FOREX WAR 1(Basic Training)

ISBN 978-616-413-451-5Edited and Published by Yoddej Wongwittaya & Kanokwan Wongwittaya

Forex War 1 (Basic Training)

All rights reserved. Publications of Yoddej Wongwittaya are copyrighted under the Copyright Act B.E. 2537 (1994). No part of this book shall be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of me/the author. I have spent so much time, effort and determination to be able to present this book for your use.

Address : 344 Moo. 14 Pa Phai Sub-district, San Sai District, Chiang Mai, Thailand 50210catztrade@gmail.com

PREFACEThis Forex War is a three book series comprising of Forex War 1

(Basic Training), Forex War 2 (Intermediate) and Forex War 3 (Advanced for Fund). We have been thinking for a very long time if we should write these books as we have been teaching how to invest in Forex and sharing our own experiences via live courses and online courses as well as sharing our knowledge on Social media platforms with people who are interested in investing in Forex.

We finally decided to write the Forex War book series, because many people have been greeting us and thanking us because of the way we teach and share our knowledge. We have changed the way they trade, the way they think about investment and how they make a profit from it. It is an inexplicably good feeling to see other people succeeding from using some little things that we have shared. For these reasons, when we were requested by friends and others to do so, we decided to write these books.

We intend for Forex War 1 (Basic Training) to be easy to read and understand. It is designed to be a guide which can be followed in the best interests of our readers. We use informal words to write the book and the book will introduce you to Forex from zero. Starting from introducing Forex, picking a broker, basic factors and technical factors used to trade in Forex, including relations between gold price and oil price and how it is important to Forex, which would help you select the interesting matched prices.

For those of you who have never experienced trading in Forex, we suggest you study carefully and practice by using a Demo Account to improve your skills, discretion and even your mind before jumping into the real market. Forex is the high-risk, high-reward market. If you have experienced trading but still lose more money than you are making, we think this book is a must read to enhance your potential. Are you ready? Go!

Yoddej Wongwittaya & Kanokwan Wongwittaya

CONTENTS

1.1 Get to Know the Financial Markets1.2 Get to Know the CFDs, New Investment Tools1.3 What is Forex? 1.4 Forex Market Hours 1.5 The Relationship Between 'Forex' and 'Gold and Crude Oil’

Unit 1 Introduction to FOREX

2.1 Get to Know the Forex Market Hierarchy 2.2 Authorities Monitoring Forex Brokers 2.3 Types of Forex Brokers 2.4 10 Things You Must Know About Forex Brokers 2.5 Picking Forex Brokers who suit you in 5 Steps

Unit 2 Hello Forex Brokers

3.1 Currency Pair 3.2 Vocabularies and Numbers You Must Know

and Understand

Unit 3 Basic Forex Trading Vocabulary

414193051

69748191

115

123130

Unit 4 Introduction to Basic MT4

4.1 Get to Know the Online Trading Platforms MT4 and MT5 4.2 Introduction to Basic Using on Computer 4.3 Recommendations for using trading orders on MT4 4.4 Introduction to Basic Using on Smartphones and Tablets

Unit 5 Trends are Your Friend

5.1 Get to Know the Trends5.2 Understand Support and Resistance5.3 Using Trendlines and Support and Resistance5.4 Practice : Seeing Trends on Forex Graphs

Unit 6 Top 10 Reversal Candlesticks

6.1 What is a Candlestick Chart6.2 Top 10 Reversal Candlesticks 6.3 How to Use Reversal Candlesticks to Plan to Open Orders Precisely6.4 Tips to enter orders more accurately

Unit 7 Easy Fibo

7.1 What is Fibonacci?7.2 Boosting Your confidence with Easy Fibo Strategies

Unit 8 3Ms for Beginners

8.1 Money Management8.2 Methods8.3 Mind

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How to read this book: • Read one unit at a time, once you have understood

the unit move on to the next. This book provides a beginner's guide to Forex, if you wish to know about any specific topic in more detail, Google can be a useful tool to help you research on the internet.

• When you get to the topic with calculation, please use a calculator to calculate, it will help you understand better.

• From Unit 5 onwards technical terms are introduced. Please read slowly and try to understand. Then to increase your accuracy and confidence, adapt and use them by comparing with graphs on your trading platforms.

UNIT 1INTRODUCTION TO

FOREX

1

The first thing you need to know when you're interested in investing in Forex is what there is for you to invest in the world of financial markets. You do not need to invest in every product. All products in the financial markets are unique, each having differences, all with Pros and Cons. You only have to learn and study what kind of investment suits you. Everyone’s situation is different, not all of you will take the same risks and each of you will have a different amount of money to invest.

So, in the first unit, I will explain the overall picture of the financial markets, looking at what the differences within them are and what the role of Forex is within the financial markets. There is not only investment in stock, but also other interesting things for you to learn and study.

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Contents of Unit 1

Reading Purposes

• Understand and recognise what Financial Markets are and understand the Investment Types in Forex.

• Memorise the most popular currencies exchanged in Forex and memosire the opening hours of the worlds major local stock markets.

• Understand the relationship between 'Forex' and 'gold’ and crude oil'.

1.1 Get to Know the Financial Markets

1.2 Get to Know the CFDs, New Investment Tools

1.3 What is Forex?

1.4 Forex Market Hours

1.5 The Relationship Between 'Forex' and 'Gold and Crude Oil'

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1.1Get to know the Financial Markets

Financial Market

Money Market Capital Market Foreign Exchange Market Derivatives

Primary Market Secondary Market

• Stocks Market• Over the Counter• Bond Electronic

Exchange

• Options• Future• Forward• Swap• Initial Public

Offering• Private Placement• Public Offering

• Treasury Bills• Commercial

Papers• Bank’s

Acceptance• Interbank

transaction• Repurchase

Agreement: Repo

From looking at the Financial Markets Chart above, you can see that there are plenty of markets for you to choose to invest in rather than just saving your money in a bank and only earning interest. You need to know the pros and cons, the risks and the unique properties of each market. This will ensure that every time you invest, you will achieve your goal and make a profit.

When we talk about investment, we must talk about

"RISK". It’s important and that's why banks and financial institutions created a pyramid which compares risk with reward

called "the Investment Risk Pyramid".

4

The pyramid can help you to decide which investment suits your investment goals best and the level of risk you are willing to take. The pyramid shows 5 levels of risk starting from lowest risk;

(1) Depositing (2) Bonds (3) Mutual Funds (4) Stocks (5) Derivatives

Risk/Reward

Low-riskLow-reward

High-riskHigh-reward

1

2

3Mutual Funds

4Stocks

5Derivatives

Bonds

Depositing

THE PYRAMID

5

Financial Markets

Financial Markets are the markets which act as a middleman for transactions such as taking a loan, raising funds and investment, as well as facilitating Surplus Spending Unit or SSU and Deficit Spending Unit or DSU. Money circulating in financial system is used to create economic activity and economic growth. Financial Markets can be categorised by transaction purpose and type as follows;

(1) Money Market (2) Capital Market (3) Foreign Exchange Market (4) Derivatives

• The Money Market is a market which deals in short-term loans and investments (typically less than 1 year) and manages liquidity in the short-term. Examples of the Money Market include Treasury Bills, Bill of Exchange, Interbank Transactions and Repurchase Agreements.

• The Capital Market is a market concerned with raising funds by dealing in long-term investments (over a year). The market can be divided by types of financial instruments including; stock markets, bond markets, government bonds and long-term corporate bonds.

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• The Foreign Exchange Market is a market trading foreign currency for international trading and investment.

• Derivatives is a market for trading financial instruments whose price depends on underlying assets. Derivatives have many kinds of underlying assets. Derivatives are commonly used as a risk management tool to help manage the risk from exchange and interest rates.

1) New York Stocks Exchange, United States2) NASDAQ, United States3) Tokyo Stocks Exchange, Japan4) Shanghai Stocks Exchange, China5) Hong Kong Stocks Exchange, Hong Kong6) Euronext, Eurozone7) London Stocks Exchange, United Kingdom8) Shenzhen Stocks Exchange, China9) Toronto Stocks Exchange, Canada10) Bombay Stocks Exchange, India

Source July 2019 : www.wikipedia.org

Where can you find financial markets products? The answer is you can find them in Stock Exchange Markets. When you want to trade financial securities, you need to do it through Brokers. Brokers will place your orders through the stocks exchange system to the stock market. There are stock markets in almost every country around the world with each having different trading volume depending on the size of the economy.

Top 10 Major Stocks Exchanges Market

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What's the difference between Stocks ,Mutual Funds, Derivatives , CFDs and Forex?

There are 4 questions you must ask yourself before starting an investment in any asset at all. Those questions are as follows; (1) What are your investment goals?(2) How much money do you have to put in the investment? (3) What is your timescale for reaching your goals?(4) How much risk are you willing to take?

After you have answered all these questions, you also need knowledge and understanding about what you going to invest in. Nowadays, there are a lot of options for you to choose from. In This topic I will explain to you the differences between Stocks, Mutual Funds, Options, Futures, CFDs and Forex. You will be able to see that investing in Forex can give you a high return but that also comes with a high risk.

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Investors Paying money Earning moneyStocks Exchange

Market

Buying Stocks Selling stocks

***Trading via stocks broker

Company Business

Stocks

• Investing in stocks means you can become one of the owners of that business without having to have been there from the start. If the business makes a profit and the stock price goes up, you can make a profit from the increase.

• Stocks liquidity depends on which market you choose to invest. If you choose to invest in a big stocks market such as Nasdaq, Tokyo Stocks, Shanghai Stocks, Hong Kong Stocks, Euronext, etc. then the liquidity would be high. You must check the opening hours of the markets in which you invest. Importantly, in relation to Forex, stocks have less risk, fluctuation and liquidity, but they need more investment funds.

Investment Knowledge Stock Markets Indexes have different names in each country. Some Stock Market Indexes are more important than others. The Indexes beginners in Forex should know are as follows; Nasdaq, S&P500, Dow Jones, Nikkei, EURO STOXX 50, FTSE, SSE, TSX, ASX and DAX. These indexes are important as they belong to the countries with the largest economies.

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Mutual Funds

Investors

Pool Money with

Mutual FundCompany

Fund Manager

Securities like Stocks ,Bonds , Gold , Crude Oil etc.

Returns

Appoints

Invest In

GeneratePassed Back

• A Mutual Funds is a form of investment in which money is pooled from many individual investors which is then registered by a qualified person to form a fund. This pooled fund will then be invested by a professional “Fund Manager” who invests the pooled money in assets according to fund's policy. The investors receive returns which are proportionally distributed amongst the investors based on their ownership stake.

