Transcription
Every Trader that watches this video will have a complete understanding of Forex. Let's get it. So first off, what is Forex?
Forex is the largest and most liquid Market in the world, and it trades on average about $6.6 trillion per day. Now, what that means for us as Traders is that we're never going to have a problem getting our order filled. Forex is a global Marketplace for exchanging National currencies. The way we use this as Traders is that in Forex we're trading based on something called a currency pair, which we'll talk about in a second. This currency pair is nothing more than the exchange rate between two different countries, and this exchange rate fluctuates Up and Down based on the different strengths and weaknesses of an economy for a specific currency, along with many other factors. As Traders, we use information that we gather from technical analysis and fundamental analysis, along with news events, in order to predict these fluctuations in prices and trade accordingly.
Now, as I just said, Forex is traded in something called a currency pair. The very next thing we're going to do is take a look at what is a currency pair. A currency pair is exactly what it sounds like: it is two separate currencies in a pair, and we use this currency pair to determine the exchange rate of two separate currencies. To make this more clear, you can see on the screen we have the Aussie dollar, and what I'll do is I'll also put a screenshot of every three-letter abbreviation that equals a specific currency on the screen somewhere right now. These three symbols again represent a specific currency. So in this case, we have the AUD, which would be the Australian dollar, versus the USD, which would be the United States dollar.
In a currency pair, the first currency in this pair is what is known as the base currency, and the base currency is always equal to one. The second currency in a currency pair is what is known as the quote currency. The quote currency is the quote you actually see on the screen. So the way to look at this is it takes one Australian dollar, and if I have one Australian dollar, I have roughly 0.654 cents of United States dollar currency. So that means it takes roughly 65 cents USD to equal $1 Australian dollar. So in this case, I want to ask you which currency is stronger at this moment. Well, if we only need 65 cents USD in order to equal one Australian dollar, then the USD is stronger than the Australian dollar at this moment.
Let's do this one more time with another example. On the screen, you can see that we have the euro versus the dollar. So if we have Euro versus dollar, which one of these is going to be the base currency? That's going to be the Euros; that means the euro is going to be equal to one. Then we have the dollar, which is what it's called the quote currency. Since the dollar is the quote currency, that means it takes $1.0713 USD to equal one Euro. So let's go ahead and put that down: we have 1.0713. I know my handwriting is awesome. And so now we know that the euro is stronger than the dollar at the moment because it takes us 1.07 or $1.07 to equal €1 at this moment.
And for a last example, I want you to do this one completely. Which one of these in the CAD/JPY is going to be the base currency? Now, which one's the quote currency, and which one is represented by this number? So hopefully you said that the Canadian dollar was the base currency, hopefully you said the Yen was the quote currency, and hopefully you said the 102.63 was how many Yen it would take to equal one Canadian dollar.
Now let's move on to brokers. So what is a Forex broker? A Forex broker is just a financial services company that acts as a middleman between us as Traders and the Forex Market itself. It's how we actually place trades. Now, in terms of Forex Brokers, there's plenty of options out there. The only things that I'm going to say here is that you want to make sure you find a regulated broker that's regulated in a country you've heard of. So not a broker that's registered and regulated in the Cayman Islands; that's something you would not want because there you're running the risk of that broker shutting down, going bankrupt, and you losing all of your money. So you don't want to find a broker that's either not regulated or not regulated in a country that you have heard of. But as long as you have a broker that's registered and regulated in a country you've heard of, you're probably in the clear.
The other thing you want to look out for is you want to find a broker that has competitive spreads. Spreads are how Brokers make money. Some Brokers are going to have higher spreads than others, so you want to make sure to find a broker that has competitive spreads. And outside of that, this broker is going to need to cater to your own personal needs, so it may be different for everyone. For me, my personal broker is OANDA. They're not sponsoring this video; I don't have any kind of affiliate link with them whatsoever. I've just used them forever, and it's who I use right now. Feel free to check them out at oanda.com.
