Learn to Trade Forex with cTrader: In this series, I am going to teach you the basic and advanced concepts of forex trading, so after you watch the whole series, you will learn to trade and think like a professional cTrader. Here at Spot ware the company behind CTrader we get compensated from your volume. That’s the reason we made this educational series because we want to help you learn how to trade more successfully so you can grow your accounts. In this first article, I am going to teach you everything you need to know about the basics of forex trading. You are going to learn what foreign exchange is, how to go long, how to go short and what You are supposed to do when you begin your forex journey.
So let’s get started, Forex means foreign exchange. Foreign exchange means to change your currency for another countries currency. For example, if you want to visit a foreign country for vacation, you go to your local bank and You are changing your currency for notes of the country that you are visiting. When you are doing that you are actually doing a foreign exchange transaction. The foreign exchange market is the greatest market in the world. It has a daily volume of around 4 trillion dollars.
The main participants of the foreign exchange market are global banks and their customers. People exchange money for any reason, like commercial companies exchange money for hedging or for commercial activities or people exchange money if they want to travel or for any other reason. However when you are using CTrader which is a trading platform you are obviously not using it to exchange money for a vacation. The trading platform shows us the exchange rate between two currencies and what we are doing is we are trying to speculate if the exchange rate is going to rise, or it’s going to fall, and then were trading – do the necessary trade and if our speculation is correct we win money. If our speculation is wrong we lose money. Let’s go to CTrader and I am going to show you exactly what I mean. You see here on the left we show the market watch. 3. You see on the left CTrader shows the and quote; Market Watch. The market watch shows you all the currency pairs available for trading.
Let’s look closer to the first and most famous pair the EUR versus USD. Let’s open the information window. forex pair displays two currencies. EUR/USD means euro versus dollars. The first currency is called the base currency and the second currency is called the quote currency. The exchange rate shows how many units of QUOTE currency you can buy with one unit of the base currency. In this example, the exchange rate is 1.37735 so one EUR can buy 1.377 dollars. 4. However, for every currency pair, we see two exchange rates, as you can see here. Why is that? The reason for that is that is the way banks and brokers make money from the customers who trade FOREX. They will buy a currency from you at a slightly lower price and they will sell a currency to you at a slightly higher price and thus make the difference between the rate to buy and the rate to sell. The difference between the price to buy and sell a currency pair is called the and quot. We can see the spread here in Market Watch for EUR/USD its 0.9 pips. I am going to explain to you what ” Pips” are in a bit. 5. Ok so you learned what forex is, and we learned what the exchange rate is and what the spread is. What are you supposed to do now in order to make money?
In the middle of the screen here we see the EURUSD chart. The chart shows us the current exchange rate and the past exchange rate of the symbol. The reason we need the past exchange rates is because cTraders use a technique called “technicalanalysis” which helps them speculate on the future exchange rate using the information that we see from the past of the chart. We also use various tools like the tools we see here in Line Studies Toolbar. In order to understand more about technical analysis, you can see articles 2 and 8 of the series.6. The basics of forex trading are rather simple.
You see the exchange rate between two currencies on your chart. If you believe that the exchange rate is going to go up like here the chart is going to go up, then you buy the currency pair. If you believe that the exchange rate is going to go down if you believe that this chart is going to continue going down, then you sell the currency pair. The chart goes up if the base currency is gaining strength and the chart goes down if the quote currency is gaining strength. There are two conveniently placed Quick Trade buttons in the top of the chart that does exactly that. Pressing the buy button, after you select your volume, I am going to show you how you select your volume in a bit, will buy the currency pair. So if we click the button, see here? I have a position, I have bought the currency pair, you buy the currency pair on the exchange rate above the buy button, which is called the ask price, and its represented on the chart by the blue line.
If we believe that the exchange rate is going to go down then you sell the currency pair by using the sell button, with the exchange rate above the sell button and you sell on the red price that is called the "bid" price. Those two prices together are called the " Spot Price". Those prices together are called the spot price. IF you are correct in your speculation you will make a profit, if you are wrong you will make a loss. Remember we said you need to select your trade volume? How exactly are you going to do that? Why are the numbers in the drop-down here so big even my account balance is very small in comparison It’s just 11.000? The reason is that Forex is a leveraged financial product. That means that you control a bigger amount of money than the money in your account balance in order to make profits faster.