• The Mutual Fund is risky less than Forex because you can choose the risk level that you want and it can be started with a low amount of money to invest. Making an investment in Mutual Fund suits low budget investors who don’t have much time to keep themselves updated with the news or those who are not confident enough to invest by themselves. In any Mutual Fund there is a professional Fund Manager who will invest your pooled money and share the profits back to you in accordance with a schedule.

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Derivatives

• A derivative is a financial instrument which is the sale and purchase contract or an agreement for an asset at a predetermined price, volume and terms of how the asset will be transferred in the future. The value of a derivative is dependent on the value of the agreed sale and purchase assets. If the value of the product changes, the value of the derivative would change too. Things similar to derivatives are thing such as car reservation forms and hotel coupons.

• The investment in derivatives is an interesting choice if you are prepared to take more risk. Derivatives can be purchased at an upturn or a downturn. A derivative is a contract or an agreement with for an underlying asset which is valid for a period of either, 1 month, 3 months or 6 months. While the contract or agreement is valid, the value of the derivatives is valid too. The investment in derivatives requires little money and can make high returns rates. This because you can choose to use Leverage up to a maximum of 1:20, and you only have to deposit the margin of 10% - 15% of the value of the purchase or sale.

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• Derivatives can be purchased Over The Counter (OTC). The types of derivatives which can be purchased are Options, Forward, Futures and Swap. The popular assets traded in the derivatives market are; stock market index, government bonds, interest rates, gold, crude oil price, exchange rates and commodity index.

CFDs

• Contract for Difference (CFDs) is a type of investment which enables you to speculate on the rising or falling prices of fast-moving global financial markets such as Forex, stocks index, commodity price, stock prices, gold and crude oil

• CFDs can be traded on an upturn or or downturn, including laying margin at much the same level as general derivatives trading. It is OTC trading which means it is trading agreed between investors and brokers without the supervision of an exchange. All CFDs brokers are monitored by the relevant Regulators in each country such as UK, Australia , etc.

• The investment in CFDs is high risk but comes with the highest return rates compared with investing in the money market and the capital market. Because you are able to Leverage more than 1:20 you only need to invest a small amount of money compared with the money market and capital market.

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FOREX

• Forex or Foreign Exchange Market or Currency Market is an over-the-counter foreign exchange currency market. The product in Forex is a pair of currencies which can be speculated on by comparing the value currency with the other. Popular pairing include EUR/USD, USD/JPY, GBP/USD , AUS/USD, USD/CAD and USD/CHF, etc.

• Forex is open 24 hours Monday to Friday, closed on Saturday, Sunday. Forex is the market with the highest trading value in the world. You can trade at an upturn and a downturn like derivatives, Forex is OTC trading which makes it the most liquid market in all the capital markets

• When investing in Forex, you can choose to leverage more than 1:20, which can give a high return on your investment but also has a high risk associated.

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1.2Get to know the CFDs

Derivative of Financial Market

Exchange Traded Derivatives

ExampleMetals- Gold- Silver- Uranium- TinEnergy- Crude Oil WTI- Brent Oil- Natural GasSoft Commodities- Coffee- Sugar- Soybeans- Cotton- CornLife Stocks- CattleNew Commodities- Plastics- Electricity

Over the Counter Derivatives

Commodities Financials

ExampleEquity Financials- S&P500, Nasdaq,

Dow Jones- DAX, FTSE, EUROSTOXX- Nikkei, AXS, HSI- Single Stocks- Options, Forward, Futures ,

Swap Currencies- EUR/USD- USD/JPY- GBP/USD- USD/CHF- AUD/USD- NZD/USD- USD/CAD

Over the Counter (OTC) is the trading of securities and instruments done directly between two parties and is not traded via the stock market. The buyer and seller negotiate directly with one another so that the investors can negotiate the price as they want without so many rules and regulations. The supervision of OTC trading, including the investor's profit protection, is not as strict compared with trading in the stock market. Currently Nasdaq is the most successful market in the world trading OTC.

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What are Contract for Differences (CFDs)?

• The definition of Contract for Differences (CFDs) is a contract made between a player and a dealer. Nowadays you can see adverts and banners on internet trying to persuade you to trade with dealers by speculating in Forex via MT4 and MT5, with powerful investment tools whose Leverage is very high. The popular differences in movement of financial asset prices that trade in CFDs are; Forex, stock index, gold, oil, commodity prices and stock prices.

• Each CFDs dealer is supervised by the relevant regulatory agencies in each country such as UK, Australia, Germany, Cyprus, or in any other countries. For example, if a CFDs dealer is registered in the UK, The Financial Conduct Authority (FCA)

• will be the regulatory agency, or it will be the Australian Securities and Investments Commission (ASIC) supervising if the dealer is registered in Australia. It is noteworthy that a big country like the USA doesn't allow CFDs, which has caused dealers to do their business in other countries.

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• CFDs trading is normally conducted as Over the Counter (OTC) trading which is where trading occurs between players and dealers directly without the use of an organized exchanges. To illustrate, in the case of Gold shops each individual gold shop will display buying/selling prices at the front of the shop to give you the current prices. Well CFDs are the same, the dealer will ask the player to download a trading platform called MT4. On the platform, there are ‘Bid’ and ‘Ask’ menu bars for each asset. These bars are moving all the time, every split second. The players set a price range which they are satisfied with and when the bar enters that price range the players can immediately buy or sell.

• CFDs trading needs little money to begin investing because of the Margin system which is similar to the system used in other derivatives markets. This means if you want to buy or sell you have to provide a dealer with money to be used as a Margin. However, CFDs trading has many times higher leverage than Futures in other derivatives markets as CFDs dealers normally have 1:100 Leverage and some even have 1:500. Because of this high level of leverage, CFDs dealers are supervised by regulatory financial supervisory agencies in every country to prevent fraud.

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• The CFDs' Margin system is different from the Futures Exchange's system. Generally, in the Futures Exchange's Margin system, when your Margin range is lower than minimum margin, you have until before the market opens on the following day to deposit money. But the CFD's system dealers will not wait for you, as soon as the money in your margin account goes lower than the minimum margin, the dealers will stop out (close all active positions) for you immediately. With very high leverage you could be easily stopped out if you didn't plan your investment carefully.

• 1:100 leverage is the highest risk compared with other capital markets and not suitable for medium-term or long-term trading as when you open orders overnight there will be an interest charge you have to pay which is called Swap

• CFDs is tax free because there are no financial transaction contracts, share certificates or asset ownership certificates, and the CFD's price also mirrors the original market's price and liquidity meaning that most players only speculatein short term.

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• In the past, when Investing in Forex, players were limited to groups of big financial institution such as banks and insurance companies. In the present, because of online trading, minor investors like us can invest through broker's or CFDs’ dealers via online trading. Therefore, it is more accessible but people who want to try these new investment tools like CFDs should be extremely careful because investing in CFDs is very risky. Money in your bank account can disappear overnight if you traded in the wrong direction.

• I have put the details of CFDs brokers, Forex and how to trade in the topic 'Brokers'.

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1.3What’s FOREX ?

Currency Market ,Foreign Exchange Market or FOREX

According to Transection

• Spot Market• Forward Market

Derivatives Forex Markey

• Futures Market• Options Market• Swaps Market

Financial Market Participant

• Wholesale • Inter Bank Market• Retail or Client Market

From the chart above, you can see that every financial market covers and relates to foreign currency exchange. It is not surprising that Forex has the most trading volume in the world because every market uses money to exchange. Forex is the biggest financial market with a daily trading volume of more than 6.5 trillion US dollars in 2016. This information is from the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity and the Bank for International Settlements (BIS).

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EQUITIES MARKET FOREXINVESTABLE GOLD MARKETFUTURE MARKET

$3 Trillion

$6.5 Trillion

$190 Billion

$450 Billion

Daily Trading Volume in Financial Markets Chart

Forex's daily trading volume is the highest when compared with the other financial markets because currency exchange is involved in every financial activity. Additionally, the importance of the gold market cannot be overlooked because gold is used as an international currency and a Safe Haven.

Source : www.bis.org

The Foreign Exchange Market or Forex is a market for trading currency exchange rates. The price varies with the demand and supply of each currency. The levels of supply and demand depends on many different factors including interest rates, inflation, oil prices, gold prices, economic conditions, political climate and national and international situations including each country’s own economic performance. For this reason, Forex is regarded as quite sensitive to ambient factors.

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Forex is the biggest financial market which is open 24 hours Monday to Friday which means prices change very quickly. Through high liquidity and the ability to use leverage it is possible to make a high profit with a relatively low investment. This is why investment in Forex suits active investors who like high risk, are focused on making a profit in the short-term and who are prepared to trade rapidly and make quick decisions.

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The History of FOREX

The Bretton Woods System1944-1971 : 27 Years

• At the end of World War II, 44 countries from around the world cooperated to restore the global economy by arranging the United Nations Monetary and Financial Conference (aka Bretton Woods Conference). At this conference an agreement was signed to establish the system, the organisation and its means for the purpose of organising the international monetary system.

• The IMF, World Bank and WTO were then established.• The agreement was a fixed exchange rate.

• gold and the U.S. Dollar were to be used as foreign exchange reserves.

• 1 ounce of gold = $35• U.S. Dollar can be exchanged to with unlimited gold

which resulted in the U.S. Dollar becoming the world's main currency.

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1960-1971 : 11 Years

• During these years economic growth in countries that were defeated in WWII like Japan and Germany, moved ahead of the USA particularly in terms of international trade.

• The USA was confronted with a huge deficit because of spending outside of its capability during the Vietnam war.

• As a result the USA cancelled the agreement linking gold and U.S. Dollar and this marked the end of the fixed exchange rate (Bretton Woods system).

The Bretton Woods Arrangement

FOREIGN CURRENCY U.S. DOLLAR GOLD

Gold 1 oz.(1967-1983)

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Fixed VS Floating Exchange1973 - Present

• The international monetary Fund started using Floating Exchange Rate.

• The Cancellation of the agreement linking gold and the U.S Dollar meant that currency was no longer fixed and this resulted in the free exchange of foreign currency, this is known as FOREX.

Gold Standard(1870-1914)

Bretton Woods(1944-1971)

End of Bretton Woods(1971-Present)

Floati

ng E

xcha

nge

GoldGold

U.S. Dollar

Fixed

Exc

hang

e

Foreign Currency

Foreign Currency

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Pros• Boosts confidence in the

economic system and decreases inflation rates in countries that use a fixed exchange. This is because the value of their currency is linked and therefore determined by the value of the currency of a developed country where inflation is low.

• Builds confidence in trading and international investment.

Cons• Central bank has to bear the

burden of a pegged (fixed) exchange rate which is a weakness that can lead to currency speculation.

