Hello, welcome to How to trade forex like a pro with me, and Trump Barnet. First of all, I'd like to thank you for taking this course. And I'm sure that you'll gain a lot from it, whether you are novice or experienced in trading forex. I've been a trader since November 2008. And the purpose of this course is to share with you the knowledge that I have accumulated over the years. We'll begin the course with a brief introduction to forex.
For those of you who are unfamiliar with this market, and then we'll move into the principles which, if properly applied, will increase your chances of becoming a successful and profitable professional forex trader. I'm sure that like me you Seeing the adverts where you are sold on the illusion that you can buy a cheap trading system and trade from the beach making millions. Whilst it's possible, it's highly unlikely without the all the skills needed to become a successful trader. And by that, I mean the mental skills needed in order to survive and to prosper in one of the toughest and also one of the most rewarding endeavors known to man. So, how do you become a successful professional trader? Well, in order to become successful and trade profitably, you need to master the exact same skills used by these professionals.
There are many advantages of trading the Forex market. The first advantage is low entry cost. Before because forex has a tight spread in terms of pips, the initial capital needed to trade forex is small. Most of us have a computer with an Internet connection. So all that's needed is to set up an account with a broker and you're now able to trade. The second advantage is low margin.
A lot of brokers nowadays offer accounts with minimum deposits as low as 100 Euros, which allows traders to to start trading with a very, very low starting capital. There's also high leverage, and this is the icing on the cake for forex traders. This means that you're able to punch much higher than your weight in terms of trading. So say for example, if you're trading an account with a 10 to one leverage, your 100 euro trading account can be traded as though it's worth 1000 euros. There's also low or no commissions. Well, there's some brokers that do charge commissions.
Most brokers make their profits on the spread between the currencies charge in either fixed or variable spread. There's also high liquidity. Because the Forex market is massively big in terms of the numbers of traders and the volume traded. In fact, the daily activities in the order of 5 trillion US dollars, it is extremely liquid. And this means that large orders are instantaneously filled. But also, it means that there's much more competitive pricing, which is good for us as traders.
There's a variety of trading instruments, which means that there's a lot of choice for traders. For example, even the eight major currencies will yield a combination of 28 different currency pairs to choose from. This makes forex trading much easier than that much easier to follow than other markets. For example, if you're trading stocks, you may be following thousands of stocks to determine the best value. The final advantage is that it's open source For hours. That's right.
The forex market is the only market truly open 24 hours a day from the opening of the Australian market on a Monday morning, which is Sunday night GMT to the closing bell of the New York market on Friday afternoon, which is Friday night GMT, the Forex market never sleeps. This makes it possible for traders with with a daytime job or even a busy schedule to take advantage of the different time zones and trade either during the day or even during the night. So, what is forex? forex actually means foreign exchange, which is sometimes abbreviated abbreviated to FX and it refers to the global currency market. investopedia defines forex as the market in which currencies are trading The forex market is the largest market in the world in terms of the total cash value traded, and any person, firm or country may participate in this market. Just to put it into context, the Daily Value traded in forex to double the size of the UK annual economic output.
So let's move on to see how forex actually works. For this, I'll take a simple example. Let's imagine that I'm going on a business trip for a meeting in New York. If I need to spend any cash and not simply charge everything to my credit card, I would need to take cash, but not cash from my home country of England. But cash in the currency used in America. I would need to exchange my local currency, which here in England is the British Pound To the local currency of the United States, where there the local currency is the US dollar.
And this would be the same thing that you might do if you were going on holiday to another country that does not use the same currency as your home country. I would go to my bank, tell them where I'm going, and they would take my local currency. In this example, it's 100 British pounds and give me 145 US dollars. So what I've done in terms of forex transaction is sold my my British pounds and bought us dollars. And the currency pairs involved in this transaction would of course be the GBP and the USD and the exchange rate for this transaction was therefore 1.45. Meaning that for every one pound I exchanged for US dollars, I receive $1 and 45 cents.
In exchange, so 100 pounds would give me 145 US dollars. For the purpose of this example, I'm ignoring commissions and any fees just to simplify things. And this is what we do when we go on holiday. When we buy something from another country, what international companies do, and also what banks and governments do. And they do this day in day out, they buy and sell currencies to exchange their currency for the currency of another country. I then travel back home to England.
And if I haven't spent any of my US dollars, I'd still have 145 to convert back to Gbps. This time when I go to my bank, I receive 103 pounds at an exchange rate of 1.4078. Which as you can recall, is different to the rate I bought at Actually, this transaction has given me more money than I paid for. What's happened in this situation was the exchange rate moved in my favor, producing me with a profit. Either the British Pound had got weaker, or the US dollar got stronger, because there was a change in the amount of money we ended up with, compared to the amount we started with. For example, we started with a hub with 100 pounds and we ended up with 103.
So we made a profit of three pounds on the movement of the exchange rate between the pound and the US dollar. And this is what forex traders do. You know, we trade currency hoping to make profit on the movement of the exchange rate. And we can do this in two ways. We can do this by buying low and selling high. And when we when we do this, when we predict that the price or the exchange rate is going to rise.
So we would then buy the currency low, expecting the price to increase and then sell at a higher price making a profit. Alternatively, we can sell high and buy low. in this situation we predict the price, or again the exchange rate is going to fall. And so we would buy the currency pair high, expecting the price to decrease and sell again at a lower price. This is actually what happened in our early example, I sold 100 pounds and the price the price fell from 1.45 to almost 1.41 while I was aware of my business trip, so when I returned, I bought the GBP back in exchange for US dollars at a slight profit of three pounds. So in forex trading, we can trade in both reactions of the movements in the price.
And this is another benefit of this market. And as traders, most of us would use price charts such as these to monitor the movement of the price. In the next lecture, we will look at the three components that affect successful trading and we'll set the scene for the remainder of the course.