💱 Forex (Foreign Exchange)

💱 Currency Pairs in Forex

Forex is traded in Currency Pairs, e.g. EUR/USD means buy EUR, sell USD. The price is the amount of USD needed to buy 1 EUR.

⭐ Major Pairs

All pairs involve USD. Highest liquidity, narrowest spreads (0.1-1 pip):

🔸 Minor Pairs / Crosses

Currency pairs that do not include USD, e.g. EUR/GBP, EUR/JPY, GBP/JPY — wider spreads than Majors but still good liquidity.

🔹 Exotic Pairs

Currency pairs of emerging market countries, e.g. USD/THB, USD/ZAR, USD/TRY, USD/MXN — very wide spreads (10-50 pips), high volatility, low liquidity. Not recommended for beginners.

📐 Lot · Pip · Point · Leverage — Units of Measurement in Forex

Lot Size (Contract Size)

• 1 Standard Lot = 100,000 units — 1 pip ≈ $10 (EUR/USD)
• 1 Mini Lot = 10,000 units — 1 pip ≈ $1
• 1 Micro Lot = 1,000 units — 1 pip ≈ $0.10
• 1 Nano Lot = 100 units — 1 pip ≈ $0.01 (some brokers)

Pip (Percentage in Point)

• 1 Pip = 4th decimal place of the price (0.0001)
• 1 Point / Pipette = 5th decimal place (0.00001) — some brokers display 5 digits
• JPY Pairs: 1 pip = 2nd decimal place (0.01) because JPY has only 2 decimal places

Leverage

Leverage is borrowing money from the broker to control a position larger than your capital:

• 1:100 — $1,000 controls $100,000 (1 Standard Lot)
• 1:500 — $1,000 controls $500,000

🛡️ Margin · Margin Call · Liquidation

• Margin — The amount of money required in your account to open a position. E.g. Leverage 1:100 = Margin required is 1% of Position Size
• Used Margin — Margin blocked for open positions
• Free Margin — Money available to open additional positions (Equity - Used Margin)
• Margin Level (%) — (Equity ÷ Used Margin) × 100. If below 100% = cannot open new positions
• Margin Call — When Margin Level falls below the broker's threshold (typically 50-100%), the broker notifies you to deposit more funds
• Stop Out / Liquidation — When Margin Level falls below the forced close level (20-50%), the broker automatically closes the most losing position to prevent a negative balance

💡 Margin Calculation Formula: Required Margin = (Lot Size × Contract Size × Price) ÷ Leverage

Example: Buy EUR/USD 0.1 Lot at 1.0850, Leverage 1:100 → Margin = (0.1 × 100,000 × 1.0850) ÷ 100 = $108.50

Technical Analysis for Forex

Forex is well-suited for technical analysis due to high liquidity and vast price data:

• Support & Resistance — Price levels where the market has previously reversed. Crowd psychology makes prices often respect these levels
• Trendlines — Draw lines connecting higher lows (Uptrend) or lower highs (Downtrend)
• Chart Patterns:
  — Double Top/Bottom: Trend reversal when hitting resistance/support twice
  — Head & Shoulders: A powerful reversal pattern
  — Triangles (Symmetrical/Ascending/Descending): Consolidation before breakout
  — Flags & Pennants: Short-term consolidation in a strong trend

Popular Indicators

🎯 Forex Trading Strategies

🔄 Carry Trade

Borrow a low-interest currency (e.g. JPY ~0.5%) to buy a high-interest currency (e.g. AUD ~4.35%) — earn the interest rate differential every day you hold the position (Swap). Suitable for sideways or clear-trending markets. Risk: If the value of the currency you hold depreciates, losses may exceed the interest earned.

News Trading

Trading during major economic news announcements — extremely high volatility, prices can move 50-100 pips in minutes:

• NFP (Non-Farm Payrolls) — First Friday of the month, USA
• CPI (Consumer Price Index) — Inflation, important for interest rates
• FOMC / Fed Rate Decision — Fed interest rate decisions
• GDP, PMI, Retail Sales, Jobless Claims

⚠️ Warning: News Trading involves high Slippage — the price you get may not match your order. Some brokers widen spreads during news events.

⏱️ Scalping

Open and close positions within minutes, aiming for 5-15 pips per trade using short timeframes (M1-M5). Suitable for: Highly focused, fast-decision makers. Not suitable for: Beginners.

Day Trading

Open and close within the same day, no overnight holding. Timeframes M15-H1. Pros: No overnight risk, avoids Swap. Cons: Must watch the screen all day.

🌊 Swing Trading

Hold positions for 2-10 days, using H4-Daily timeframes following the major trend. Pros: No need to watch the screen, larger profit per trade. Cons: Overnight risk, Swap applies.

💤 Swap (Overnight Fee)

Swap is the interest paid or received when holding a position overnight (Rollover) — the rate depends on the interest rate differential between the two central banks:

• Swap Long (Buy) — Interest for holding a Buy position overnight
• Swap Short (Sell) — Interest for holding a Sell position overnight
• Special case: Wednesday to Thursday, Swap is charged ×3 (covering Saturday-Sunday when the market is closed)
• Swap-Free Account (Islamic Account): For Muslims — no interest charged/received, but may have an administrative fee instead