicators then you can get the date,

time, and forecast for the release from the global calendar which you can 'nd by clickthe calendar button at the to" of Bailyfx.com. (s you can see here the im"ortance of the

indicator to the market is also indicated with stars on the calendar, and the im"ortant

indicators have links where you can go for more information.

Course Module D: Trading the ?a(anese 5en  4 A Trader9s Introduction to

the 5en art I  )n our last lesson

we 'nished u" our discussion on the 3uro, with a look at the ma&or economic indicators

which a$ect the currency, and where traders can go to follow those indicators. )n

today<s lesson we are going to continue our free forex trading course, with a look at the

next most actively traded currency in the world, the Da"anese 8en.

 Da"an has the second largest economy in the world behind the /nited 5tates, and aneconomic history that is the starting "oint for understanding the fundamentals of the

 8en. The 'rst thing that it is im"ortant to understand from a fundamental stand"oint

about the Da"anese economy, is that unlike the /nited 5tates, Da"an has very few

natural resources. (s a result of this, "rior to orld ar )), Da"an had a large military

force, which it used to occu"y Lorea, Taiwan, and "arts of hina. The country saw this

as necessary, because of the vulnerable "osition that its lack of natural resources would

have otherwise "ut it into.

:ike with 3uro"e however, orld ar )), set the country back considerably from an

economic stand"oint, as according to wiki"edia.org, 4*- of its industrial "lants andinfrastructure were destroyed. hile no one would obviously wish for that ty"e of

destruction, there was actually a silver lining in this for the Da"anese 3conomy. (s so

much of their infrastructure had been destroyed, this gave the Da"anese the ability to

u"grade it signi'cantly, ultimately giving them an edge over victor states, who now had

much older factories.

 (fter orld ar )) the /nited 5tates occu"ied Da"an, which resulted in the building of a

democratic nation, that was dominated by industry, instead of the military. (s the

 Da"anese were now "utting all of the focus, which had before been "ut into the military,

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into rebuilding their industries, they were able to not only match their "re war

"roduction levels by +K*, but sur"ass them. )n the decades that followed Da"an "roved

 very com"etitive on the international stage, and its economic growth in the I*<s, >*<s

and J*<s has been described as nothing short of astonishing.

)f you were around living in the /5 during the J*<s, you can "robably remember the

envy and fear among the /5 "o"ulation, that Da"an was quickly going to overcome the

/nited 5tates as the world<s economic "ower house.

hile ) don<t think there is any question that the quality of Da"anese "roducts andservices has remained very high since the J*<s, unfortunately Da"an<s economy derailed

in the early +KK*<s, culminating in the busting of one of the most famous asset "rice

bubbles in history.

)n the decades following orld ar )) the Da"anese "o"ulation had one of the highest

savings rates in the world. (s more money was being saved, this meant there was more

money available for investment, making access to credit much easier than it had been

in the "ast. (s Da"an<s economy was and still is an ex"ort oriented economy, the value of

the currency also went u" dramatically during this time. The combination of a strong

economy, easy access to credit, and a strengthening currency made Da"anese assetses"ecially attractive.

 (s its economy seemed unsto""able, and newly wealthy Da"anese saved more and more

money, much of that ca"ital 0owed into the stock and real estate markets. (s you can

see from this chart the stock market roared through the +KJ*s, almost quadru"ling in

 value in years. )n the most ex"ensive districts, according towiki"edia.org, real estate

"rices reached as high as ?+@K,*** "er square foot.

1rom the high of the stock and real estate markets in +KK*, both markets made a slow

and "ainful decline. )t took until 2**@ for the stock market to 'nally bottom, down from

a to" of around @K,*** to a bottom of around >I**. (ccording towiki"edia.org, "rices

for the most ex"ensive commercial real estate "ro"erties stood at ++**th of their "re

bubble bursting "eak, and ?2* Trillion in wealth had been wi"ed out in the stock and

real estate markets.

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hile this may seem like a history lesson that is not relevant to traders, as we will learn

in tomorrow<s lesson, the a$ects of Da"an<s asset "rice bubble on the 8en are still being

felt today, and therefore an understanding is necessary to know how today<s market will

react to di$erent fundamental events.

48- A Trader9s Introduction to the 5en art II 

)n our last lesson we began our discussion on on the Da"anese 8en, with a look at the

history of the Da"anese economy, including the build u" of what became one of thebiggest asset "rice bubbles in history. )n today<s lesson we are going to continue this

discussion by examining what ha""ened from the early +KK*<s on from a monetary

"olicy and economic stand"oint, so we can understand the fundamental foundation on

which the 8en sits today.

)n +KJK the =ank of Da"an #=D% began to raise interest rates, and the government

instituted limits on total bank lending to the real estate sector, to try and reign in

s"eculation which was driving stock and real estate "rices to astronomically high levels.

hile the central bank was ho"ing to sim"ly take the foot of the gas and ta" the breaks

on the economy, unfortunately the markets reaction was drastic, resulting in a stock

market and real estate crash starting in +KK*.

This was a Q"erfect stormQ so to s"eak for the Da"anese 'nancial system and economy,

as the e$ects of decline in real estate and stock market "rices started a chain reaction,

which reverberated throughout the economy and whole 'nancial system. The 'rst and

"erha"s most im"ortant thing to understand here, is that the economic slowdown,

combined with drastic falls in the stock and real estate markets, caused the 'nancial

"osition of Da"anese banks to ra"idly deteriorate.

