Introduction to FOREX

Trade Smart Academy

-Dark Tari
 1. What is Forex?
• Forex stands for ‘foreign exchange.’ It’s the global marketplace where people,
businesses, and institutions exchange currencies. Unlike the stock market,
which has a central exchange like the NYSE, the Forex market is
decentralized and operates over-the-counter – that means it’s accessible from
anywhere in the world, 24 hours a day, five days a week. It’s the largest
financial market in the world, with over $6 trillion traded daily.
 2. Who Participates in the Forex Market?
• You’re not trading alone. The Forex market includes central banks,
commercial banks, hedge funds, multinational corporations, and retail traders
like us. Each participant plays a role. For example, central banks control
interest rates, corporations hedge international transactions, and retail traders
speculate on price movements to profit.
 3. Currency Pairs
• In Forex, we trade in pairs – one currency against another. The first currency is the
base, the second is the quote. For example, in EUR/USD, the Euro is the base and
the USD is the quote. If EUR/USD is 1.1000, that means 1 Euro is worth 1.10 US
Dollars.”
“There are three types of pairs:
• Major pairs – involve USD and are the most liquid.
• Minor pairs – do not involve USD but include strong currencies like EUR, GBP, JPY.
• Exotic pairs – involve a major currency and one from a developing country, like
USD/KES.
 Major Currency Pairs (Majors)
These pairs always include the US Dollar (USD) and are the most liquid and widely traded.
• EUR/USD - Euro / US Dollar
• GBP/USD - British Pound / USD
• USD/JPY - US Dollar / Japanese Yen
• USD/CHF - US Dollar / Swiss Franc
• AUD/USD - Australian Dollar / USD
• USD/CAD -US Dollar / Canadian Dollar
• NZD/USD - New Zealand Dollar / USD
These pairs typically have tight spreads and high trading volume.
 Minor Currency Pairs (Crosses)
• These pairs do not include the US Dollar, but involve other major currencies.
• EUR/GBP - Euro / British Pound
• EUR/CHF - Euro / Swiss Franc
• EUR/JPY - Euro / Japanese Yen
• GBP/JPY - British Pound / Japanese Yen
• AUD/JPY - Australian Dollar / Japanese Yen
• CHF/JPY - Swiss Franc / Japanese Yen
• GBP/AUD - British Pound / Australian Dollar
• EUR/AUD - Euro / Australian Dollar
Minor pairs may have higher spreads but still offer good liquidity.
 Commonly Traded Commodities
• XAU/USD - Gold / US Dollar
• XAG/USD - Silver / US Dollar
• WTI/USD - US Crude Oil (West Texas Intermediate)
• BRENT - Brent Crude Oil
• NGAS - Natural Gas
• COPPER - Copper

Gold (XAU/USD) is often seen as a “safe haven” during market uncertainty.

 Popular Stock Indices (CFDs)
• US30 Dow Jones (DJIA) - Top 30 US companies
• SPX500 S&P 500 - Top 500 US companies
• NAS100 Nasdaq 100 - Top 100 tech-heavy US companies
• GER40 DAX 40 - Top 40 German companies
• UK100 FTSE 100 - Top 100 UK companies
• JPN225 Nikkei 225 - Top 225 Japanese companies
• FRA40 CAC 40 - Top 40 French companies
• HK50 Hang Seng Index - Major companies listed in Hong Kong
• AUS200 ASX 200 - Top 200 Australian stocks
Indices represent the overall performance of specific economies or sectors.
 4. Market Hours & Sessions
• The market is open 24/5 because it moves across global time zones. There are four main sessions:

• Sydney (starts the week)

• Tokyo/Asian
London (most volume)
• New York

• The London–New York overlap is the most volatile and liquid period – great for active traders. Knowing
when to trade is just as important as knowing what to trade.
 5. How Forex Trading Works
• Trading Forex means you’re buying one currency and selling another
simultaneously. If you believe the Euro will rise against the USD, you buy
EUR/USD. If you believe it will fall, you sell it.

• This is where the terms long and short come in. Long means you buy, short
means you sell. Profit depends on how far price moves in your favor –
measured in pips, which we’ll cover shortly.
 6. Leverage and Margin
• Forex is known for its leverage. Leverage allows you to control large
positions with a smaller amount of capital. For example, with 1:100 leverage,
you can control $100,000 with just $1,000.