For more information on the leverage, you should watch episode 6 of the series. If leverage didn’t exist you would make money very slowly unless your account balance was very big. So which one of these volumes should you choose the volume of your trade depends on how much of your account balance you want to risk with your trade, how much money you want to make, in combination with how much you expect the exchange rate to move in order for you to win or lose those amounts. This sounds a bit complicated but it really isn’t. Let me show you an example by using two different volumes. First, you select 100k volume and we buy at this rate. We believe that the exchange rate is going to go up, so we move that little TP or ” Take Profit” box to the place that we believe that the exchange rate is going to go. So what is that box? This is called a take profit, and it means that when the price reaches that rate, your position will close and you will get the money. You must remember that in order to make money when trading you need two trades, one that opens the position and one trade that closes the position and gives you the money. Of course, things don’t always go your way so there are the opposite box and order called a stop loss. You move this box to the exchange rate that is the lowest you can afford to lose.
Here we are using a volume of 100.000. Let’s look at the numbers more closely now. Let’s move our stop loss here and our take profit here. We were using a volume of 100kand we see that we are going to lose 222 EUR and were going to win 224 EUR. Now let’s close this position and let’s open the same position, with one million volumes. Lets put our stop loss and take profit in exactly the same places. Now you see that we are going to lose 2236 EUR and were going to win 2214 EUR. That’s because the volume now is a lot bigger because it’s one million and the previous volume was 100.000.
That’s the effect of trade volume in your trading and that’s why it’s important to select correct volume when creating an order. In Risk Management which is episode 6, we explain exactly how much you must be risking with each one of your trades. 10. Ok, so how do we calculate the volume that you are supposed to be trading with? Let’s close this position here. In order to calculate the volume you need to understand the concept of a ” Pip". So what is a “Pip”? The concept of the pip confuses many novice cTraders. The pip digit is the fourth decimal digit (0.0001)in all symbols besides Yen symbols, and the second decimal digit (0.01) in all symbols that have Yen as their quote currency. So why do cTraders use pip? Why don’t they talk about money? As I talked about before you see that every trade has a different stop loss a different take profit and different volume so if one cTrader will say to another that he made 1000 euros from trade, that doesn’t mean that the trade was a good trade or a bad trade or a mediocre trade.
However, if the cTrader will say to another cTrader that the made 50 pips from a trade, the other cTrader can understand exactly how much of the exchange rate he got for his own benefit. So let’s go to CTrader where I am going to show you using an example of how – what exactly I meant with a pip. So let’s create a new order herewith 100.000. It’s a buy order, we see that the exchange rate that we have entered, the" Entry Rate" is 1.37703. Lets put our take profit at exactly 1.37803. If we subtract the entry price from our take profit were going to see the difference is 0.0010 so that means that the difference is 10 pips. You see here it says "Pips 10". The reason is that like we said before the pip is the fourth decimal digit and that means that one pip equals 0.0001. So 0.0010 means 10 pips (0.0001 x 10). We said before that the spread between the EURUSD here is, now its one pip. So that’s what one pip means, it means that the difference between the ask and the bid price is going to be one in the fourth decimal digit. Great! Now we know what a pip is, how does this help us calculate our order volume. In forex the volume you select depends on how much money you want to make or risk, and how many pips you expect to win or lose. So by knowing or calculating the profit per pip for each volume, you know how much volume to choose. The profit per pip for one pip of EUR USD with a trading volume of 10.000 as we see here on the Combo box, is standard and its 1 USD, by knowing that you can understand how much profit per pip you can make with any volume. If you trade 20.000 EUR USD the profit per pip is 2 USD, if you trade 100.000its 10USD if you trade 1 million EURUSD its 100 USD and so on.