• No independence within a country's monetary policy implementation as the main consideration is maintaining currency exchange.

Pros• Independence in a country's

monetary policy implementation.

• Flexibility to adapt to outside fluctuations because a floating exchange is a system which is determined by market mechanisms.

Cons• There are more variables in

monetary policy implementation which need to be taken into consideration in order to take care of the price level in the country. Exchange rate depreciation could have an effect increasing inflation-adjustment.

• Central bank could possibly manage the bank's operations opaquely in a floating exchange.

Floati

ng E

xcha

nge

Fixed

Exc

hang

e

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Who’s trade FOREX ?

Forex is open 24 hours a day from Monday to Friday so that investors can keep an eye on price movement which is happening all the time and with modern technology you can connect to the market anytime, anywhere.

There are more than 100 official currencies but trading in US Dollar (USD), Euro (EUR), Pound sterling (GBP) , Japanese Yen (Yen) and Chinese Yuan (CNY) has very high liquidity because they are the currencies primarily used in trading, business and international payments.

Forex is an inviting market because of high trading volumes and liquidity, that's why many millions of people choose to trade in this market. Forex investors can be divided in to 6 groups;

1) Central Banks 2) Commercial Banks3) Multinational Corporations 4) Investment Managers and Hedge Funds5) Forex Traders Shape Business6) Individual Investors

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1. Central Banks

2. Commercial Banks and Investment Banking

Commercial banks are the biggest group trading in Forex and amounts for 55% of the market. Because trading in Forex between banks is on an electronic network. In Forex, banks are their customers’ representatives and are individual brokers with the main function of facilitating transactions for customers and doing business through stock trading.

3. Multinational Corporations

Import and export companies amount to 5% of the market.They have to deal with currency exchange and protecting the business from the risks involved with exchange rate fluctuation.

The main purpose of the central bank is maintaining the economic stability of the country through the control of inflation by;• Controlling interest rates.• Intervening by trading currencies.• Controlling the required reserve ratio.

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4. Investment Managers and Hedge Funds

If you have money and want to trade but you are not a professional, the investors in this group can help you. The risk involved is lower than when you trade in FOREX by yourself. Each of the funds has a different level of risk depending on what asset/s they put money into. The investment of insurance companies, pension funds, charity funds, mutual funds and hedge funds amounts to 30% of the total market. This function of this investor group is to make a profit for companies and to protect companies and funds from the risks involved in currency fluctuation.

5. Brokers

Most of the brokers in this group are CFDs dealers and they are called brokers. We trade in Forex with them. The Trading occurs via the platform MT4 or MT5 or cTrader which checks price movement and trades at the satisfied price immediately. The brokers make a profit through earning a commission and through spread which is what happens when customers like ourselves trade.

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6. Individual Investors

Individual investors are people like us who speculate in the market because investing in Forex requires little money and traders are now easily accessible via recently developed technologies. This includes broker services that have many levels of leverage which facilitates individual investors like us. This is why every day there are more and more new traders coming to trade in the market and they now account for 10% of the total market. More than 1:100 leverage is considered high risk and therefore Forex trading is not suitable for everyone. Each individual has a different level of risk that they can handle.

That's why individual investors like us need to study to reduce the risks as much as possible before starting an investment. The potential high rewards in Forex also come with the high risk of possibly losing your whole investment.

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1.4What’s FOREX ?

FOREX SESSION (GMT+7)

Remarks: Time is changed according to the seasons, this is referred to as Saving Daytime.

The Hourly Trading Volume Chart clearly shows that the trading volume is very dense during the hours when Asian, European and American sessions overlapped and the density reduces in the afternoon of the American session.

HOURLY TRADING VOLUME

In this topic, I will introduce you to a session where the Forex market fluctuates which gives us the opportunity to speculate short-term with a pair of currencies that we are interested in. Foreign exchange markets, like financial markets and banks around the world, are related to each other like a network. This enables FOREX to be open 24 hours a day, Monday to Friday. It should be noted that FOREX is closed altogether on Saturdays and Sundays.

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From the chart above, you can see the market opening hours starting in New Zealand, going left to right and ending in the United States of America. The Forex is open continuously until Friday night GMT+2. The trading volume is high when the Asian, European and American sessions overlap and it also fluctuates because it is linked with the opening hours of local stock markets.

1. Australian Session

In this time period, the local stock markets in Australia and New Zealand open and as a result the AUD and NZD currencies start moving. However, as the trading volume of New Zealand is very low, investors tend to trade the AUD more than the NZD.

2. Asian Session

When the Markets in Tokyo open is marks the start of the Asian Session. The stock markets in Japan, China, Singapore and Hong Kong are known as the big economic centres in Asia. They amount for 6% of daily trading in FOREX. The Australian market and Tokyo overlap meaning that the AUD, NZD, JPY and CNY currencies will be fluctuating and can be speculated on short-term during the session overlap.

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3. European Session

When the Asian Session is in its afternoon, the markets in London open. This is called the European Session and it amounts to 34% of the daily trading volume in Forex. The Stock markets in England, Germany, France and Switzerland are big economic centres and as such are very important. When the Asian and European Sessions are overlapping, the JPY, CNY, GBP, EUR, and CHF currencies will be fluctuating and can be speculated on short-term during the session overlap.

4. American Session

When the European Session is in its afternoon, the markets in New York open. This is called the American Session. New York and Chicago are the biggest financial centres in the world, they open at the same time as the stock markets in Canada which means that the American session amounts to 16% of the daily trading volume in Forex. When the European and American sessions are overlapping this causes the greatest fluctuations of the day with the USD, CAD, GBP, EUR and CHF especially will be fluctuating and can be speculated on short-term during this time.

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Most Traded Currencies

17.68%

1.79%

2.06%

2.20%

2.22%

3.97%

4.78%

5.13%

6.94%

12.78%

21.56%

31.27%

87.62%

Other

Singapore Dollar

New Zealand Dollar

Mexican Peso

Swedish Krona

Chinese Renminbi

Swiss Franc

Canadian Dollar

Austrailan Dollar

Great Britain Pound

Japanese Yen

Euro

US Dollar

The total sum is 200% because each currency trade always involves a currency pair, one currency is sold and another bought.

Most Traded Currency Pairs

12%

2%

3%

3%

4%

4%

4%

5%

5%

6%

11%

13%

28%

Other

EUR/AUD

AUD/JPY

EUR/GBP

GBP/JPY

EUR/JPY

NZD/USD

USD/CHF

USD/CAD

AUD/USD

GBP/USD

USD/JPY

EUR/USD

Source: Bank for International Settlements (BIS) 2020

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Popular currencies traded in the Forex U.S. Dollars (USD) Euro (EUR) Pounds Sterling (GBP) Japanese Yen (JPY) Australian Dollars (AUD) Canadian Dollars (CAD) Swiss Francs (CHF) Chinese Renminbi (CNY)

These 8 currencies are called the Major Currencies because they are the most often exchanged currencies in the world and the currencies the central banks in countries around the world carry and use as Foreign Exchange Reserves.

The product in the Forex market is a currency pair. The reasons they come as a pair is that if you trade a single currency by itself, you need a lot of investment. As a pair they are proportional which helps make the currency product cheaper. A currency pair is also important to peg the price of those currencies to move in the same direction as each countries' own economic policy.

Proportion of currency reserves around the world chart

USD, 61.82%

EUR, 20.24%CNY, 1.95%

GBP, 4.54%

JPY, 5.25%

AUD, 1.67%

CAD, 1.92%

CHF, 0.15%

Other, 2.45%

Source : International Monetary Fund (IMF) 2019

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United States of AmericaUSD - United States Dollars

• The USD is the world’s main reserved currency and 85% of all currency transactions around the world are related to the USD.

• The USA is the world’s largest economy which is why the USA's interest rate is very important to the global economy. It causes the value of the USD to fluctuate when the Federal Reserve System (FED) announce Policy Rates. In 2019 the USA was the country with the largest amount of gold for use as foreign exchange reserves.

• The USA has a service sector which is quadruple the size of the manufacturing sector which causes an economic figure called Nonfarm Payrolls. This figure is of interest to investors around the world as it can be used to predict economic growth and recession in the future.

• The USA trade deficit continues as the USA is the country which imports the most goods. The biggest countries that trade with the USA are China, Canada, Mexico, Japan, UK and Germany.

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• The USA is the world number 1 in terms of oil, electric power and nuclear production. The world’s 4 largest arms exporters are USA, Russia, China and Germany.

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European Union EUR – Euro

• The EU or European Union is politico-economic union comprised of 28 member countries. 19 of those member countries use the EUR as their national currency; France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spanish, Austria, Belgium, Finland, Greece, Slovenia, Cyprus, Malta, Slovakia, Estonia, Latvia and Lithuania.

• The EU is a group of countries whose economic size is amounts to 1 of the 5 largest economies in the world. The EUR is a popular currency to be traded when compared with other currencies around the world.

• European Central Bank (ECB) is the central bank of the EUR and the financial policy maker who sets the interest rates of the 19 member countries. The European central bank is 1 of the world’s 4 most important central banks. It is also 1 of the 7 institutions according the Treaty on European Union. Every time the ECB came out and spoke on monetary policy the value of the EUR fluctuated as a result.

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• For EUR value trading, investors focus on Germany's economy because it is the member country with the largest economy and the most important country in the EU. Also in 2019 Germany was the country with the second largest amount of gold for use as foreign exchange reserves.

European Central Bank (ECB)headquartered located in Frankfurt Germany

The 19 EU member states used the EUR currency.

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ChinaCNY – Chinese Renminbi

• China is an economically powerful country which has continuously had the fastest growing economy until now where it is currently the world second biggest economy. China is the biggest exporter in the world and has the highest total trade value and is the world’s second biggest importer with only the USA importing more. In 2019 China was the country with the sixth largest amount of gold for use as foreign exchange reserves.

• In 2016 International Monetary Fund (IMF) let China’s currency CNY into the basket of key international currencies which determine the value of Special Drawing Rights (SDR), whereas previously it had only included the USD, EUR, JPY and GBP. Since it was added more people around the world are likely to want to carry CNY.

• Presently, China has the biggest army. China has increased its military forces making them the strongest military force Asia and the fourth strongest in the world.

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• China became a member of World Trade organisation (WTO) in 2011 causing China's economy to become the world’s driving economic force on production, consumption, investment and international trade. Remarkable China play roles in both the global economy and the Asia region. After the USA and Japan, China is the world’s third biggest overseas investor.

• Although China’s economic growth and expansion has succeeded, China has a big problem with the income gap and inequality which needs to be addressed.

The Central Bank of the People's Republic of China (PBOC) headquartered located in Beijing and Shanghai.