!uch of the s"eculation that was sending real estate "rices so high was being driven by

loans from Da"anese banks, which took the land they were making the loan on as

collateral. (s the quality of the loan was thus tied to the value of the real estate backingthat loan, as real estate "rices fell o$ a cli$ so did the quality of the bank<s loan

"ortfolio<s.

5econdly, large Da"anese institutions such as banks coo"erate with one another in

 Da"an, and as a result of this Da"anese banks hold large quantities of each others stock.

Goldings of stock are considered an asset for the banks and were included in the banks

ca"ital numbers, which basically de'ne how 'nancially solid a banks balance sheet is.

 (s the value of these stock holdings tumbled lower, so did the bank<s ca"ital "osition,

"utting further "ressure on the stability of the individual banks in Da"an, and the

 Da"anese =anking 5ystem as a whole.

Thirdly, as the economy slowed as a result of all this, the individuals and cor"orations

who had received loans began to have a harder time making their "ayments, further

deteriorating the quality of the bank<s loans, and stability of the banking system.

 (t least "artially as a result of weak cor"orate governance, most will argue that

 Da"anese banks did little to ad&ust to the 'nancial di$iculties they now faced, instead

"referring to wait for stock and real estate "rices to move back towards their "re

bubble bursting levels. The government also did little to address the "roblem until

+KK, when it became clear that without government intervention massive bank failures

would result.

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This history is im"ortant to us as traders for two reasonsA

+. Feforms aimed at returning the stability of the Da"anese 'nancial system are still

ongoing today, and it is these 'nancial and structural reforms that traders watch closely

when determining the fundamental direction of the Da"anese 3conomy.

2. Da"anese consumers, many of whom had lost large sums of money in the real estate

and stock markets, lowered consumer s"ending signi'cantly, resulting in "rices actually

starting to decrease towards the end of the +KK*<s, something which is known as

de0ation.hile many argue that the =ank of Da"an acted too late they did eventually res"ond to

the economic weakness with interest rate cuts driving interest rates in Da"an down from

over J- in +KK*, all the way to 6ero "ercent in +KKK. hile the =ank of Da"an has

increased interest rates in Da"an to .- since then, this is still by far the lowest rate of

any of the the ma&or economies of the world. (s a result of this it is very chea" to

borrow Da"anese 8en, making it the "rimary funding currency for the carry trades,

which we learned about in module @ of this course. ne cannot fully understand and

antici"ate movements in the Da"anese 8en, without a full understanding of the carry

trade, so if you have not done so already ) encourage you to go back and review thethree lesson series in !odule @ on the carry trade.

49- A Trader9s Introduction to the 5en art III )m"ortant 3conomic )ndicators for

 Da"an

)n our last lesson continued our discussion on the Da"anese 8en, with a look at what

ha""ened to the 8en and Da"an<s economy after their asset "rice bubble began to burst

in +KK*, and how this still a$ects the currency today. )n today<s lesson we are going to

wra" u" our discussion on the 8en, with a look at =ank of Da"an )ntervention, and other

fundamental factors which move the currency.

 (s we touched on in our 'rst lesson in this series, Da"an has few natural resources oftheir own, so they are an economy that relies heavily on im"orts of natural resources

such as oil. This is something to kee" in mind when trading the currency, because as

 Da"an im"orts almost +**- of its oil from overseas, increases and decreases in the

"rice of oil will normally have an a$ect on the value of the 8en.

The second thing that it is im"ortant to kee" in mind, is that the Da"anese economy

relies heavily on ex"orts such as cars and electronics to grow their economy. (s a result

of this, the value of Da"an<s currency is an even more im"ortant factor in their economic

growth than for countries which do not rely so heavily on ex"orts to drive domestic

growth. (s we learned about in our lessons on trade 0ows, a stronger 8en automatically

means that Da"anese goods and services become more ex"ensive for overseas

consumers, which will hurt Da"anese ex"orts.

To kee" the 8en from rising to the "oint where it would hurt the Da"anese economy, the

=ank of Da"an is notorious for intervening in the foreign exchange markets, which can

send the value of the yen "lummeting.

=elow is a gra"h "rovided by Bailyfx.com which shows some of the history of Da"anese

intervention, which as you can see tends to take "lace around the +** level in the

currency. (s the =D has been so e$ective with intervention in the "ast, it has gotten to

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the "oint now where all they need to do is talk of intervention #something called verbal

intervention% to yen based "airs rocketing higher.

 (s with all the currency "airs we are studying, there are many economic indicators

which a$ect the value of the yen, that we could s"end much time discussing. (s we

have already covered the ma&or indicators for the /5 in module J of our basics of

trading course, and as the indicators in Da"an are much the same, in the interest of

maximi6ing our learning time ) am going to "oint you towards two free sites for more

information.

The 'rst is 1; ords Trading 9lossary and their economic indicators "age for Da"an the

link to which you can 'nd below this video. (s you can see here they "rovide not onlythe de'nition of each of the ma&or releases but also the im"ortance of the indicator to

the market.

The second site is the global calander which you can 'nd by clicking the calendar

button at the to" of dailyfx.com. (s you can see here in addition to giving you the

im"ortance of the indicator, they also give you the time it is schedualed for release, the

forcast, and where you can go to 'nd out more information.