• But leverage is a double-edged sword. It can amplify gains and losses. That’s
why proper risk management is non-negotiable. More on that later.
 7. Understanding Forex Charts
• Charts help us see how price is moving. The most common type is the
candlestick chart – each candle shows price movement within a specific time
period. A green (or bullish) candle means price closed higher than it opened;
a red (or bearish) candle means it closed lower.

• Timeframes can range from 1 minute to 1 month. Scalpers use low

timeframes, swing traders use higher ones. We’ll get into strategies later in
your journey
Candles
 Candlestick Characteristics
Each candle contains four main components:
• Open: The opening price at the start of the trading period.
• Close: The closing price at the end of the trading period.
• High: The highest price reached during the trading period.
• Low: The lowest price reached during the trading period.
• The body of the candle is formed by the open and close prices, and the “wicks” or
“shadows” represent the high and low prices. If the closing price is higher than the opening
price, the candle is typically colored white or green, representing a bullish period.
Conversely, if the closing price is lower than the opening price, the candle is usually black or
red, representing a bearish period. (You can customize your colors)
 What is a Timeframe in Trading
• A timeframe in trading refers to the duration each candlestick or bar
represents on a chart.

• When you choose a timeframe, you’re telling the chart:

• “Show me how price moved within this specific amount of time per candle.”
 Examples of Timeframes:

• Each candlestick (or bar) summarizes price action over a set period:
• Timeframe Meaning
• 1m Each candle = 1 minute of price movement
• 5m Each candle = 5 minutes
• 15m Each candle = 15 minutes
• 1H Each candle = 1 hour
• 4H Each candle = 4 hours
• 1D Each candle = 1 day
• 1W Each candle = 1 week
• 1M Each candle = 1 month
 Why Timeframes Matter in Forex Trading:
1. Different perspectives of the same market
• Think of it like zooming in or out on a map.
• A 1-minute chart shows tiny intraday moves; a daily chart shows the bigger picture.
2. Helps define trading style:
Style Preferred Timeframes
Scalping 1m, 5m, 15m
Intraday Trading 15m, 30m, 1H
Swing Trading 4H, Daily
Position Trading Weekly, Monthly
3. Multi-timeframe analysis is key
• Pro traders look at multiple timeframes:
• Higher timeframe (e.g. daily/4H) to understand trend and key levels
• Lower timeframe (e.g. 15m/5m) to refine entry and exit
• Example in Practice:

• If you’re looking at EUR/USD on the 15-minute timeframe,

• Each candle shows how price moved in a 15-minute window: where it
opened, the high/low, and where it closed.
• If you’re on the 1-hour timeframe, it compresses 4 of those 15-min candles
into one.
 8. Basic Forex Terms
• Let’s define a few key terms:
• Lot size: the volume of your trade. Standard , mini , micro.
• Pip: the smallest price movement in most currency pairs.
• Spread: the difference between the bid (sell) and ask (buy) price. It’s how
brokers make money.
• Stop-loss: limits your loss. (SL)
• Take-profit: locks in your gain (TP)
 9. Brokers and Trading Platforms
• “To trade Forex, you’ll need a broker – a platform that connects you to the
market. Look for brokers that are regulated, transparent in pricing, and
provide good customer support.

• Common platforms include MT4, MT5, cTrader, and TradingView. They

offer charts, order execution, and risk tools. Always test your broker with a
demo account first.
 10. Types of Analysis
• To make smart trading decisions, we use three main types of analysis:

• Technical Analysis: uses charts, patterns, indicators, and price action.

• Fundamental Analysis: focuses on economic news, interest rates, GDP,
inflation.
• Sentiment Analysis: gauges the market’s emotional state – are traders mostly
long or short?
 11. Risks in Forex
• Trading Forex comes with risks. The market can move quickly, especially
during news events. Leverage magnifies both gains and losses. Emotions like
fear and greed can ruin good plans.

• That’s why risk management – using stop losses, proper lot sizing, and
staying disciplined – is everything.
12. What Makes a Forex Trader Successful?
“It’s not about luck or predicting every move. Successful traders:

• Have a system
• Stick to a risk plan
• Journal and review every trade
• Focus on long-term consistency over quick profits

• The goal is not to trade more, but to trade better.