Shanghai's deep-sea port on Yangshan Island in Hangzhou Bay is from 2010, it is the busiest container port in the world.

TRADE WAR

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United KingdomGBP – Pound Sterling

• United Kingdom of Great Britain and Northern Ireland, known as United Kingdom (UK) or Britain uses the GBP. The UK is the world sixth biggest economy in the world and is named as the world first industrial country. From the 19th century to early 20th century the UK was the world’s most powerful country.

• The Bank of England (BOE) is responsible for monetary policy making in the UK. The result is that every time it has an announcement on UK monetary policy, the value of GBP fluctuates a lot.

• The service sector in the UK makes up for 73% of the GDP. London is regarded as a big global financial centre nearly on the same level as New York. It is not surprising then that the opening times of the London stock market and the New York stock market overlap. The GBP/USD currency pair fluctuate and many investors speculate in the short term during the time when the sessions are overlapping.

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• UK is a powerful country, which influences economy, culture, military, science and international politics. Although the 2016 Brexit referendum where the UK voted on leave the EU may have a long term effect on the UK economy causing it to slow down in the future.

London Heathrow Airport, Terminal 5 has a higher number of international passengers than any other airport.

Bank of England (BOE)Headquarters located in London, England.

BREXIT

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JapanJPY – Japanese Yen

• The JPY is a safe haven currency. The symbol of Japanese Yen currency is ¥ which is the same as Chinese Yuan. Japan is the only country in Asia which is a member of the G7. Japan is one of the 5 biggest economies in the world and now Japan is also the world’s biggest importer and exporter. In 2019, Japan was the country with the sixth largest amount of gold for use as foreign exchange reserves.

• Japan has a high production capacity and is the country of origin for the production and manufacturing of many technological advancements especially in the car manufacturing and electrical appliance industries in which Japan is ranked top in the world.

• Although currently, Japan has to compete with both China and South Korea which has led to Japan's production industry mainly relying on high production technologies and is using less manpower. Japan is also facing a problem because of its aging society.

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• The stock market in Tokyo is the biggest stock market in Asia, there are 2 important indexes; Nikkei 225 and TOPIX.

• One of the reasons JPY is the safe haven currency is that the foreign assets value carried by Japanese investors is more than the Japanese assets carried by foreigner investors. When the economic conditions of the financial market are fluctuating, investors will sell risky assets and bring the money invested in other countries back to Japan causing the JPY to appreciate.

Bank of Japan (BOJ)Headquarters located in Tokyo, Japan.

The Shinkansen train or bullet train is one of the most popular methods of transportation in Japan.

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AustraliaAUD- Australian Dollars

• As of 2019 Australia has the world’s fourteenth biggest economy and was one of the first developed countries to recover from the Global and US financial crisis in 2008.

• Australia is the world’s second largest gold producing country, with only China producing more. Australia produced about 312,000 kg in 2018 which made the AUD’s sensitivity to gold price movement unavoidable.

• Australia has an enormous number of commodities that are in demand around the world such as steel, gold, uranium, natural gases and coal. The energy industry and mining in Australia have a clear effect on the economy.

• Because Australia gives precedence to exported goods over what they produced themselves, the economy can be significantly affected if trading partner countries are having an economic crisis or an economic slowdown. The top 10 largest trading partners of Australia are; China, Japan, US, South Korea, UK, New Zealand, India, Singapore, Thailand and Germany.

45

• Australia also has a lot of un-surveyed oil fields in the south sea and now the government is giving is full support to carry out the surveys, meaning that potentially Australia might have a new wealth of oil in the future.

46

CanadaCAD- Canadian Dollars

• In 2019 Canada was the world’s 10th biggest economy and a member country of the G7, Queen Elizabeth II of the United Kingdom is also the Queen Canada.

• Canada is a big oil and gold producing country, Producing the second largest amount of oil behind Russia. In 2019 Canada was the fourth biggest oil exporter in the world and in 2018 produced the fifth largest amount of gold and was ranked seventh in the world for gold exports. This has made CAD currency unavoidably sensitive to movements in oil and gold prices.

• The Canadian economy mainly relies on trading with foreign countries amounting to 45% of its GDP, this is caused by the North America Free Trade Agreement (NAFTA) that was amended in 2019 to become the Canada-United States-Mexico Agreement (CUSMA) which stimulates exports and will enhance the competition capacity of Canada in good production sectors in the future and not only the energy sector.

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• Canada is also facing an aging society problem. The economic system has been wildly affected as a result of accepting almost 1 million immigrants between 2018-2020 to support the business sector and act as labour in the country to solve the labour crisis.

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SwitzerlandCHF - Swiss Franc

• Switzerland is located in central Europe but is not a member country of the EU. Today Switzerland is regarded as a country with advanced innovation and strong economic stability.

• Switzerland's currency CHF is safe haven for similar reasons as Japanese JPY and it has a very large income from service transactions especially from the financial sector. Investors in Switzerland invest in other countries about 2.5x more than foreign investors invest in Switzerland. Switzerland has direct investment in foreign countries mainly EU member countries and the US, while at the same time the EU investment ratio in Switzerland is only 2:3 with foreign investment.

• In 2019 Switzerland had the world’s seventh largest gold reserves, also has a good reputation for high quality gold and watch production. Each year, more than two thirds of the gold produced in the world is sent to Switzerland to refine.

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• Switzerland’s economy is driven by the service sector and in particular by the financial, banking and production sectors like innovation, chemicals and medical supplies. In total this amount to 70% of the GDP

Orange = SwitzerlandGreen = EU member countriesBlue = United Kingdom (UK)

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1.5Correlation of Forex with Gold and Crude Oil

The Foreign Exchange Market (Forex) is the market which trade in foreign exchange rates, the price fluctuates with the demand and supply of each currency. Forex is very sensitive to surrounding factors, It is dependent on many variables but in particular the movement price of gold, oil, stock index and government bonds reward. These are variables that investors use to analyse each country’s economy in the short-term and how that affects the probability of the country’s currency appreciating or depreciating in the future.

By the end of this topic I want you to have the knowledge and understanding of how changes in the price of gold and crude oil can affect the movement of a currency pair in Forex. To note, as a beginner, when it comes to investing we believe it is only the primary information you need to learn and understand before you start to invest in Forex.

In 2019 the USA, Saudi Arabia, Russia, Canada and China were the world’s largest oil producing countries.

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The Boddington Gold Mine is the world’s biggest gold and copper mine located in Perth, Australia. In 2018 it produced 20 tons of gold and 35,000 tons of copper.

The New York Stock Exchange was the world's biggest stock market in 2018 and the market cap. was 30,923 billion USD.

The Japan Exchange Group was the world's 3rd biggest stock market in 2018 and the market cap. was 5,679 billion USD.

Gold - Basic Knowledge

Gold is the foreign exchange reserve that every central bank holds as it can be used instead of banknotes and it also demonstrates economic sustainability and economic strength. In Forex trading gold will be paired with the US currency value and we use XAU/USD as the symbol.

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Fort Knox is the United States' official gold reserve located in Kentucky. it is reputed to be the strongest and safest place in the world. There is about 4,580 metric tons gold inside however, that is only part of the USA’s total gold reserve. In 2019 the USA had the world’s largest gold reserves and was the world’s 4th highest gold producing country.

Gold is one of the most popular safe haven assets. It is used when investors are concerned about certain economic circumstances in countries with large scale economic systems or when an economic recession causes high inflation. Its use is unavoidable following a slowdown in investment caused by investors reducing their investment portfolio of high risky assets and finding other more secure investments. Investors will sell risky assets and buy gold causing the gold price to rise.

The factors affecting gold price;1. Monetary and interest rate policies2. Oil price3. USD value4. Demand and Supply

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• Gold is tangible and has high liquidityInvestors can directly hold gold by buying gold ornaments and gold bars which can be traded anywhere in the world.

• Gold has various types of investment Nowadays there are various different financial products meaning that every type of investor is able to invest in gold through; ETFs, Futures, CFDs or Forex.

• Commodity Exchange (COMEX) COMEX is the world biggest derivatives trading market on metals. In 1994 it was combined with the New York Stocks Exchange (NYSE) and was called the New York Mercantile Exchange (NYMEX)

• London Bullion Market Association (LBMA) The London Bullion Market Association's function is to be standard setting organisation adding value to the market by setting standards for gold trading around the world.

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Gold Reserves are a type of asset that a country's central bank or foreign financial institutions collect as a part of foreign exchange reserves for investment and also for the country's/institutions’ financial security. Data on gold reserves is collected and complied by the World Gold Council (WGC) and the International Monetary Fund (IMF).

280.00

281.60

286.80

310.30

323.10

353.30

354.90

382.50

423.60

504.80

607.00

612.50

765.20

1040.00

1864.30

2119.20

2436.00

2451.80

3367.90

8133.50

20.Austria

19.Spain

18.Lebanon

17.UK

16.Saudi Arabia

15.Kazakstan

14.Uzbekistan

13.Portugal

12.Taiwan

11.Euro Area

10.India

9.Natherland

8.Japan

7.Switzerland

6.China

5.Rusia

4.France

3.Italy

2.Germany

1.US

TOP 20 GOLD RESERVES BY COUNTY

AS OF JULY 2019 (Tons)

Source : World Gold Council

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In countries that produce a lot of gold, it is unavoidable that the currencies in those countries will be affected by the gold price in the global market. Currently of all the gold produced in the world each year, 50% is used in accessories, 40% in investment and 10% for use in production in industry sectors. The country which buys the largest amount of gold is India amounting to 25% of the worlds gold production.

101.80

121.30

123.50

155.40

190.00

193.00

253.20

281.50

312.20

399.70

10.Ghana

9.Maxico

8.South Africa

7.Peru

6.Indonesia

5.Canada

4.US

3.Russia

2.Australia

1.China

TOP 10 GOLD PRODUCING COUNTRIES

AS OF JUNE 2019 (Tons)

Source: U.S. Global Investors

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GLOBAL GOLD PRODUCTION IN 2018

Source: GFMS, Refinitiv, U.S. Global Investors

In 2018 the mining industry has increased and is continuously adjusting because of a slowdown in the global economy which has led to international financial institutions, business people and investors, including consumers, to start buying more gold.

Gold prices are affected by seasonality, From October through to just before the start of the Chinese New Year gold prices will increase due to higher demand. Nowadays, seasonal increases do not happen at exactly the same time as in the past because of new gold investment trends, in particular paper gold. These new trends have caused the gold price to fluctuate more, however gold seasonality is still something that gold investors should be aware of.

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1179.00

1391.00XAU/USD, Daily

Gold prices continuously increasing from the end of 2013 to March 2014, more than 21,200 points.