Course Module : #ther Currencies  50- A Trader9s Introduction to the

British ound  )n our last lesson we

'nished u" our discussion of the Da"anese 8en with a look at some of the ma&or factorswhich move the currency, as well as where traders can go to 'nd out more information

on those indicators. )n today<s lesson we are going to discuss the 4th most actively

traded currency in the world, the =ritish Pound.

 (lthough the /nited Lingdom is a member of the 3uro"ean /nion, it has not yet

ado"ted the 3uro as its currency, so it is not "art of the 3uro"ean !onetary /nion.

There are a number of reasons for this, but "erha"s most famous is the country<s forced

withdrawal from the 3xchange Fate !echanism, the "recursor to the 3uro. (s we have

touched on in "revious lessons, before &oining the 3uro countries were required to meet

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certain criteria, one of which was to kee" the value of their currency within certain

QbandsQ. (fter initially trying to adhere to the quali'cations set forth for "artici"ation in

the 3uro"ean !onetary /nion, the value of the "ound dro""ed below the lower band,

forcing the country out of what would become the 3uro"ean !onetary /nion. (lthough

the Prime !inister as of this lesson, 9ordon =rown, has ruled out &oining the 3uro"ean

!onetary /nion for the foreseeable future, many feel that the /L will eventually ado"t

the 3uro, and therefore any such talk can have an a$ect on the "ound.

The former Prime !inister of the /nited Lingdom laid out broad economic tests thatmust be "assed, before the /L would consider ado"ting the 3uro. These would of

course be in addition to the requirements set forth in the !aastricht treaty, which we

learned about in our lesson on the 3uro.

The 've tests according to iki"edia.org areA

& 're business cycles and economic structures compatible so that the U( and others

could live comfortable !ith )uro interst rates on a permanent basis* 

 + If problems emerge is there su,icient exibility to deal !ith them* 

- .ould /oining the )U create better conditions for 1rms ma2ing long3term decisions

to invest in britain 4 .hat impact !ould entry into the )U have on the competitive position of the U(s

 1nancial services industry$ particularly the citys !holesale mar2ets* 

5 In summary$ !ill /oining the )U promote higher gro!th$ stability$ and a lasting

increase in /obs* 

)n addition to these factors, the /L economy is a service based economy, with a heavy

em"hasis on 'nancial services, and is a net ex"orter of oil and natrual gas, so energy

"rices will a$ect the currency.

 (s Lathy :ien "oints out in her book Bay Trading the urrency !arket, while the

9=P/5B is a very active currency, the Pound is also very active in the crosses, and as

the 3/ is their largest trading "artner, traders "ay "articular attention to movements inthe 3/F9=P for fundamental ques on the currency. (s of this lesson the /L also has

the highest interest rates in the 9>, causing it to be used as the currency many traders

will buy when "laying the carry trade we learned about in module @ of this course. This

makes 9=PDP8 one of the more active crosses in the market and one which traders who

are looking for increased volatility often choose as their favorite.

:ike the other currencies which we have studied, fxwords.com o$ers a great "age

listing all the indicators which move the currency, their de'nition, and relative

im"ortance to the market which you can 'nd a link to below this video. This, along with

the global calendar which you can 'nd at the to" of Bailyfx.com, "rovides a greatoverview and release times for all the ma&or indicators which move the market.

51- A Trader9s Introduction to the ,)iss Franc  5wiss 3conomic )ndicators 

)n our last lesson we continued our free forex trading course with a look at the =ritish

Pound. )n today<s lesson we are going to look at the 'fth most actively traded currency

in the world, the 5wiss 1ranc.

5wit6erland is one of the richest countries in the world, and while its economic "olicies

and "ractices largely conform with 3/ standards, the country<s "o"ulation re&ected

accession negotiations with the 3/ in !arch of 2**+. 5o, at least for the foreseeable

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future, the 5wiss 1ranc is ex"ected to remain one of the world<s most actively traded

currencies, with two dominating features that are im"ortant to us as forex traders.

 (lthough this status has started to wane somewhat in recent years, the 5wiss 1ranc has

historically been considered one of the world<s "rimary safe haven currencies, which

means that money 0ows into the 5wiss 1ranc during times of economic or geo"olitical

uncertainty. The "rimary reasons why this is the case areA

+. The country<s ability to remain out of 9lobal on0icts, a re"utation it solidi'ed by

remaining neutral during both orld ars.2. )ts economic stability and relatively low in0ation rates.

@. The fact that u" until recently the currency was 4*- backed by gold.

4. )ts re"utation for high quality 'nancial institutions and banking secrecy.

 (s you can see from this chart, traders who antici"ated the 5wiss 1ranc would

strengthen as a result of its safe haven status, could have "artici"ated in the +2+ "i"

move lower in /5BG1, in the +* days following the 5e"tember ++th 2**+ attacks.

 (s another exam"le of the 5wiss 1ranc dis"laying its safe haven tendencies, traders

who antici"ated that the 5wiss 1ranc would strengthen as a result of the /5 )nvasion of 

)raq, could have "artici"ated in another +2**U "i" move in the /5BG1 in the 2

months following the invasion.

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)n 2** the 5wiss government sold the nations vast gold inventory, and as a result the

currency is no longer backed by gold. 5ome argue that because of this the 5wiss 1ranc

has lost much of its safe haven status, something that there will surely be more tests of

in the years to come.

