Chapter 1

Introduction

Currency trading, is the largest trading in the world, and continues to grow annually.
Currency Trading is the act of buying and selling (trading) different currencies of the world.
The Foreign Exchange ( Forex) is the market that allows you to trade currencies in volume.
This is called a Currency Pair. The GBP is the base currency, and the USD is the
secondary currency. Currency trading is most often engaged in by banks and
other institutions, for the purposes of international trade. Individual investors may engage in
currency trading as well, attempting to benefit from variations in the exchange rates of the
currencies.

Currency trading is a 24-hour market that is only closed from Friday evening to Sunday
evening, but the 24-hour trading sessions are misleading. There are three sessions that include
the European, Asian and United States trading sessions. Although there is some overlap in the
sessions, the main currencies in each market are traded mostly during those market hours.
This means that certain currency pairs will have more volume during certain sessions. Traders
who stay with pairs based on the dollar will find the most volume in the U.S. trading session.
Currency is traded in various sized lots. The micro lot is 1,000 units of a currency. If your
account is funded in U.S. dollars, a micro lot represents $1,000 of your base currency, the
dollar. A mini lot is 10,000 units of your base currency and a standard lot is 100,000 units.

Pairs and Pips

All currency trading is done in pairs. Unlike the stock market, where you can buy or sell a
single stock, you have to buy one currency and sell another currency in the Forex market.
Next, nearly all currencies are priced out to the fourth decimal point. A pip or percentage in
point, is the smallest increment of trade. One pip typically equals 1/100 of 1%.
Retail or beginning traders often trade currency in micro lots, because one pip in a micro lot
represents only a 10 cents move in the price. This makes losses easier to manage if a trade
doesn't produce the intended results. In a mini lot, one pip equals $1 and that same one pip in
a standard lot equals $10.
Some currencies move as much as 100 pips or more in a single trading session making
the potential losses to the small investor much more manageable by trading in micro or mini
lots

Support and resistance

A support level is a level where the price tends to find support as it falls. This means that the
price is more likely to "bounce" off this level rather than break through it. However, once the
price has breached this level, by an amount exceeding some noise, it is likely to continue
falling until meeting another support level.

A resistance level is the opposite of a support level. It is where the price tends to find
resistance as it rises. Again, this means that the price is more likely to "bounce" off this level
rather than break through it. However, once the price has breached this level, by an amount
exceeding some noise, it is likely to continue rising until meeting another resistance level.

Doji

Doji are important candlesticks that provide information on their own and as components of
in a number of important patterns. Doji form when a security's open and close are virtually
equal. The length of the upper and lower shadows can vary and the resulting candlestick
looks like a cross, inverted cross or plus sign. Alone, doji are neutral patterns.

Any bullish or bearish bias is based on preceding price action and future confirmation.

Base Currency / Terms Currency

In foreign exchange markets, the base currency is the first currency in a currency pair. The
second currency is called as the terms currency. Exchange rates are quoted in per unit of the
base currency. Example: The expression US DollarRupee, tells you that the US Dollar is
being quoted in terms of the Rupee. The US Dollar is the base currency and the Rupee is the
terms currency. Exchange rates are constantly changing, which means that the value of one
currency in terms of the other is constantly in flux. Changes in rates are expressed as
strengthening or weakening of one currency visa versa the other currency. Changes are also
expressed as appreciation or depreciation of one currency in terms of the other currency.
Whenever the base currency buys more of the terms currency, the base currency has
strengthened / appreciated and the terms currency has weakened / depreciated.
Example.: If US DollarRupee moved from 60.00 to 62, the US Dollar has appreciated and
the Rupee has depreciated.

Swaps: A foreign exchange swap is a simultaneous purchase and sale, or sale and purchase,
of identical amounts of one currency for another with two different value dates. Foreign
Exchange Swaps are commonly used as a way to facilitate funding in the cases where funds
are available in a different currency than the one needed. Effectively, each party to the deal is
given the use of an amount of foreign currency for a specific time. The Forward Rate is
derived by adjusting the Spot rate for the interest rate differential of the two currencies for the
period between the Spot and the Forward date. Liquidity in one currency is converted into
another currency for a period of time.
Move in currency

An increasing amount of stock traders are taking interest in the currency markets because
many of the forces that move the stock market also move the currency market. One of the
largest is supply and demand. When the world needs more dollars, the value of the dollar
increases and when there are too many circulating, the price drops.
Other factors like interest rates, new economic data from the largest countries and
geopolitical tensions, are just a few of the events that may affect currency prices.