Now, your broker may have a trading platform that comes with it, but they're normally not that good. So the next thing you're going to need after a broker is an actual trading platform. You've probably heard of MT4 and MT5. My favorite, though, is tradingview.com. So this is my trading platform that I use on a daily basis. It's an online trading platform, meaning you don't have to download anything to access it, and it's got everything anyone would ever need. It's got every indicator you can think of; it's got all different types of tools that can help you make trading as smooth as possible, which is very necessary in my opinion if you want a full tutorial on this platform. I'll put it in the top right corner of the screen, along with in the description. I've made like a 20-minute tutorial that goes through every part of TradingView and teaches you exactly how to use this trading platform. If you're interested in that, check out that video. But one of my favorite parts of TradingView is that I can connect my broker to this trading platform, and I don't have to switch back and forth between my broker and my trading platform in order to place actual trades.
So right now what I want to do is show you how to connect your broker to TradingView. If this is something you decide to do, also feel free to check out TradingView by going to www.tradingview.com. So in order to connect your broker to TradingView, all you need to do is come down here to the trading panel. You can make this as large as you want to. I hit "See all Brokers," and at this point, just look through the list of Brokers that are available in your area and make the decision on whether or not you would like to connect your broker with TradingView. Now, if your broker is not on this list, that simply means that they cannot connect with TradingView at this time, and you'll have to find a different trading platform or do as I used to do and go back and forth between your trading platform and your actual brokerage account in order to place trades.
So now that you know a little bit about Brokers, trading platforms, and how to connect a trading platform to TradingView, let's move on now and talk about what is a pip. So a pip is how the Forex Market moves; it stands for percentage in points. And what's really important for you to understand is what a pip is. A pip is the fourth place after the decimal. So right here we're looking at the euro/dollar; this is the important part. What you really need to understand is that a single pip is the fourth place after the decimal. If we go 1, 2, 3, 4, which one of these numbers is a pip? The fourth one. So the nine here is one pip. What that means is that if we go from 1.0779 on the euro/dollar to 1.0780, we have now went down; the price of the Euro against the dollar has went down one pip. So that's how you calculate and find a pip, and how much prices move is based on these pips.
So let's go ahead and do another example here. What if we go to 1.0809? At this point, how many pips has price went up? Well, we've went up 100 pips. So the nine is the ones, the zero here would be the tens, the seven would be the hundreds; that's how we calculate everything. Let's do two more examples really quickly; it's just easy math, so you should be able to get a hang of this pretty quickly. What if we go to 1.0710? How much did we go up? We went up one pip because we went from 09 to 10. One more example here: what if we go to 1.0701? How many pips did price move lower? We moved lower by eight pips because we went from 09 to 01, meaning we went down 8 pips in this example.
Now, this four decimal point to the pip is true for every currency pair except Yen crosses, except pairs that have JPY in them. So what we're going to do now that you understand a regular currency pair in terms of pips, where the pip is, and how to determine how much of currency pairs went up and down using pips, let's now take a look at a JPY pair and where the pip is on those pairs. So as I said, on a regular currency pair, everything but Yen pairs, the pip is going to be the fourth place after the decimal, which means we can't have that on a Yen pair because on Yen pairs we only have two places after the decimal. So for Yen pairs, the pip is the second place after the decimal. So 1, 2; that would mean the six right here is the pip counter for the dollar/Yen. So if the dollar/Yen goes from 139.99 to 139.97, how much did the dollar/Yen go up? It went up by one pip. Let's do a couple more examples. What if we go to 139.86? How much do we go down? We went down by 10 pips.
So now that you know what a pip is and how we can determine how much prices of a currency pair have went up and down by using pips, what is a pip worth? How to calculate the value of a pip is what we're going to take a look at right now. While in a trade in the Forex Market, as the market moves up and down, we're obviously making and losing money depending on what position we have on. Now, with the market moving in pips, we need to know another side to this equation to understand what the value of each pip as price moves is going to be worth. How much is it going to take out and add to our account as prices go up and down? The way we determine that is through the position size that we are using. So each pip can be worth a completely different amount depending on your position size. Luckily, there are position size calculators that do all this work for us, but I'm going to show you a chart that gives you a general rule for position sizing and how much each pip will be worth based on the position size that you have. Let's take a look at that right now.