XAU/USD, Daily

1129.00

1307.00

Gold prices continuously increasing from the end of 2014 to January 2015, more than 17,800 points.

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XAU/USD, Daily

1045.00

1263.00

Gold prices continuously increasing from the end of 2014 to February 2016, more than 21,800 points.

XAU/USD, Daily

1122.00

1220.00

Gold prices continuously increasing from the end of 2016 to February 2017, more than 9,800 points.

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XAU/USD, Daily

1236.00

1365.00

Gold prices continuously increasing from the end of 2017 to January 2018, more than 12,900 points.

XAU/USD, Daily

1160.00

1346.00

Gold prices continuously increasing from October 2018 to February 2019, more than 18,600 points.

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Basic information about CRUDE OIL

• Crude oil is like black gold. It is important to the global economy as it is an important energy resource with many uses in households, industry and manufacturing including logistics and transportation. Therefore, if the price of oil rises it can have an effect on currencies, causing depreciation.

• The world’s 3 most important crude oil resources are the WTI, Brent and Dubai. The crude oil price from these 3 resources influence crude oil trading around the world. Crude oil trading uses the quality of these three producing regions as their Benchmark. For example, Oman crude oil in the Middle East references Dubai crude and Urals Blend Crude in Russia references Brent Crude.

• The Reason Dubai crude oil plays a lesser role in the financial market when compared with WTI and Brent is that most foreign research institutes give precedence to WTI and Brent for crude oil price. For example, Goldman Sachs, JP Morgan and Deutsche Bank estimate WTI and Brent crude oil prices but do not estimate Dubai crude oil prices. Also the main derivative markets in foreign countries commonly use WTI and Brent crude oil price as a underlying asset for crude oil futures contracts.

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Why are the prices of WTI, Brent and Dubai not the same?

• CFDs brokers have this product available for us to trade, the symbol of WTI is USO/USD and Brent is UKO/USD.

• Normally the price for WTI is higher than the price for Brent and Dubai because the quality of WTI is better.

• The situation in the Middle East and the conflict between Iran and Western Countries since the end of 2010 has cause the global price of crude oil to rise rapidly due to concerns over shortages in the oil supply from the Middle East.

Source : Bloomberg Professional(EUCRBRDT and USCRWTIC)

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• The Brent price is more sensitive to the situation in middle east than the WTI price. This is because of geographical factors that have cause caused Brent and Dubai prices to adjust and lately they are worth about 10 dollars more per barrel than the higher ranked WTI.

An Israeli soldier stands next to signs pointing out distances to different cities, on Mount Bental, an observation post in the Israeli-occupied Golan Heights that overlooks the Syrian side of the Quneitra crossing, Israel May 10, 2018.Source : Ronen Zvulun | Reuters

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970.00

1117.00

1180.00

1290.00

1417.00

1494.00

1510.00

1714.00

1878.00

2010.00

2560.00

2770.00

3351.00

3371.00

3895.00

3983.00

4635.00

9895.00

10895.00

11904.81

20.Oman

19.UK

18.Libya

17.Algeria

16.Norway

15.Angola

14.Qatar

13.Mexico

12.Kazakhstan

11.Nigeria

10.Brazil

9.Kuwait

8.Iran

7. UAE

6.China

5.Canada

4.Irag

3.Saudi Arabia

2.Russia

1.US

TOP 20 CRUDE OIL RESERVES BY COUNTY

AS OF March 2019(Thousand Barrels / Day)

Source : https://knoema.com/atlas/topics/Energy/Oil/Crude-oil-reserves

Petroleum is measured in Barrels 1 barrel is equal to about 159 litres because; in the UK 1 barrel = 35 gallons (equal to 159.11 litres) in the US 1 barrel = 42 gallons (equal to 158.97 litres)

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217.00

317.18

532.00

625.77

928.10

691.12

755.82

980.36

1050.00

1273.06

1462.00

1698.97

1926.00

2709.00

2734.23

2823.59

4595.00

9670.00

10460.77

12248.39

20.Gabon

19.Australia

18.Ecuador

17.Egypt(Arab Rep.)

16.Malaysia

15.Azerbaijan

14.Indonesia

13.UK

12.Venezuela

11.Norway

10.Angola

9.Mexico

8.Nigeria

7. Kuwait

6.Brazil

5.Canada

4.Irag

3.Saudi Arabia

2.Russia

1.US

TOP 20 CRUDE OIL PRODUCING COUNTRIES

AS OF May 2019 (Thousand Barrels / Day)

Source : https://knoema.com/atlas/topics/Energy/Oil/Production-of-crude-oil

From the above information on Crude Oil Reserves and Crude Oil Production, you can see that the USA has the highest amount of crude oil reserves and is also the country which produces the most crude oil. You can also see that the Russian Federation, Saudi Arabia, Iraq and Canada make up the rest of the top 5 counties in both production capacity and reserves.

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UNIT 2HELLO FOREX

BROKERS

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“ Which brokers should I open a trading account with? ", is the first question that Forex beginners want to know. Choosing brokers for a trading account is very important, because brokers are not only the middleman who trade the pair of currencies for you, but also the caretaker of your money in your investment port. Therefore, before investing in Forex, you need to prioritise picking a licenced broker with a good track record, who is shown to be effective and has no record of any illegal activity in their work organisation or administration be it intentional or unintentional. So, we will talk about types of brokers and how they work including how to pick Forex brokers which are suitable for beginners.

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Contents of Unit 2

Reading Purposes

• Understand the differences between Dealing Desk and Non-Dealing Desk Brokers.

• Get to know the authorities which monitor Forex Brokers and know how to pick brokers who suit your investment goals.

2.1 Get to Know the Forex Market Hierarchy.

2.2 Authorities Monitoring Forex Brokers.

2.3 Types of Forex Brokers.

2.4 10 Things You Must Know About Forex Brokers.

2.5 Picking Forex Brokers who suit you.

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2.1Get to Know the Forex Market Hierarchy

Why do you need to understand the Forex Market Hierarchy? It's because you need to know that there are two different types of commodities trading which are related to currency values; (1) Currency Futures and (2) Forex.

Currency Futures are products traded in derivatives markets with a clear standard price set at the date the trading contract was made. E.g. If you are trading in the CME in America and you have a contract valued at $100,000 it can only be traded at cost value. If you want to trade a larger amount, you must have more contracts as each contract is equal to $10,000.

However, with Forex you are trading directly between two parties using OTC (Over-the-counter) trading where there is no central market like Currency Futures, stock trading or government bonds. The two parties mostly trade via Interbank, and the reference price comes from major banks trading. This causes uncertainty in the mid-price and means there is a high chance that the price of products traded OTC can be distorted. Investors like us need to be very careful.

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Therefore, before starting to trade in FOREX, it is important to study the essential basic information of Brokers who you are considering opening an account with because each broker will offer you a different price.

Electronic Communication Networks• Major international banks use Platform

Electronic Broking Services (EBS) and Reuters.• Small-sized international banks use Platform

Currenex, Hotspot, Integral, Fxall, LavaFx.

Trading PlatformMT4, MT5, others

Forex Market Hierarchy

1LEVEL

2LEVEL

3LEVEL

Major Banks - Liquidity Providers (LP)Major banks with asset started at $3,000 millions.

Medium-sized and Small Banks, Forex Brokerswith asset started at $1 - $20 millions

• Hedge funds, Commercial Companies, Institutional Speculators, Hedgers.• Market Access ECN/STP, Retail Market Makers.

Retail TradersRetail traders with investment not more than $100,000

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Looking at the Forex Marker Hierarchy above you can see that there are 3 trading levels. The first level is the major banks who are the liquidity providers (LP), the second level is the medium sized and small banks including forex brokers and funds and the third level is us, the retail traders who typically investing less than $100,000.

Operating as a Forex broker is a financial business. And as a business Forex brokers want to make a profit. The price shown by the broker is a price which already includes their profit or commission. Therefore, it is important to know how brokers work and how they are making money from the business.

Forex trading between Level 1 and level 2

• Trading between interbank and commercial banks, Forex brokers, funds or financial services companies. The trading value amounts to 51% of Forex market and trading is conducted through The Electronic Broking Services (EBS)'s Electronic Trading Platform or the Reuters Dealing 3000-Spot Matching. This is used electronically around the world as the currency and metal trading system between major banks and small-sized banks, Forex broker and funds.

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• The agreement between major banks and Forex brokers, commercial banks, funds or financial services companies. This is similar to retail trading causing differences of ‘Bid –Ask’ prices, called the lowest Spread which is then offered to retail traders like us.

Forex trading between Level 2 and level 3

• This is trading between Forex brokers, commercial banks, funds or financial services companies and retail customers like us who start to invest with an amount of money not exceeding $100,000.

• Mostly trading via familiar platforms like MT4 and MT5which are programs developed for trading Forex, Futures and CFDs between brokers and retail traders whose income is derived from spread and commission.

• Nowadays Forex brokers are highly competitive, fighting for business by creating the best offers to attract customers to ensure their business makes a profit and this benefits retail traders. However, the most important thing you need to have is knowledge, so that you are able to analyse and consider the best broker for you.

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9.81%

8.41%7.87%

7.22%6.63%

5.50% 5.28%4.93%

4.63% 4.50%

JP M

ORG

AN

DEU

TSH

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NK

CIT

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XYX

MAR

KETS

UBS

STAT

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10 Major Banks with the Biggest Share of the Forex Market, 2019

Source: www.euromoney.com

This picture shows the EBS HTML5 platform, a currency and metal trading system used electronically around the world. Used for trading between major banks and small-sized banks, Forex brokers and funds.

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2.2Regulatory Agencies Preventing Fraud in Forex

If you are interested in Forex investment, picking brokers for your opening investment is very important as you have to pick a broker with a good track record, who is effective and has no record of any illegal activity in their work organisation or administration be it intentional or unintentional. Trading in Forex is done through OTC Trading, there is no central market, no mid-price and no rules about price difference. This causes a problem because there is a high risk for price distortion which means that retails traders like us must be very careful when picking a broker.

However, a bigger problem than uncertain prices is that you cannot withdraw funds when you want, this also applies to the profit that you make through trading. You can see many examples of deceit and fraud resulting in prosecution. Victims are from many countries and they have invested in Forex without a clear knowledge and understanding of brokers, for example;

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• Between 2001-2007 in the USA, there were 80 cases involving foreign exchange fraud with the cost of damages amounting to $460 million.

• Between 2001-2016 in the UK, the amount of Forex fraud cases increased by more than 25% with the cost of damages amounting to $4,000 million.