The second thing that it is im"ortant for traders to understand about the 5wiss 1ranc, is

its strong correlation with the 3uro. (s the 5wiss 1ranc is quoted on the o""osing side

of the Bollar when com"ared to the 3uro, this means that the /5BG1 currency "air

has a strong negative correlation with the 3/F/5B currency "air, as you can see from

this chartA

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 (s you can see here a chart of the two currency "airs shows the strong negative

correlation of over K*- between the two currency "airs, resulting from the strong

economic ties between 5wit6erland and the 3uro"ean /nion.

The 'rst reason that it is im"ortant for traders to understand this strong negative

correlation, is so that they can take it into account when considering trades in both

currency "airs. (s the two currency "airs have such a high negative correlation, there

is a very good "ossibility that a trader<s technical analysis will show a buy signal in the

3/F/5B, while at the same time showing a sell signal /5BG1, or vice versa.)f this trader ha""ened to be blind to the negative correlation we have &ust outlined, he

or she may think that they are "utting on two com"letely di$erent trades. (s we have

 &ust shown however, what this trader would actually be doing is doubling their ex"osure

to the move they were trying to ca"ture. onversely, if a trader were to trade these

"airs in the same direction, then they would e$ectively be reducing the "otency of both

trades, as the negative correlation between the two currency "airs will act to o$set the

gains or losses that result on each trade.

 (s the 5wiss 1ranc is no where near as liquid as the 3uro, on an intraday basis it is

im"ortant to be aware that this negative correlation can breakdown some what. :astly,should the 5wiss "olitical andor economic environment #es"ecially monetary "olicy%

start to substantially diverge from that of the 3uro6one, you could see a breakdown of

this negative correlation on the longer timeframes as well.

 (s with the other currency "airs we are studying, 1;ords.com has a great "age

outlining the details of all the im"ortant economic indicators for the 1ranc, a link to

which you can 'nd below this video. The 9lobal alendar at Bailyfx.com also gives you

the release dates and realtime analysis of those releases, so you can be aware of them

and follow the results in real time there as well.

52- A Trader9s Introduction to the Canadian 7ollar   verview of !a&or anadian

3conomic )ndicators 

)n our last lesson we continued our free forex tradingcourse, with a look at the ma&or factors that a$ect the 5wiss 1ranc. )n today<s lesson we

are going to begin a discussion of the world<s main commodity currencies, starting with

a look at the anadian Bollar.

There are two dominant themes that it is im"ortant to understand when analy6ing the

anadian Bollar from a fundamental stand"oint. The 'rst, as its designation as a

commodity currency im"lies, is the fact that ex"orts of natural resources #es"ecially

gold and oil% make u" a signi'cant "art of the anadian economy. This is im"ortant to

understand because as anada is the world<s +4th largest "roducer of oil and th

largest "roducer of gold, the "rice of these and other commodities normally has a directa$ect on the anadian Bollar<s 3xchange rate.

The second thing that it is im"ortant to understand here, is the fact that as the

anadian "o"ulation is relatively small in com"arison to its land mass, the economy is

heavily reliant on ex"orts, which ties the country more closely together with the

international economy as a whole. This is "articularly true in regards to economy of the

/nited 5tates, as the /5 is anada<s largest trading "artner, and J+- of anadian

3x"orts 0ow to the /5.

hile many "eo"le believe that the /5 relies most heavily on the middle east for its oil

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im"orts, it is actually anada that is the largest su""lier of oil to the /nited 5tates. (s

the /5 is the world<s largest oil consumer and anada is one of the largest "roducers,

0uctuations in the "rice of oil have double the im"act. (s we learned in our lesson on

trade 0ows, as the /5 is a net oil im"orter and anada is a net oil ex"orter, then all else

being equal, a rise in the "rice of oil should strengthen the (B and weaken the /5B.

hile ex"orts of commodities are still a very im"ortant com"onent of the anadian

economy, the country<s service sector has ex"erienced massive growth in recent

decades, to the "oint where the service industry now accounts for 2@rds of thecountry<s economic out"ut. This is im"ortant to understand because, as the /nited

5tates is its largest trading "artner, a slowdown in the /5 3conomy can hurt the

anadian economy and its currency, even if commodity "rices remain high.

 (s with the other currencies we have looked at, in the interest of maximi6ing our

learning, ) am going to defer to 1;words.com for an overview of the country<s "rimary

economic indicators. ) have included a link to the anadian economic indicators "age

on 1;words below this video on )nformedTrades.com which "rovides a detailed

overview of each, as well as their relative im"ortance to the market. 1or a sna"shot of

when each of these indicators is released, as well as what analysts forecasts for therelease are, ) encourage you to use the global calendar which you can 'nd at the to"

of Bailyfx.com.

53- A Trader9s Introduction to the Australian 7ollar   )m"ortant (ustralian

3conomic )ndicators

)n our last lesson we continued our free forex course with a look at the im"ortant

fundamental factors which a$ect the anadian Bollar. )n today<s lesson we are going to

continue our discussion of the world<s main commodity currencies, with a look at the

 (ustralian Bollar.