So here that is, and what we can see here is a nano lot is about 100 units of currency, and 100 units of currency means that generally you'll be making and losing about 1 cent per pip. As we go up, you can see that these numbers go up. So as we go to a micro lot, which is 1,000 units of currency being your position size, you're going to be making and losing about 10 cents per pip. As we go up to a mini lot, which is 10,000 units of currency, you're going to be making and losing about $1 per pip. And as we go up to a standard lot, we're going to be making and losing $10 for every single pip price moves up or down. So again, that is a generalization and a general rule of how much each pip is going to be worth; it's a little bit different for every currency pair, but this is a good generalization. And again, fortunately for us, we do not need to know this at all because there's something called position size calculators, which I'm going to show you right now.
Just in case that wasn't completely clear, as price moves up and down after we've placed an order, it's doing so obviously in pips, and as price goes up a certain amount of pips, we're going to make a certain amount of money if we bought at a certain price. As price goes down, we're going to lose a certain amount of money, and each pip can be worth different amounts depending, yet again, on our position size. So hopefully that clears any doubts up about that situation. Our position size is going to be what determines the value of a pip as price moves up and down while we're inside of a trade. Now let's take a look at a position size calculator. I like to personally use this position size calculator; it's on myfxbook.com. You can literally just type in "position size calculator for Forex" on Google; it'll be one of the first like five that pop up, or you can just go to the link you can see right under the video. And this makes determining the value of a pip extremely easy without you having to do any math at all. All you have to do is put in the currency pair you're trading, put in your account currency, then you're going to put in your account size. Let's say you have a $10,000 account. The next thing you can do is type in what percent of your account you want to risk. Let's go with a 2% risk, and then we're going to need your stop loss. Let's say that the amount you're willing to lose on that trade is about 20 pips. Now all you have to do is hit calculate, and this will show you the exact amount of units that you need in order to place this specific trade. So a position size calculator is going to be the way to go instead of trying to determine the value of a pip by using a bunch of math. Instead of that, let's just use the position size calculator because if it's here, why would we not use it to save some time?
Now, as I said, in order to use this correctly, you're going to need to know what your stop-loss is in pips, and for that reason, what I want to do right now is go through what a stop-loss is, how you can set a stop-loss correctly, and talk a little bit about risk management along with leverage. So a stop-loss is going to be a main contributor to our risk management plan. A stop-loss is going to be a price that we go, "Okay, I was wrong about this trade, and I want to go ahead and get out, cut my losses, and move on to the next one." So let's say here on the pound/dollar that I'm expecting a bounce out of price because of the fact that we're at a previous level of structure that's been tested multiple times, and I see this little doji happening. So I'm like, "Cool, I want to buy this right now." Well, a good place for a stop, in my opinion and for my own personal trading, would be below this Zone because if price in fact breaks below this Zone, then my analysis is no longer true; this area is not holding up price. If price goes below it, hopefully that makes sense. So this might be an area that I put my stop-loss, and the exact price of this would be 1.246.
For a risk management plan, something we have to determine is how much of my account am I willing to lose on this specific trade. So if I have roughly 43 pips down to my stop loss, how much does each pip need to be worth for me to risk 1 to 2% of my account on this trade? Let me make that more clear. So let's say I have a $10,000 account, and I want to risk 2%, meaning I want to risk $200. Okay, well, in that case, how much does each pip need to be worth in order for 43 pips to equal my $200 loss? Now we could do some simple math and figure that up, or we can take the easy route and just go back over to our position size calculator. We're on the pound/dollar; that's what we're going to do, by the way. So we're on the pound/dollar; let's go over here to the position size calculator. We'll type in pound/dollar; we'll go ahead and click that. We're our account currency is $10,000, and our risk we're trying to take on this trade is 2%. Just so you know, an average across retail Traders is somewhere between 1% and 2% of their total account value is what a lot of retail professional Traders are going to be risking. So we're going to go with 2% in this case, and our stop loss in pips was 42.8 pips; we're going to call it 43 pips. So we'll do 43, and then we'll click calculate, and what you'll notice is this does all the work for you. It gives you the exact position size that you need, which is 46,511.2 units or 0.47 lots, in order for this to be true on your trade, in order for your stop loss on your trade to equal $200. That's the position size you're going to need to use is 46,511.2 units for this pound/dollar trade.