When fraud problems increase around the world this causes traders to have a lack of confidence. There are more good brokers than bad brokers but as the saying goes "one rotten apple spoils the whole barrel". With this is mind, many countries have organised regulatory bodies to supervise the services of financial institutions to maintain trust in the financial system. These regulatory bodies can increase the stability of domestic financial systems, protect consumers by ensuring there are appropriate levels of security in place, reduce financial crime and build confidence for traders.

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• Supervise and regulate all Forex brokers, companies and funds that do business in that country through issuing licenses.

• Supervise and regulate commodities (CFD) and Futures contracts.• Enforce the rules and combat rule violations and fraud activities

through prosecution and penalising offenders with severe penalties.

Roles of the Forex Broker Regulatory Agencies

Major Forex Regulators

The agencies you see below are professional agencies and are responsible for strictly supervising Forex brokers’ companies. They are bodies organised by governments or special state agencies and they may have responsibilities as independent officers or agencies related to governments. So, if a Forex broker is licensed and certified by one of these agencies you can be assured that the money in your account is safe.

Before choosing to open an account with any broker, you have to be sure the broker you have chosen is licensed and supervised by a trustworthy agency to prevent potential fraud in the future. Nowadays there are Forex regulatory agencies in many different countries around the world. This has led to many broker companies increasing trust in their business by applying for licenses from regulatory agencies in many different countries.

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FCA (Financial Conduct Authority)The FCA is the UK's regulatory agency and is a part of the

European Economic Area and MiFID. It is very strict and it is the most famous regulator. The FCA is commended for having a great regulatory system for preventing financial corruption, deceit and other types of fraud which affects companies, brokers, financial agencies and retail traders.

Fundamental rules for Brokers operating under the FCA • Brokers need to have a working capital of at least £1 million.

• In case of bankruptcy, brokers guarantee a maximum of £50,000 compensation to customers.

• Brokers must have segregated accounts to ensure separation of the customers' money from the company's own money and they cannot spend customers' money on anything other than its intended purpose. Brokers must also send an annual report to the FCA to provide evidence they are compliant with the regulations.

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ASIC (Australian Securities and Investments Commission)The ASIC is the oldest regulatory agency in the Australian

market It was formally known as the ASC (Australian Securities Commission) before it changed it’s name in 2014 to become the ASIC. Its role is to prevent financial corruption and capital market corruption. Many broker companies like to register under the ASIC because the ASIC doesn’t abandon hedging or scalping, it also has no FOFI and no time stamp.

Fundamental rules for Brokers operating under the ASIC • Brokers need to have a working capital of at least

A$1,000,000.

• Brokers must have segregated accounts to ensure separation of the customers' money from the company’s own money and they cannot spend customers' money on anything other than its intended purpose. Brokers must also send an annual report to the ASIC to provide evidence they are compliant with the regulations.

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Fundamental rules for Brokers operating under the CySEC• Brokers need to have a working capital of at least €750,000

• In case of bankruptcy, brokers guarantee a maximum of €20,000 compensation to customers.

• Brokers must have segregated accounts to separate customers' money from the company account and they must not spend customers' money for any other purposes.

CySEC (Cyprus Securities and Exchange Commission)The CySEC is the Republic of Cyprus' independent

regulatory agency. It responsibilities are monitoring financial transactions and financial services or marketable assets. CySECis under the legal control of the MiFID (Markets in Financial Instruments Directive) which is the EU's financial regulatory agency.

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NFA (National Futures Association)The NFA is the USA's futures exchange market regulatory agency

covering derivatives, Forex (Foreign Exchange) and OTC Derivatives. The NFA is under the supervision of the CFTC (Commodity Futures Trading Commission) which is the US government's agency to protect traders and others from corruption, deceit, inappropriate activities and the dangerous risks of the systems in futures and derivatives, trading futures and foreign exchange markets.

Fundamental rules for Brokers operating under the NFA • Brokers need to have a working capital of at least $20 million

• Brokers must have segregated accounts to separate customers' money from the company account and they must not spend customers' money for any other purposes. A broker's income is derived from commission or spread as they are only acting as the middleman sending orders to the central currency exchange markets.

• Brokers have to report their account balance to the NFA on a weekly basis as well as submit an annual report which is strictly checked.

• Brokers outside of the US or brokers not registered under the NFA's supervision are not permitted to service American customers.

For more information on Forex brokers regulatory agencies www.100forexbrokers.com80

2.3Types of Forex Brokers

Once you have decided to open a trading account you will next need to choose a broker. You will see that there are a lot of brokers from many different companies, each one is different with its own pros and cons. We can compare differences inbrokers such as the initial amount required to open an account, trading products, customer services, etc. In this topic we are going to be talking about how each type of broker works so that you will be able to choose a broker who best suits your needs.

Type of Brokers

NonDealing Desk

ECN/STPSTP

Dealing Desk

Market Maker

ECN : Electronic Communication NetworkSTP : Straight Through Processing

1 2Non

Dealing Desk

This chart shows the 2 main types of broker:1. Dealing Desk (DD)2. No-Dealing Desk (NDD)

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1. Dealing Desk

Dealing Desk brokers are also called Market Makers. This type of broker sets bid and ask prices of each currency by using a market reference price. They make profit from the difference of bid and ask prices, this is called fixed spread or floating spread depending on how they operate. Additionally, these kinds of brokers can also make profit from making difference orders from the client's trade (Counter Party). The good thing about this type of broker is that the service fees are cheaper than Non-Dealing Desk brokers'. They are also suitable for traders who use EA to trade fixed spread.

2. No-Dealing Desk

Non-Dealing Desk brokers, aka ECN/STP. With ECN brokers, after you place an order through the program, the order will be sent to the brokers who will then forward it immediately to the Interbank Market. The price which you trade at is without a spread surcharge and the ECN brokers spread is always a floating spread. The main source of income for ECN Brokers is derived through commission. On the other hand, STP brokers will offer trading prices with commission plus spread before sending your trading orders to the Interbank Market or Liquid Provider (The financial institutions which the brokers have a contract with.)

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Dealing Desk Brokers Steps for Sending Market Orders

Retail Trader Trading Platform Brokers

Steps for Sending Market Orders 1) Retail traders send orders only via the platforms provided

by brokers such as MT4, MT5, etc.

2) The broker will immediately accept your both your bid and ask orders. If you win, your broker makes a loss. But if you lose, your broker makes a profit.

How Dealing Desk Brokers Work.• Brokers can set bid and ask prices themselves by using

market reference prices.

• Income is derived from spread because the brokers can choose whether it is a fixed spread or floating spread.

• Another main source of income for this type of broker comes from making difference orders of the client's trade, this is called counter party.

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Broker Scams

• Lot of requotes : A Requote is where a broker is not willing to give the price originally offered by you and gives a new price making it more likely for them to make a profit.

• Stop Hunting is when brokers make a graph which shows on screen going up or go down and higher or lower than the support or resistance down to the split second (This is barely being done by brokers these days.)

SUPPORT

STOPLOSS

STOPLOSS

STOPLOSS

STOPLOSS

STOPLOSS

Explaination of the Stop Hunt Graph

AREA WHERE CLIENTS PUT STOP LOSS

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• A Repaint Graph occurs during the rollover in which all the banks stop trading for an hour. This happens every single day. At this time brokers make a graph and make profit from their clients' orders. If you trade during this time you will hardly ever win against them as you are fighting with the host.

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ECN Brokers Steps for Sending Market Orders

Retail Trader ECN Brokers Interbank Market

Steps for Sending Market Orders 1) Retail traders send orders only via platforms provided by

brokers.

2) Brokers will send your orders to the Interbank Market and they make a profit through commission only.

3) The brokers will immediately accept both your bid and ask orders and will send the orders to the Interbank Market

How ECN Brokers Work.• ECN Brokers will send your orders directly to the Interbank

Market. The Interbank Market will have several traders, majors and minors; banks, financial institutions, brokers and funds, the good thing about this is that you will get the price which is being traded between major banks and brokers which is the best price at that moment without a spread surcharge.

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• ECN brokers have floating spread but the initial amount needed to open an account is higher than the Dealing Desk brokers. The main source of income for ECN brokers comes from commission and therefore you have to check the terms because they are written out very clearly.

• Genuine ECN brokers can be checked at Platform MT4 on Depth of Market (DOM).

Depth of Market (DOM) DOM is a trading tool where brokers show the liquidities that exist at each price range shown on Depth of Market, also called Level 2.

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ECN/STP Brokers Steps for Sending Market Orders

Retail Trader ECN/STP Brokers Liquid Providers(LP)

Steps for Sending Market Orders 1) Retail traders only send orders via the platforms provided

by brokers.

2) Brokers will send your orders to liquidity providers and they make their profit through commission and spread.

3) A financial institution provides a service as a liquidity provider.

How ECN/STP Brokers Work.• STP Non-Dealing Desk brokers' main source of income

comes from commission plus Spread.

• STP brokers have floating spread, so the other income STP brokers earn is Mark-up from adding spread (the same as adding commission)

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• Once you have sent orders via a program, the price you will see includes the commission and spread. Brokers will then send your orders to Interbank or liquidity providers (LP) which brokers have made a contract with. Brokers normally make contracts with more than one liquidity provider so that clients like us can get the best and fairest price at that time.

• STP brokers are very strictly supervised by government agencies. Because of this, Dealing Desk brokers have to be more transparent and fair.

The service provided by brokers and liquidity providers, financial institutions provide services as liquidity providers, is choosing the best possible price for clients at any given moment as you can see from the picture below.

ABANK

bid 1.32123ask 1.32129

BBANK

bid 1.32121ask 1.32127

CBANK

bid 1.32125ask 1.32135

DBANK

bid 1.32120ask 1.32129

PRICE ENGINE

BANK bid ask SPREAD

A 1.32123 1.32129 0.6 pip

B 1.32121 1.32127 0.6 pip

C 1.32125 1.32135 1.0 pip

D 1.32120 1.32129 0.9 pip

1.32125

SELL1.32127

BUY

BEST AVAILABLESpread 0.2 pips

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Information Dealing Desk STP ECN

Broker Structure DD STP ECN/STP

Dealing Model Dealing Desk No Dealing Desk No Dealing Desk

Execution Instant ExecutionInstant & Market

ExecutionMarket Execution

Spreads Fixed Fixed & Floating Floating

Pricing 4 & 5 Digits 4 & 5 Digits 5 Digits

Commission No No Yes

Who is the other side of your trade

Your BrokersOrder sent to another

BrokersOrder sent to the ECN

network

Conflict of Interests Yes No No

Depth of the Market(DOM)

No No Yes

Speed of Execution Regular Regular Fast

Re-quotes Yes Yes No

Slippage Yes Yes Yes

News trading No No Yes

Deposit requirements amount

Low Low High

Spread cost High Average Very Low

Table Comparing Each Type of Broker

At this point, we believe you will know which type broker you are looking for and it is not for us to tell you which broker is the most suitable for you. it is your choice to make by yourself as it depends on your investment goals and how you want to trade.