:ike anada, (ustralia<s economy is a service based economy, with over IJ- of 9BPcoming from the service sector. (lthough agriculture and mining account for only 4.>-

of (ustralian 9BP, they account for over I- of the country<s ex"orts. This makes the

currency highly sensitive to increases or decreases in the "rice of commodities,

es"ecially gold, as (ustralia is the world<s @rd largest ex"orter of gold.

hile the country and currency are similar to anada in many ways, a "rimary

di$erence is the trade relationshi"s that (ustralia has develo"ed with (sia, and in

"articular Da"an and hina, which re"resent its two largest ex"ort markets. This gives

the currency a unique ex"osure to (sia, which generally does not exist with the other

non (sian currencies we have studied u" to this "oint.

 (s Lathy :ien "oints out in her book Bay Trading the urrency !arket, the (ustralian

economy was able to whether the (sian 'nancial crisis relatively well, so while there is

ex"osure there, it is also im"ortant to kee" a watch on the country<s historically strong

domestic consum"tion, in times of global economic slowdowns.

The last ma&or factor to kee" in mind about the (ustralian Bollar, is that (ustralia has

one of the highest interest rates in the develo"ed world, currently at >.2- as of this

lesson. This has made the currency one of the "rimary bene'ciaries of carry trade

0ows, which we learned about in my @ "art series on the carry trade, in module @ of this

course. These 0ows, combined with the facts that many commodities that (ustralia

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ex"orts are at all time highs, and the (ustralian economy has remained relatively

strong through the current crisis, has moved the (/B/5B to 2 year highs as of this

lesson.

 A'7E',7 Monthl!:  harts Provided by ProFealTime.com

 (s with the other currencies we have studied, in the interest of maximi6ing our learning

) am going to defer to 1;word<s (ustralian economic indicator "age for more

information on the im"ortant (ustralian economic indicators. ) have included a link to

this "age below this video on )nformedTrades, where you can 'nd de'nitions of each, as

well as their relative im"ortance to the market. 1or u"dates on when these indicators

are released, as well as what the market is ex"ecting from them, ) recommend checking

out the global calendar at Bailyfx.com which you can 'nd at the to" of the home"age.

54- A Trader9s Introduction to the &e) >ealand 7ollar   7ew Cealand 3conomic

)ndicators

)n our last lesson we continued our discussion of the world<s main commodity

currencies with a look at the ma&or fundamental factors which a$ect the (ustralian

Bollar. )n today<s lesson we are going to wra" u" our discussion on commodity

currencies as well as our modules on "ro'les of the worlds main currencies, with a look

at the 7ew Cealand Bollar.

 (ccording to iki"edia.org, 7ew Cealand has a 2**J estimated "o"ulation of around

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4.2 million "eo"le, which is the 'rst im"ortant fact for us to understand for two

reasons. 1irstly, as 7ew Cealand<s domestic market is so small, it must rely heavily on

ex"orts to drive economic growth, making the country es"ecially susce"tible to growth

or decline in the global economy. This is "articularly true when looking at the health of

its main trading "artners, the largest of which is (ustralia, followed by the /nited

5tates, and Da"an. 5econdly, unlike other countries with a larger "o"ulation, as the

"o"ulation of 7ew Cealand is small, migration of "eo"le into and out of the country can

have a signi'cant e$ect on its economy, and therefore the currency. (s Lathy :ien"oints out in her book Bay Trading the urrency !arket, strong "o"ulation migration

into 7ew Cealand has contributed signi'cantly to the "erformance of its economy,

because as the "o"ulation increases, so does domestic consum"tion.

:ike anada and (ustralia, 7ew Cealand is a country with vast natural resources,

making the economy and therefore currency heavily reliant on ex"orts of commodities

such as Wool, food and dairy products, wood and paper products. As Australia is the

country's main export market and as the Australian Dollar is also heavily influenced by

commodity prices, changes in commodity "rices can have a "articularly "otent a$ect on

the 7ew Cealand Bollar. (lthough this correlation has broken down somewhat in recentmonths, as you can see from this chart, the 7CB/5B and (/B/5B currency "airs are

highly correlated as a result of these factorsA

hart 5howing 7CB/5B and (/B/5B orrelationsA

The last ma&or fundamental factor that it is im"ortant to kee" in mind when trading the

7ew Cealand Bollar is, like the (ustralian Bollar here again, 7ew Cealand, as of this

lesson, has one of the highest interest rates in the industriali6ed world currently at

J.2-. This has driven the 7CB/5B "air to 2 year highs recently, before selling o$ a

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bit as a result of slower growth in the 7ew Cealand. This is im"ortant to kee" in mind,

as the currency has been one of the "rimary bene'ciaries of the carry trade 0ows we

learned about in module @ of this course, so interest rate ex"ectations going forward

will weigh heavily on the future direction of the currency.

 (s with the other currencies we have studied, in the interest of maximi6ing our learning

) am going to defer to 1;ords.com, which has a great free education section giving

overviews of the ma&or economic indicators and their relative im"ortance to the market.

 8ou can 'nd a link to the 7ew Cealand 3conomic )ndicator "age below this video. 1oru"dates on when each indicator is released, as well as analysts forecasts, ) recommend

 visiting the global calendar at Bailyfx.com, which you can 'nd at the to" of the

home"age.

55-,inga(ore 7ollar: Trading and In"esting in the ,inga(ore 7ollar 

Course Module : Choosing a Forex Broker  

56- 8h! Choosing a Forex

Broker is ,o Confusing 

)n our last lesson we 'nished u" our series "ro'ling the main currencies of the world,

with a look at the ma&or fundamental factors which a$ect the 7ew Cealand Bollar. )ntoday<s lesson we are going to start a new module, on what ) consider one of the most

misunderstood and confusing as"ects of getting started in trading the foreign exchange

market, choosing a forex broker.