So that's a little bit about risk management, how we can utilize stop losses along with our position size calculator in order to make risk management extremely easy. In terms of actually placing the stop-loss in your brokerage account, it's going to depend a little bit on your brokerage or your trading platform. In TradingView, I just right-click the chart, click "Create new order." If I wanted to buy the pound/dollar at market right now, all I would need to do is hit "Stop loss." You can see the number for my stop-loss is in the exact price right here; it's 1.246. So I would go for the price of the stop loss, 1.246. You'd also go up here to your percent risk and do whatever you would like. Let's say it's 2% here in this case. So that would be the actual process of placing the stop-loss order as you're buying or after you buy a specific trade here on TradingView. As I said, it'll be slightly different depending on the platform and broker that you use. Now let's move on, so I can teach you about leverage.
Leverage is probably one of the most, most complicated subjects for 90% of people that attempt to start Forex Trading, but I'm going to make this very simple, I promise. Leverage is the use of borrowed funds from your broker in order for you to be able to have larger positions. It gives you an ability to have a larger position size. And what did we just say about pips? Every pip the market moves while you're in a trade is going to be worth a certain amount; that number, the amount each pip is worth, goes up depending on your position size. The bigger the position size, the more each pip is worth. So with that being the case, obviously leverage can help you grow an account faster because each pip can be worth more, but it can also cause you to have much larger losses than you initially could with your own account balance. So that is why it's so important to understand risk management, stop losses, and only risk a very small portion of your account per trade before even talking about leverage. That's the whole reason we just did that entire section first. So let's dive deep into leverage right now.
Let's say that you have a $10,000 account, and you have no leverage at all. In this case, what is your maximum position size? Your maximum position size that you can have in a trade or in the Market at all is just your 10,000 units. So this would be your maximum position size with zero leverage. And what I want you to do is to start thinking of Leverage not as some complicated thing you have to try to figure out, but as your maximum position size. Your leveraged account—let's go with a 10:1 leverage to keep math very simple, but it's going to be the same for any leverage you use; the numbers are just going to change based on what leverage amount you have. We're going to go with a 10:1 leverage. So on a $10,000 account with 10:1 leverage, now instead of your maximum position size you can have at any one time in the market being 10,000, it's now 100,000 units. Now, the wrong way to use leverage would be to go out and just place a trade with 100,000 units because that means that each pip is going to be worth 10 bucks; you only have 100 pips before you blow your entire account. That would not be the right way to use leverage. But what leverage can help us do is what if we wanted to be in three different trades all at a 2% or less risk? Well, we couldn't do that more than likely with just 10,000 units of maximum position size. We can do that now by utilizing leverage, which, in my opinion, in the way I trade, this is going to be the correct way to use Leverage: is to use it in order to be in more trades at once, not necessarily in order to just place a trade with the largest position size possible.
So again, replace the word leverage with your maximum position size. Leverage is not your broker telling you, "Hey, you can borrow $100,000, and you can lose $100,000; we'll only take 10 grand from you; you can lose a full 100; that's fine; that's on us." That is a very common misconception; that's not true at all. Your Leverage is just the maximum position size you can hold at once. When your account drops and you lose $10,000, you're going to get a margin call; they're going to take the position off themselves, and you're going to have your account being completely blown. You can't lose $100,000 because you have 10:1 leverage on a $10,000 account; that's not how it works. Again, Leverage is your maximum position size; your maximum buying power. This is the amount of units you can hold in your account at any one given time.