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2.410 Things You Must Know Before Choosing a Forex Broker

In the last topic we talked about the ways that each type of broker works and with a rising amount of Forex brokers in the past few years it means there are a lot of brokers to choose from. This surely causes confusion when it comes to choosing a broker to best suit your investment goals. So, this topic will cover the 10 things you should know before choosing a broker. We created this topic to help you choose the broker that suits you best. Let's see what you need to know.

1. Type of Account2. Type of Forex Brokers3. Regulators4. Segregate Account5. Managed or Self-trading Account6. Trade Copy7. Spreads8. Swap Fees and Rollover 9. Tools and Features10. Help and Support

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1. Type of Account

Once you have chosen around 3-5 brokers that you like; the next step is the choosing the type of account. Normally there are account values in Forex; Standard, Mini and Micro.

Example : When you want to trade 1 lot of USD/CAD, divide the value by the type of account (The USD is at the front of the currency pair which means it is the base currency)

• If you open a 1 standard lot, you need $100,000 • If you open a 1 mini lot, you need $10,000 • If you open a 1 micro lot, you need $1,000

Forex Account ValueSTANDARD 1 Standard Lot = 100,000 Unit Of Base CurrencyMINI 1 Mini Lot = 10,000 Unit Of Base CurrencyMICRO 1 Micro Lot = 1,000 Unit Of Base Currency

From the Forex Account Value above, 1 standard lot means a contract size of 100,000 of the base currency. An example can be seen in the picture above, when you want to trade 1 lot of USD/CAD, according to the value of the account you open, you can see that if you open a standard account at 1 standard lot then you need to spend $100,000, if you open a micro account at 1 micro lot you still need to spend $1,000.

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From the example above, you can see that Forex products are very expensive and it is unsurprising why previously only banks and big companies overseas used to trade. Individuals like us couldn't trade any currency pairs even in the smallest account like the micro account.

For these reasons, the Forex market has provided traders with a tool called "Leverage" enabling you to increase your investment portfolio and use various strategies. When you open an account, every broker provides a leverage amount for you to choose, such as 1:50, 1: 100, 1: 200, 1: 500 etc. For example, if you only have $500 to start investing in the Forex market then no matter what type of account you open, you cannot trade as you do not have enough. But if you use leverage at 1:200 the result will be the investment going from $500 to 10,000 Market Power.

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Many times, we see posts being shared on Social Media stating that using high leverage is a double-edged sword as it can very easily lead to losing all the money you have in an investment portfolio. This is only half right. If you invest without using risk management before trading, it is true that using high leverage could cause you to lose money rapidly. However, if you determine risk before trading the leverage helps you use less margin in each trade. This is considered useful because it helps you increase your ability to trade.

Years ago, competition between Brokers was not as intense as it is today. Previously Brokers created accounts with names based on the exact value, but today brokers have taken to naming accounts with names that sound interesting to customers, such as Classic, Zero, Unlimited, etc., therefore, by looking at the account name, you will never know whether the true value of the account you opened is Standard, Mini or Micro However you will be able to know the value of your account by going to the MT4 Platform, then going to the Market Watch and selecting a currency pair and finally right-click to select ‘Specification’ as shown in the picture.

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12

3

In the Specification window, the fourth line at the phrase "Contract Size is 100,000" shows that the account is a standard account, because its value equals 100,000 units of the base currency. Even though it's a standard account, some brokers are kind enough to allow us to trade it at Mini and Micro accounts’ lot size. You just need to look for the "Minimal Volume" to be 0.01 which means the broker is allowing you to start trading at 0.01 lot, which is equal to the value of the Micro account.

From this topic, you will know that you should choose to open a standard account because many brokers allow you to trade with a standard account but in the value of Mini and Micro accounts.

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Using Leverage for Market Power

Using Leverage for Market Power is like boxing. If you had to fight Mike Tyson, the world's first heavyweight boxer to simultaneously hold all 3 major titles, it’s obvious that you have no chance of beating him normally. However, if you use leverage to increase the competitiveness, it helps you fight with the power of 1 or even 50 Tysons’ by choosing the appropriate leverage to increase market power.

Example 1 : You open a standard account with 200 USD and power it up with leverage of 1: 200

40,000100,000Therefore Max. Lot Size = = 0.40 Lot

This means the biggest lot size you can trade at is 0.40 because;• Mini accounts use 10,000 units of base currency • Micro accounts use 1,000 units of base currency

Therefore the Market Power you will get is = 200 x 200= 40,000 Market Power

(the maximum lot size you can trade)

• 1.00 standard lot cannot be traded because you don't have enough power, In order to trade a standard to you need to power up your investment with more leverage.

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Example 2 : You open a standard account with 200 USD and power it up with leverage of 1: 500

100,000100,000Therefore Max. Lot Size = = 1.00 Lot

This means the biggest lot size you can trade at is 1.00 because;• Standards accounts use 100,000 units of base currency• Mini accounts use 10,000 units of base currency • Micro accounts use 1,000 units of base currency

Therefore the Market Power you will get is = 200 x 500= 100,000 Market Power

(the maximum lot size you can trade)

• You can see that the more leverage you use, the more Market Power you will have.

You can see that the more leverage you use, the more Market Power you get. However using high leverage is a double-edged sword because doing so results in a chance to lose money until the money in the investment port is reduced to zero, if you invest without carrying out appropriate risk management before trading.

However, if you determine the risks before trading, leverage can help you to use margins to trade each order with less investment which is very useful for you as it can increase your trading power.

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Calculating Market Power with Leverage Exercise

Answers: (1) Max Lot Standard = 1.00 (2) Max Lot Standard = 5.00

(1) You open a Standard account with 500 USD, power it up with leverage of 1:200.

The Market Power you will get is = x = Market Power

Max. Lot Size =

= (the maximum lot size you can trade)

(2) You open a Standard account with 1,000 USD, power it up with leverage of 1:500.

The Market Power you will get is = x = Market Power

Max. Lot Size =

= (the maximum lot size you can trade)

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2. Types of Forex Brokers

• Make sure the broker that you choose is either a Dealing Desk or Non-Dealing Desk broker as the price you get will be different, which will affect your trade in the future.

• Dealing Desk or Market Maker is a broker who trades by themselves and uses the market reference price. This type of broker is suitable for traders who trade using EA, they have an affordable service fee and you can start with an investment of around 100 USD.

• The ECN (Electronic Communication Network) is an intermediary that will send your order to a Interbank and charges commission in return. It is suitable for traders who are starting with an investment of around 1,000 USD.

• STP (Straight Through Processing) is an intermediary that will send your order to a Liquidity Provider (LP) and charges you commission and spread in return and can be started with an investment of around 100 USD.

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3. Regulators Authorities Monitoring Forex Brokers.

Licenses are very important for brokers and this means that broker companies must comply with the regulations set out by the regulatory agencies of each country. Many broker companies increase their credibility by registering for licenses from regulatory agencies in many different countries, in particular from the FCA, ASIC, NFA or CySEC, which are very difficult to obtain a license from. Build brokers' credibility is based on their work experience in financial business, as well as receiving good deals from the Liquidity Provider (LP).

4. Segregate Account Separating customers' capital money from the companys' account.

Segregate Account is an account that clearly separates the client's investments from the company's account and the client's investments must be in a bank located in a country which has strong banking financial security laws. This is a preventative measure so in the event that the brokerage company goes bankrupt, the broker will be able to return the investment money to their clients.

Therefore, properly registered and licensed brokers must comply with the segregate account rules and be able to disclose the account number and the location of the account to their clients. separating client's investment prevents the broker from improperly using their client's investments.

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5. Managed or Self-trading Account

Most people usually start to trade with a self-trading account which allows you to trade freely with full control of your money. If you have an initial investment of around 25,000 USD but you have limitations in trading, such as lack of time or lack of skills and experience in trading, many brokers will offer you fund accounts called PAMM or MAM.

PAMM (Percentage Allocation Management Module) PAMM is a private fund with a broker acting as an intermediary. The PAMM system operates by managing all of the traders' money by putting them together in one port and assigning a fund manager who is responsible for the money. Traders will receive risk, number of orders and average profits in proportion to the amount of capital they have with the profits divided in a specified schedule. Traders can track their trading history in their own trading accounts providedby the broker.

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MAM(Multi account Manager)MAM is the traders' portfolio management system and, it can manage many accounts at the same time. The fund manager will see the total amount of funds, but the portfolios of all traders are not combined like in the PAMM account. The system will only show the total amount of funds and this can be seen by the fund manager. Trading is conducted in accordance to the proportion of the trader's capital and profits will be shared into orders. The system is similar to the Copy Trade system, but the difference is the initial investment money required.

6. Copy Trading The trade signal copy system

Nowadays, many brokers offer traders an automated trading system called "Copy Trading". This service is suitable for traders who want to find accurate trading signals from professional traders and it also requires less investment than PAMM or MAM.

MASTER

COPY COPY COPY

Copy Trade

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If you are a trader with good trading statistics, then copy trading can increase your income by you registering as a "Master", this means traders can copy your trading signals. In return, you take a share of the profits. The amount of profit you receive is either set by yourself or specified by the broker for you to set.

However, if you want to begin investing with an initialinvestment of around 1,000 USD but you don't have the time,experience or skills in Forex trading then copy trading will beable to solve this problem for you. You need to register as a"Follower" and then your only responsibility is to follow the signalsfor good trading statistics.

The details of the copy trading fees for each broker are different. There are registered companies who provide copy trading services, such as myfxbook, mql5, zulutrade, etc., who have partnered with many brokers to facilitate traders like us.

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Spread in pips

Bid 1.17091Ask - 1.17092Spread 0.00001Pips 0.1

7. Spread The Difference Between the Bid Price and the Ask Price.

• Spread means the difference between the Bid and Ask price. In the above example, the difference between 1.17091 - 1.17092 equals 0.00001, so, the spread is 1 point. The units used in spread are called 0.1 pip. If you want to sell the EUR/USD, the broker will tell you to sell at a price of 1.17091 (Bid), but if you want to buy, you can buy at the price of 1.17092 (Ask) which is more expensive than the bid price.

• Bid is the price you desire to sell at, when we wish to sell the broker will give us the opportunity to bid.

• Ask is the price you desire to buy at, when we wish to buy the broker will give us the opportunity to ask.

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Spread can be seen as a fee that we have to pay every time we open orders. The broker gets their income from this fee, even if we are opening buy or sell orders, at the start the value of our investment will be reduced due to the spread. We have to pay the spread as a commission to the broker and this means the spread is one of the main factors used in making the decision of which broker to open an account with, because each broker's spread is different.