 ( many of you who have looked around the internet andor talked to other forex traders

"robably know, there are a wide array of di$ering o"inions on which broker is the best

to trade with, and message boards are full of horror stories about trading with "retty

much every forex broker out there. There are several reasons why ) believe this to be

the case, which we will examine in this video. (fter we have identi'ed where the source

of the confusion lies, we will do a series of videos to hel" traders develo" a fact based

checklist, so they can go about determining which broker is right for them through a

"rocess which se"arates fact from 'ction.

)n my o"inion, the main reason why there are so many horror stories about the forex

market, stems from the lack of regulation that existed #and to some extend still exists

today% in the retail forex market, when com"ared to the equities and futures markets.

 (s ) examined in my video on the Fole of the Fetail 1orex =roker in module + of this

course, before the internet, the over the counter forex market was "retty much cut o$

to individuals. hile the internet o"ened u" the market to the individual trader, the

regulations which are designed to "rotect traders from scams and shady dealing

"ractices, were slow to follow in many countries, and to some extent still has not caughtu" today.

)t is from this "oint that the forex market gets its re"utation as the wild west of

'nancial markets, as many 'rms took advantage of individuals who came into the

market, and used their lack of knowledge to basically rob them blind through shoddy

execution and exorbitant fees. There is no question that some of the things that gave

the forex market its bad name still exist today, but luckily for us as traders, there are

several 'rms out there who o$er a quality "roduct and service to forex traders, without

all the scams that have gone on in the "ast.

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5o if there are several 'rms out there who o$er a quality "roduct and service, then how

come this is not obvious when reviewing all the message boards and review sites out

there where "eo"le give their o"inions on forex brokers There are three reasons for

this in my o"inionA

+. =ecause the forex market is over the counter, there is a lack of standardi6ation

across many of the as"ects of trading, that are standardi6ed in centrali6ed markets like

futures and stocks.

2. (s retail forex trading is a relatively new market, there is not a lot of ex"eriencebehind comments made in forums and on review sites. hen you combine this "oint

with the "oint above you get many "eo"le who angerly "ost on a message board or

forum review site after getting sli""ed on a trade around a news even for exam"le,

instead of understanding that this is the way that the market works.

@. The best 'rms in my ex"erience, are also much bigger than the large ma&ority of

'rms out there, so the fact that they have +* times or more clients, makes it look like

the larger 'rms get a larger "ercentage of com"laints than other 'rms. !any times this

is in fact not the case, because as ) see it, a 'rm that is ten times as big but has only

twice the com"laints o$ers a much better service than the 'rm recieving half thecom"laints.

57-$xa/ining .egulation and Financial ,ta-ilit!   1orex =roker 1inancial Bata

)n our last lesson we began a new module on choosing a forex broker, with a look at

why this "rocess is so confusing for traders new to the forex market. )n today<s lesson

we are going to continue our free forex trading course, with a look at two of the most

im"ortant factors to consider when choosing a forex broker, regulation and 'nancial

stability.

 (s we touched on brie0y in our last lesson, the regulatory environment for the retail

forex market is di$erent from that of the futures and equities markets. hile mostcountries have had regulations in "lace which govern activity in the futures and

equities markets for quite some time, as the retail forex market is relatively new, its

regulations are still evolving in many countries, and in some countries do not exist at

all.

 (s the )nformedTrades community is made u" of traders from all over the world, )

would love to be able to go into the s"eci'cs of regulations for each country.

/nfortunately however this would not be feasible from a time stand"oint, so ) am going

to instead give a framework that traders can use to evaluate the regulatory

environment in any country, by walking us through how ) would evaluate a /5

=rokerage 1irm. 1or those who have knowledge of, or questions on, the regulatory

environment in other countries, ) encourage you to "ost in the comments section of this

lesson on )nformedTrades.com.

To make a long story short, the retail forex market came under the Durisdiction of the

ommodities 1utures Trading ommission #1T% with the "assing of the ommodity

moderni6ation act in 2***, and is currently going through some changes after the

recent "assing of the farm bill. The industry body that currently enforces the laws set

by the 1T is the 7ational 1utures (ssociation #71(%, and if you go to their

website 7ational 1utures (ssociation 71( is a regulatory service "rovider for the

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derivatives markets, you can read about all the di$erent requirements that 'rms

o$ering retail forex trading in the /nited 5tates have "laced on them. (lso on this

website, in the u""er right hand corner of the site, is a link that says Q=roker1irm

)nformationQ. )f you click this link you can enter the name of the 'rm that you are

researching and see who the owners of the 'rm are, as well as any com"laints or

actions that the 71( and or 1T has taken against the 'rm. ne thing to kee" in

mind here is that, as we covered in our last lesson, there are many 'rms with very few

clients who o$er forex trading, so it is im"ortant to consider the si6e of the 'rm whenresearching com"laints, so you can make sure you are com"aring a""les to a""les.