When trading forex the volume you select is always the volume of base currency and your profit or loss per pip is always expressed in the quote currency. Let’s use another example lets use, USD Flats to open a new chart here, so if we trade 10 000 here, we trade 10 000 USD and our profit per 10 000 USD is 1 CHF. In CTrader, your profit and loss here are conveniently expressed always in the currency of your account so the profits are converted and you understand exactly how much you win or lose. Now that we have this information lets try again. My account is USD 10.000 and I want to risk 100 USD. However, I want to make a profit of 200 USD. I believe the exchange rate is going to go 100 pips low and I want to risk 100pips. Based on the information I have given you already you know that if I want to risk100 USD with 100 pips, I want to risk 1 USD per pip! We already know that the trade volume that risks 1 USD per pip is 10.000 because I explained that before. So lets select 10 000Lets put first, let’s create the order, so we have our entry rate here, so now we’re going to put our risk, our stop loss is at 100 pips because remember we wanted to risk100 pips, so I am going to move here this Stop Loss until I see the pips here say 100. And you see where it says 100 pips I am risking exactly 100 dollars like I wanted to. Now we say that we want to make 200 dollars, so let’s move the take profit, to 200 pips, where this number says 200 and were going to make exactly 200 dollars.
So now you know exactly how to create an order and how much volume you are supposed to choose and you also know what a stop loss and a take profit are. You can create an order from the QuickTrade buttons, or you can create an order using the order screens, which the icon is found here and in the symbol you want to trade. After your order is filled a position appears in the trade watch as we have seen before, you also see your position in the chart. At the end of your position, you see in your account currency, how much your position is winning or losing in any given time. Remember that you will not add this number, or subtract this number from your balance until your position is closed, either by a stop loss or a take profit, but if you want to close your position at any time before it reaches those levels you can close it using the close button. So If I click the close button now it’s going to close this position. And that position had a loss of three euros so I took the loss in my balance. The QuickTrade button creates a Market Order, a Market order means that you request to buy or sell a specific volume, but you will not send to the server a specific rate. You want to request this volume, at the best possible price.
The exchange rate that You are going to get that is shown above your buy or sell button is not guaranteed when creating a market order. You will get the best exchange rate at the moment the order reaches your server. If you want a guaranteed exchange rate you can use a " Limit" order. Let’s go to CTraderwhere I am going to show you exactly how to create a Limit Order. You can create a limit order by right-clicking on the rate you want in the chart, so If I want to create a limit order on this rate, I can right-click and select " Sell Limit". So If I want to do a sell limit on this level I am going to press sell and you can also pre-set your stop loss and take profit like we have shown before with a market order. If you want to trade a market order, where the exchange rate reaches a specific price that you have chosen in the future, you use a stop order.
You can right-click and select sell stop, do the same thing, sell, now we are using a stop order. We can again pre-set stop loss and take profit, you can also create a limit and stop order using an order screen. Just select a limit or stop order. You can create a limit order on the best prices, better prices than the current market price so if I buy here I can create a limit order from here which is the spot price as we explained before, and below. If I want to create an order that’s going to be a worse price, then I’m going to use a stop order and it’s going to be from the exchange rate, the spot price and above. The reason why this happens is that we want to protect you. If you want to create a Limit order, so you request this specific rate which is worse rate, than the current spot price, so you are buying higher, we want to protect you because someone might give you this rate and you will lose money for no reason.
So let’s quickly go through the platform so you understand the rest of the tools. In the right here you see the Line Studies Toolbar and this helps you trade using, lines, trend lines, support and resistance lines, and other tools. You can check out the article support, resistance and trend line trading for more information. It’s a very popular trading method. On the top right you see your CTrader settings where you can set a lot of things, like your application layout and your QuickTrade settings and other stuff. Inside the chart, you see the chart controls where you add your technical indicators or you can select your timeframe for your chart. You can check episode 11 multi time frame trading to understand what a time-frames is. In this article I explained to you the basics of forex trading so by now what the spread is, what a pip is you know how to go long, how to go short, you also know-how , what to do in order to make money, how to enter an order, and how to choose your volume.
This may be the basics of Forex trading but this is what you are actually will be doing all the time, you buy and you sell, and you create orders, and when you close your positions. However, in order to be successful in your trading and in order to make money, you need to be correct when You are speculating, that’s the reason why the series does not end here. In the rest of the articles You are going to learn how to have a correct trading system, how to use technical analysis in order to speculate the market correctly, You are also going to know correct, forex risk management, how much You are supposed to risk and how much you are supposed to win with each trade. In the next article, we’re going to talk about Technical and Fundamental analysis, in the following articles were going to talk about Risk Management, Trading Psychology, specific technical analysis tools, multiple time frame trading, and a lot of advanced concepts. So if you liked this article don’t forget to subscribe and if you want to share it with your friends, thanks for watching.