Why the spread each broker charges are different?

Because the price you see on the trading screen is the price the broker receives from the Liquid Provider (LP), therefore the spreads you see from each broker are different.

The method that brokers use to obtain a cheap price from the LP is through making a contract with the LP, this is similar to businesses in the retail industry selling wholesale. Each LP has different minimum terms. For example, LP-1 has a condition that every month, each broker must send orders through to LP -1 with a value of at least 2,500 lots.

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If any broker is able to send orders to LP-1 more than 2,500 lots per month, broker may submit a new offer to LP-1 in exchange for a cheaper spread. Most brokers do not make a contract with only one LP, causing the price offered by brokers to customers is a make up price which is plus a profit to the raw price the brokers obtained from the agreement between the brokers and the LP.

If brokers get a cheaper price from the LP, they can choose to keep the same spread, allowing themselves to gain more profit from the making up price, or they may choose to reduce the spread to expand their customer base and maintain existing customers. Spread is the first factor that traders are interested in when they are looking to open an account with a broker.

Brokers and National Security Laws which Should Never Be Overlooked

Before choosing a broker, you have to know the basic information of who the owner of the broker company is and also check their background, including their money channels to make sure they did not violate the laws relating to prevention and suppression of money laundering.

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Some countries with strong financial and banking security laws, do not allow accounts to be opened by offshore investment broker companies because this could result in money laundering in the future. Therefore, brokers should open accounts with banks in countries that have strong financial and banking security laws.

Liquidity Providers (LP) are the heart of Forex brokers

A Liquidity Provider (LP) is a liquid provider or price provider that occurs at step 1 and 2 in the Forex Market Hierarchy chart, because the largest providers of trading and exchange currency services in the Forex market are banks, funds and private companies, the Liquidity Provider (LP) can be considered as the stability and the risk that brokers have to bear.

Brokers' licenses obtained from the countries with strong financial and banking security laws are, in effect, the keys to getting a better Liquidity Provider (LP). LPs consider doing business with brokers by assessing their executives and their financial and banking experiences. In the financial business world, the broker’s experiences and credibility are more important than the number of licenses they have.

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8. Swap Fees and Rollover Fees for Holding Overnight Orders

There are no traders who trade currency pairs because they only want to trade the difference of it. Therefore, every day after the New York market is closed, brokers will make a rollover by postponing your transaction date to the latest date instead which means all of your orders will be held overnight, you can choose to either receive or pay the swap.

• Swap Fees are the difference of the interest rates of a currency pair held overnight. The swap could either be plus or minus.

• Muslims are able to open an Islamic account will be automatically be exempt from swap (because in Islam, gaining interest is considered a sin according to the constitution of the Islamic people)

• Swap on Wednesday night will be considered 3 times as it includes weekends, but if there are holidays during the week, the swap will be considered 4 times.

• Swap, whether plus or minus, will automatically be added or deducted to your account by the broker when you close an order.

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SWAP OR

SWAP FREE

Many brokers now have the option for traders like us to open either a swap or a swap free account. If you choose to open a swap free account, which doesn't charge swap, every day you hold the order overnight, the broker may have other additional conditions, such as charging more expensive commissions.

If you are a short-term trader who does not hold orders overnight, you should open an account with swap fees because the commission for each trade is cheaper than with a swap free account. However, if you are a medium or long-term trader, you should open a swap free account because it gives your trading a chance for better results, because you do not have to calculate the interest of holding orders for weeks.

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• Swap Long is the interest when you are holding a buy order overnight.• Swap Short is the interest when you are holding a sell order overnight.• 3-Days Swap is the 3 times interest rate on a Wednesday night.

This picture shows a specification window where you can see the interest rates of the swap for the currency pair you are interested in. You can access this by opening the MT4 trading platform in the Market Watch window, then selecting the currency pair you wish to view for swap by right-clicking on the currency pair and then selecting Specification.

Swap Calculation Formula

Swap =one point

exchange rate× lot contract size × swap value

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Example 1: buy EUR/USD, hold the order 1 night.Lot = 1Swap long = -7.99Exchange rate = 1.08685 Euro/1 U.S. Dollar

Swap =one point

exchange rate× lot contract size × swap value

=0.00001

1.08685× 1 × 100,000 × −7.99

=0.00001

1.08685× 100,000 × −7.99

= 0.92009 × −7.99

Swap = −7.3508 Euro

Swap = −7.3508 Euro × 1.08685 Euro/U. S. Dollar

𝐒𝐰𝐚𝐩 = −𝟕. 𝟗𝟖𝟗 𝐔. 𝐒. Dollar

Convert the unit to the primary currency of our account which is USD.

Example 2: sell EUR/USD, hold the order 1 night.Lot = 1Swap long = 1.61Exchange rate = 1.08685 Euro/1 U.S. Dollar

Swap =one point

exchange rate× lot contract size × swap value

=0.00001

1.08685× 1 × 100,000 × 1.61

=0.00001

1.08685× 100,000 × 1.61

= 0.92009 × 1.61

Swap = 1.4813 Euro

Swap = 1.4813 Euro × 1.08685 Euro/U. S. Dollar

𝐒𝐰𝐚𝐩 = 𝟏. 𝟔𝟎𝟗 𝐔. 𝐒. Dollar

Convert the unit to the primary currency of our account which is USD.

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MT4MT5 cTrader

9. Tools and Features Tools used for Forex trading

Every broker has a variety of programs for you to use for Forex trading, such as MetaTrader4 (MT4), MetaTrader5 (MT5), cTrader and WebTrader, etc., you can download the programs either onto your computer or phone. However, the most popular program for Forex traders is MT4, this is because the MT4 is convenient, flexible, safe and comes with many functions. (This will be explained in more detail in unit 4 "How to use MT4".)

Many brokers now have a wide range of products for you to trade in one account, such as bonds, stocks, indices, precious metals, commodities and future contracts. However, when choosing a broker, you should pay more attention to the amount of sending orders transferred without error over choosing how many products are provided by the broker.

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• 24-hour Customer Service

• Offer A Variety of Trading PlatformsThere are trading platforms which can be used on a variety of devices which enables you to see the price moving 24 hours a day, such as Windows, Mac, Multiterminal, WebTrader, FX Arena, iPad, iPhone, Android etc.

Brokers must assist you in trading, which means providing the information you need immediately, quickly resolving any problems that may occur and also be available in many languages for better understanding and communication for customers. They must provide a 24-hour service Monday to Friday, both on the telephone and through live chat online.

10. Help and Support

Last but not least before choosing a broker you need to know about their support services for if and when you have a problem. Brokers must give you basic information on this before you open an account with them.

• Broker's Bank Account DetailsThe bank the broker opened the account with must be located in a country with strong financial and banking security laws, this is a good way to show loyalty to serving customers best interests

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• Leverage and Describing the Spread The broker allows you to choose leverage freely in Forex trading from 1:20 to 1:2000 or sometimes more depending on the highest leverage allowed by the broker company. Brokers must tell the initial spread of each currency pair, and whether it is a fixed spread or not. You need to have this knowledge to effectively calculate your risk.

• Several Deposit - Withdrawal Services Depositing and withdrawing money in an account can be with or without fees on depending on the brokers' conditions. Depositing or withdrawing may not take the same amount of time to process depending on their services. You should check how many available deposit and withdrawal channels are provided by the broker, such as Online Banking, Visa, Master Card, Skrill, Net Teller, etc.

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2.5Picking a Forex Broker Who Suits You In 5 Steps

There are 2 common ways for beginners to pick a broker

(1) The simple way or the ‘they-said-it’s-good’ way is the done by picking a broker by reading past reviews, however you don't know if all the past reviews are true or not, or it can be choosing in accordance with a friends' suggestion. I want to tell you that a 5-star rated broker may not be right for you because it could be that the only reason they have 5-star reviews is because the reviewer was hired by the broker.

(2) Professional: Reading reviews and trying them out using a demo account. Then collecting information to see if they meet your expectations or not. We would suggest that you choose the professional way.

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Step 1 : Write down the qualifications you desire.

❑ Do they have a segregated account? And if they do, where is it?❑ What are the conditions of deposit and withdrawal? Are there

any limitations?❑ Is the broker stable and what is their level of reputation?❑ What kind of broker do you like, ECN, STP or MM?❑ Are you happy to pay a commission?❑ Have you chosen fixed spread or floating?❑ How much is your minimum investment in a standard account?❑ How much leverage do you need, 1:200 or more?❑ What trading platforms does the broker have?❑ Do brokers allow scalp or hedge?

Start by writing down the qualifications of the broker that you want. If you are not good at English, choose a broker who provides customer services in your native language. Then make a comparison list of brokers and start looking for the information yourself.

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Step 2 : Find the Selected Brokers

After writing down a list of the desired broker’s qualifications, then you can look for a broker with the desired qualifications to help narrow the search.

Step 3 : Go To the Website

You should go to visit the broker's website, not because of the colourful design which is designed to appeal to you, you go there to see the following;

1. Reading the Forex trading rules, policies, terms and conditions. You must be met with transparency and fairness from the brokers when you read through them.

2. Checking a brokers' readiness to provide information of their location, address and contact numbers for customer support.

3. To see if brokers have information available about the regulatory institutions who have issued licenses to them.

4. Be careful!!! If the broker only has a phone number, Email and Skype number like this, then consider it eliminated.

Importantly, don't forget to check if the broker is registered and licensed with the appropriate agencies and if they are still under the supervision of those agencies.

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Step 4 : Read the reviews of the brokers you have selected and try out the real experience by using the demo account

Read reviews and open a demo account to try trading with your selected broker for 1 - 3 months and then decide whether or not to open a trading account with the selected company. What you need to see in the reviews you read:

1. That the owner of the company has more than 10 years of experience working in the financial business, this demonstrates the credibility of the company.

2. Licensed brokers from countries which have strong financial and banking security laws. This shows the significant efforts and intentions of brokers as they are giving precedence to their business.

3. That the Broker has other products on offer besides Forex for you. If they are trading only Forex is it not possible to tell the seriousness of the business.

4. You must read both good and bad comments. Look at who wrote the opinions and the facts. Don't care about cyberbullies.

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Step 5 : Rethink

Choosing a broker is like choosing a bank. You have trust that if you deposit money in your bank that it will never cheat you and run away with your money. When you have made the decision of which broker you like, please read the agreement again before clicking "I Agree", as investing is always risky.

Nowadays, there are many broker companies doing business in the country, you can easily talk to their customer support via Social Networks, and professional brokers will always share new knowledge about investments in with traders because they make a profit from spread and commission when traders make money from the market.

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