The next web"age that is of interest to many traders when researching which 'rm to

trade with, is the 1T<s 'nancial data "age, which re"orts how much ca"ital each of

the 1orex =roker<s have. This is im"ortant because, unlike in the stock and futures

markets, if the forex broker you are trading with goes bankru"t, your account is not

"rotected under current regulations. )f you visit the "age for this lesson

on)nformedTrades.com, ) have included a link to the 1T<s 'nancial data "age, where

traders can get u" to date 'gures on the 'nancial stability of /5 based forex brokers,

 &ust below this video. (fter clicking this link you will see a re"ort with all the /5 1utures and 1orex 'rms

listed on the left hand side. Then, scrolling across the to" there are 2 columns that are

im"ortant to us. The 'rst is the column that says Q7et a"ital FequirementQ. This is the

amount of funds that the 'rm is required to have in liquid assets, or in other words

assets that are easily convertible into cash. This number is set by the 1T to make

sure that a 'rm has enough cash on hand to cover itself if something goes wrong. )f a

'rm dro"s below this requirement, the 1T will ste" in and shut the 'rm down in

order to "rotect client funds.

7ow that we understand this, the next logical question that many traders will ask is,

how close is the 'rm they are trading with, or considering trading with, to falling belowtheir Q7et a"ital FequirementQ n this same "age you should see a column that says

Q3xcess 7et a"italQ which gives us the cushion that a 'rm has, before they would get

into a "otentially troubling "osition.

The last thing that it is im"ortant to kee" in mind here, is that the 1T has recently

u""ed the 7et a"ital Fequirement to a minimum of ?2*,***,*** for all forex 'rms, a

level which will be "hased in over the coming months. ith this in mind, it is im"ortant

to be sure that the 'rm you are trading with not only has "lenty of excess ca"ital to

meet current requirements, but also future requirements.

)f you are considering o"ening a forex account with a 7on /5 1irm, then ) stronglyencourage you to do your research into what the regulatory environment is in that

'rm<s country, so you can make sure that the neccessary "rotections are in "lace to

"rotect your ca"ital, in the event that the 'rm you are trading with runs into 'nancial

di$iculty.

58-Ho) to $"aluate Transaction Costs 

)n our last lesson we continued our series on choosing a forex broker with a look at two

of the most im"ortant factors to consider, the regulation and 'nancial stability of your

broker. )n today<s lesson we are going to continue this discussion with a look at another

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im"ortant factor to consider, transaction costs.

 (s when trading any market, the transaction costs one "ays can have a signi'cant a$ect

on returns, es"ecially for the active trader. /nlike other markets however, where

transaction costs outside of commissions are fairly standard, because the forex market

is over the counter, transaction costs can very widely from broker to broker. )n order to

follow this lesson everyone must 'rst understand what an over the counter market,

s"reads, and rollover are, so if you have not done so already ) encourage you to "ause

this video and review the lessons on these sub&ects in module<s + and 2 of this course.There are generally four things that a trader should consider when reviewing the

transaction costs of a broker he or she is considering trading with which areA

+. ommissions if any that are charged by the broker.

2. The 5"read for the currency "airs that they wish to trade.

@. The rollover rates for the currency "airs they wish to trade, assuming they will be

holding "ositions "ast the rollover cuto$.

4. The quality of the execution traders receive on their live trades.

The large ma&ority of brokers do not charge a commission, however when analy6ing

those that do, most traders will add the s"read for the currency "air that they are

trading to the commission, in order to calculate the total transaction cost for the trade.

The im"ortant thing to kee" in mind here, is that while commissions are normally 'xed,

the "i" value for each currency "air varies de"ending on current market rates, and

whether or not the /5 Bollar is the second currency in the "air or not. (s an exam"le,

the current "i" value when trading on a standard account for /5BDP8 is ?K.2, and the

current s"read with the broker ) am looking at is 2. "i"s. 5o if this broker were to

charge a ?+* commission on to" of this, then my total transaction costs would be

K.2S2.U+* or ?@@.+@.

:astly in regards to commissions, when you inquire about the commission level, youwant to know whether the commission rate a broker is quoting is "er side or round tri".

)f the commission in the exam"le ) &ust gave was "er side, then this would mean there is

a ?+* commission to o"en the trade, and a ?+* commission to close the trade, bringing

the total commission for the trade to ?2*. )f it is round tri", then this means the

commission to o"en and close the trade is ?+*.

The second factor to consider when evaluating transaction costs, is what the s"read is

for the currency "airs that you will be trading. 8ou can calculate the s"read in dollars

here again, by taking the value of a + "i" move in the currency that you are analy6ing,

and then multi"lying it by the s"read. )t is im"ortant to kee" in mind here however, that

the s"read with many brokers will 0uctuate throughout the day based on the liquidity of

the currency "air that you are trading, and the volatility in the market at the time. ith

this in mind, it is im"ortant to consider the s"reads during the time frames which you

will be trading. hile many traders like to inquire with a trader who is already trading

live with the 'rm they are considering on this "oint, generally ) have found that the

demo "latforms are a fairly accurate re"resentation of the ty"e of s"reads you will see

on a live account.

The third fact that it is im"ortant to consider when evaluating transaction costs, is the

rollover rates that a 'rm deducts from your account when you are long the currency

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with the lower interest rate, and the rate that they "ay into your account when you are

long the currency bearing the higher interest rate. hile this is not very im"ortant for

active traders who rarely hold "ositions overnight, this is es"ecially im"ortant for

traders executing longer term strategies, where the rollover rate can have a signi'cant

a$ect on the return of their strategy.

