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Welcome to lesson 1 of Master of Forex. In this video we will provide you an introduction to the Forex market.

Forex, sometimes referred to as FX stands for the Foreign Exchange market. The purpose of the Foreign Exchange market is to facilitate international trade by enabling currency conversion. So for example companies that are based in the U.K need to pay suppliers based in France and there needs to be a process to change Pounds, the domestic currency of the U.K into Euros, the domestic currency of France. That is what the Foreign Exchange market is for. Unlike stock markets there is no central exchange for the Foreign Exchange market it is what we call OTC (Over the Counter). Because of this the Foreign Exchange market is the world’s biggest financial market approximately $5 Trillion a day is traded. It is very, very liquid.

In addition the Foreign Exchange market is open 24 hours a day except for weekends and it is split into four main trading sessions:

• Sydney – 22:00 (GMT) to 06:00 (GMT) approx.
• Tokyo 23:00 (GMT) to 07:00 (GMT) approx.
• U.K. and European markets 07:00 (GMT) to 16:30 (GMT) approx.
• U.S. Markets 14:00 (GMT) to 21:00 (GMT) approx.

GMT stands for Greenwich Mean Time. It is the timezone of the Foreign Exchange market. So it is just a cycle; starts in Sydney goes to Tokyo, to U.K and Europe, over to the U.S and back around to Sydney and the cycle goes on throughout the week. What that means for us is opportunities to trade anytime of the day.

How we actually go about trading Forex. Depending on events happening within an economy currencies will either strengthen or weaken against each other. We can make predications as to whether the relevant exchange rates will either go higher or lower. If we believe the price will go higher we are said to be going ‘long’ or placing a buy position. If we believe the price will go lower we said to be going ‘short’ placing a sell position.

Say we are looking at EUR/USD (Euro-Dollar) one of the most traded currency pairs in the world and the current price is 1.5000. We believe EUR (the Euro) will strengthen against the USD (U.S Dollar) and decide to place a buy position for £10 per PIP or point. For every PIP or point the EUR/USD goes higher above our entry price of 1.5000 we make £10. So for example if the EUR/USD went up by 10 PIPS to 1.5010 we would be £100 in profit. For every PIP or point the EUR/USD goes lower below our entry price of 1.5000 we lose £10. So for example if the EUR/USD went down by 10 PIPS to 1.4990 we would be £100 out the money.

Say we are again looking at EUR/USD (Euro-Dollar) and the current price is 1.5000. We believe EUR (the Euro) will weaken against the USD (U.S Dollar) and decide to place a sell position for £10 per PIP or point. For every PIP or point the EUR/USD goes lower below our entry price of 1.5000 we make £10. So for example if the EUR/USD went down by 10 PIPS to 1.4990 we would be £100 in profit. For every PIP or point the EUR/USD goes higher above our entry price of 1.5000 we lose £10. So for example if the EUR/USD went up by 10 PIPS to 1.5010 we would be £100 out the money.

There are orders that we can place on our trading platform to take profit at a particular price level when the price has moved in the direction we have predicted or alternatively to close the position at a particular price level when the trade is going against us. These are known as a profit limit order and a stop loss respectively. We will cover where to place these profit limit and stop loss orders later on in the course.

This concludes lesson 1. In lesson 2 we will go into greater depth about understanding currency pairs. In the meantime test yourself to make sure you understand the content from lesson 1 by undertaking the practical below. I look forward to seeing you in the next video.