So with that being the case, to make this a little more clear, let's go through a couple of hypothetical trades, and you tell me whether or not you could place that trade with a $10,000 account using 10:1 leverage. We'll use the same pound/dollar trade as our first example. So on this trade, remember the 43 pips is our stop loss, but let's say you wanted to risk $500 this time. You said, "Hey, I'm going to risk a little more than normal; I'm going to go with a $500 risk." That's 5% of the account, and what we have to do now is figure out what position size do we need for this stop loss to equal $500. Remember, we have a $10,000 account with 10:1 leverage, meaning we have 100K buying power; we can open a maximum position of 100,000 units. Let's go over to the position size calculator, hit the pound/dollar yet again, and we're looking at an account size of $10,000; we're looking at a risk of $500, by the way; you can swap this from percent to regular money just like that. We're going to be looking at a $500 risk, and remember our stop loss was 43 pips. So if I hit calculate, I'm going to ask you a very serious question after learning what you have about leverage. We're risking $500 on a $10,000 account; be honest, do you think you should be able to place that trade?
So many of you probably just said yes; you're thinking, "Oh, it's just a $500 risk on a $10,000 account; why wouldn't I be able to place that trade?" Remember, Leverage is our maximum buying power, and with the leverage we have currently that we've discussed throughout this video—$10,000 account, 10:1 leverage—what's our max buying power? 100K units. Now I want you to look at the units and look how much we would need to place this trade. In order to place this trade, we would need 116,000 units. Our max buying power with Leverage is only 100,000 units. So even though all we're trying to do is risk $500 on a $10,000 account, which I know seems like it should be capable, you should be able to do that; you can't do that because your broker is only giving you 10:1 leverage. You have a max buying power of 100K units, and that's the reason you can't place this specific trade. So hopefully that clears up a little bit about leverage. Let's take a look at one more example. Let's just change this trade up and say we wanted to risk $300. Calculate. Now we don't have to go through much; you should know by now that you have a $10,000 account; you have 10:1 leverage; you have 100,000 units of buying power. In this case, could you place this trade? Yes, because all you need is 69,000 units in order to place this trade. So remember, Leverage is not the amount you can use, and just because all you want to risk is $500 on a $10,000 account doesn't mean you're going to be able to because what you have to think about and look at is your max buying power, otherwise known as leverage. So if you only have 100K of max buying power, then the largest position you can open is going to be a 100,000-unit position. And again, this works across everything. If you had a $10,000 account and let's say you had 50:1 leverage, your max buying power now is 500,000 units. Again, it's just simple math, combining your leverage with your account or multiplying it in order to figure out your leverage and/or max buying power.
Learning what you just did about the basics of Forex is a great start, but in order to be a successful Trader and ever start making real money from Trading, there's three important skills you must master. In the middle of this triangle is everyone making money from their trading; all of them have mastered a strategy or strategies that make money over time; they've all mastered their risk management, and they've all mastered their mindset; we call this trading psychology. And right now, I'm looking for 500 new or struggling traders to mentor and teach each of these very important skills to and help guide all 500 of these traders to trading success. So throughout this process, you'll not only get access to all the strategies, techniques, tips, and tricks that I've learned about trading throughout my decade of trading experience, but it's also a full Mentor program where you'll have access to me to answer any of the questions that you may have. You'll also be getting some of my own personal trading setups each and every week. And on top of that, we are giving the first 500 people to join us a massive $500 discount on the yearly subscription. This offer also comes with a 30-day money-back guarantee. So if you'd like to take me up on that sort of risk-free offer, and if that sounds like something that's interesting to you, go ahead and go to www.thetradingcarder. That's completely fine too; just be sure you're subscribed here to get a first look at all the trading-related content we come out with each and every week. Go ahead, hit that like button if you made it to the end. Let me know in the comments section. I wish you the best of luck on all your future trades, and I'll catch you in the next video. See you soon.