The last factor that it is im"ortant to consider when looking at transaction costs, is the

execution that you receive on live trades. /nfortunately demo accounts are not

normally an accurate re"resentation of live execution, so there is no way to know thisfor sure, without o"ening an account and executing some trades. 1rom my ex"erience

here as well, the message boards #for the reasons ) covered in our 'rst video in this

series% are not a good re"resentation of reality in this regard. nce you have a live

account however, in normal market conditions you should be executed without sli""age

and the "rices that you are being quoted should be in line with what other market

makers are quoting #which you can see by "ulling u" their demo accounts%. )f you are

being consistently sli""ed on trades andor the rates that you are being quoted are

consistently o$ market, then you know there is a "roblem and can address it

accordingly.59-Ho) To $"aluate Trading Technologies and *alue Added ,er"ices 

)n our last lesson we continued our series on choosing a forex broker, with a look at

how to evaluate the transaction costs a trader will incur de"ending on the broker he or

she chooses. )n today<s lesson we are going to continue this discussion, with two

additoinal factors to consider before o"ening a forex trading account, trading

technology and value added services.

#nce a trader has an understanding of the 'nancial stability, regulatory environment,

and transaction costs of the 'rm they are considering trading with, "robably the next

most im"ortant thing to understand, is the trading technology and value added services

that the 'rm o$ers.The one thing that ) can tell you is universally im"ortant to all traders in terms of

trading technology, is "latform stability. (s a traders "latform is his lifeline to the

markets, if the trading "latform crashes, free6es u", or ex"eriences other technological

di$iculties, then this obviously signi'cantly hinders a trader<s ability to "erform. here

quality of execution is o"en to a lot of inter"retation, whether a 'rm<s "latform is stable

or not is "retty straightforward, so ) have found that the broker review section of

forums such as 3litetrader.com are a "retty good indication of who is strong and weak

in this area.

utside of "latform stability, ) can tell you from ex"erience that there are as manydi$erent "riorities traders have for trading technology, as there are trading styles and

"ersonalities. To hel" each individual trader go about this decision making "rocess in as

structured a manner as "ossible, ) have come u" with a list of features, which traders

can rank in order from highest to lowest "riority. Femember that many 'rms o$er

multi"le "latforms, so don<t sim"ly assume that a 'rm does not have something, sim"ly

because it is not featured on their website.

+. 3ase of /se

2. Pro't and :oss Fe"ort larity

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@. (dvanced rder 3ntry

4. Trading from harts

. =acktesting

I. eb =ased Platform vs. Bownloaded Platform

>. Platform ustomi6ation

J. !obile Trading

)f you have other things that interest you, then sim"ly add them to the list in order of

"riority, before checking out the di$erent o"tions that are available to you.1rom a value added services stand"oint, there are also a wide array of di$erent o"tions

available de"ending on which 'rm you select. ith this in mind, you should also have a

good understanding of what is im"ortant to you as a trader before beggining your

search, and ) have included a list similar to the one above, to assist you with this

"rocess.

+. )n house research

2. Third "arty research

@. Fealtime 7ews

4. Trade 5ignalsFecommendations. harting Package "tions

I. !anaged (ccounts

>. Trading 3ducation

60-$"aluating Custo/er ,er"ice of Currenc! Brokers

)n our last lesson we continued our discussion on factors to consider when choosing a

forex broker, with a look at how to evaluate the trading technology and value added

resources that a 'rm "rovides. )n today<s lesson we are going to wra"u" our broker

evaluation module, with a look at the 'nal factor that ) consider im"ortant when

choosing a broker, customer service. (s we have discussed in "revious lessons, the retail forex market is a relatively new

market, which means that many traders who have ex"erience trading other markets do

not have much ex"erience with forex. hen you add to this the fact that much of the

market has yet to be standardi6ed, you can see the "otential for many questions to arise

that need to be answered, and the im"ortance that a 'rm has an intelligent sta$ that is

easily accessible to answer those questions.

ith this in mind, the 'rst thing that ) recommend doing when evaluating the customer

service of a broker you are considering, is calling and talking to one or two of the

"eo"le there, and asking them to describe their o$erings in some of the areas that )

have covered in the last few lessons, as well as any other questions that you may have.

This should give a trader a "retty good idea of the com"etency of the su""ort sta$ and

an indication of how they are going to "erform when it really matters.

The second thing ) would recommend, is getting an idea of what hours those su""ort

"eo"le are available, and by what methods that they can be contacted. Femember that

the forex market is a 24 hour market, so a 'rm<s su""ort sta$s ability to "erform

overnight as well as during your daytime is much more im"ortant here than in the

equities and many futures markets. The four most common methods in which a broker<s

su""ort sta$ can be contacted areA

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+. Tele"hone

2. 3mail

@. :ive hat

4. 1orums

The last thing that it is "erha"s most im"ortant to consider here, is to make sure that a

'rms trading desk is reachable by tele"hone in the case of "latform failure which

occurs either on your end or theirs. hile this is im"ortant in any market, it is

es"ecially so in the forex market, as "latform stability issues are more common herebecause the technology is newer and mostly "ro"rietary.

That<s our lesson for today, and that 'nishes u" our series on factors to consider when

choosing a broker. )n our next lesson we will begin a short module covering the 'rm

that is in my o"inion the leading 'rm in the forex market, 1;!.