Welcome to Paramount FX
The Road to Paramount begins here. As a beginning trader, it is important to know the very basics of trading to maximize your profit and minimize losing money. The goal of forex trading is to make money.
This will guide and help you create a stable foundation with trading so that when you are ready to jump into the real world of trading, you are well-educated! We pooled all of our resources and put it all in this guide. There is plenty of information to learn but we condensed it, made it clear and simple for you to understand what is important to know in the beginning. This is a concentrated guide so understanding this thoroughly will help you a lot. We are only scratching the surface of this industry and there are plenty more to learn as you go.
Paramount FX has helped people pursue their trading and financial goals while giving them more time to focus on what really matters in life. Become the winning trader. Learn the skill-set that can set you financially-free. Dominate the forex market, create consistent profits through an in-depth trading strategy built around you.
Our goal is to help you become financially independent and master the art of trading. There is nothing else that would satisfy us more than seeing you becoming a part of our team, learn from Paramount FX Academy, and become a successful trader!
What Is Forex?
The Foreign Exchange Market (forex) is a global market where currencies from all around the world are traded for another currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. The volatility of this market fluctuates the exchange rate continuously. It also refers to the global market where currencies are traded virtually over-the-counter (OTC).
If you have ever traveled to another country, you have made a forex transaction. For example, if you are an american that’s taking a trip to Japan, you would have to find a currency exchange booth at the airport to exchange your american dollar (USD) to japanese yen (JPY). The exchange between the two currencies, based on supply and demand, determines how many japanese yen you get for your american dollar.
Forex is a decentralized market that is open 24 hours a day, 5 days a week, exchanging over $5 trillion daily, making it the largest, most liquid financial market in the world. In comparison to less liquid markets such as the New York Stock exchange that exchanges over $20 billion per day, the forex market is over 200 times bigger.
History Of Forex?
It is important to learn some of the historical events relating to currencies and currency exchange.
Currency trading has been around for milleniums since the time of greeks, egyptians and babylonians. In 2600 b.c., Egyptians discovered gold and made it valuable. In 1500 b.c., Countries started using molten gold and silver to exchange currency and their value was determined by their weight and size. In 700 b.c, the first gold coins were created.
In the 15th century, the first forex market was opened in Amsterdam, Netherlands. The paper currency began later on in the 18th century and started spreading across Europe. This created the possibility to freely trade and helped stabilize the currency exchange rates. In 1875, the Gold Standard was introduced.
The Gold Standard System is a monetary system that guarantees the value of a country’s currency or paper money based on a fixed quantity of gold. A country that uses this sets a fixed price for gold and buys and sells gold at the price. Currencies were backed by the golds of their countries.
The Gold Standard System plays a huge role in the currency exchange. Later on, the system broke down during World War I because countries had to print more money to finance their expenses. This started the foreign exchange market.
The Bretton Woods Agreement was established in July 1944 and the US dollar was the only currency in the world that was backed by gold. The dollar became the new global currency because in 1944, the Bretton Woods Agreement was signed, agreeing to replace gold as the main standard of convertibility with US dollar. However, the Bretton Woods Agreement collapsed in 1971 and the digital foreign exchange started.
What Do You Trade?
The Foreign Exchange Market exchanges one currency for another currency such as the European Euro (EUR) for US dollar (USD), or Great Britain Pound (GBP) for Japanese Yen (JPY). These currencies are paired up by their nicknames so If you are trading EUR/USD, you are exchanging Euro for Dollar and would be read as EUR/USD. These are known as Quotes or Pairs.
EUR is the Base Currency. USD is the Quoted Currency. For example, if the current price is 1.2054 then for 1 EUR is equivalent to 1.2054 USD. This price constantly changes and the movement of price is measured by percentage in points or pips.
A pip is the smallest price movement in the forex market. A pip is practically quoted 1/100th of 1% percent of the 4th decimal (0.0001). Some are quoted with 2 decimal places (0.0100) like the Japanese Yen (JPY). The price of the market is usually seen on the right side of the platform you are analyzing the chart on.
For example, if you bought EUR for 1.2000 and the value of Euro increased, closing your trade at 1.2055, you just caught 55 pips!
1.2055 – 1.2000 = 0.0055 pips
The movement of the market is determined by a country’s level of economic health. Some of the leading factors that determine the market movement and volatility are Inflation Rates, Interest Rates, Government Debt, Terms of Trade, Political Performance, Recession, and more. These are also major economic factors that determine the strength of a country’s currency.
These quotes are grouped into different categories based on the currency they are paired. The Major Pairs are pairs exchanged with the dollar and the most traded currency pairs. Cross Pairs are pairs that do not involve the dollar with the exchange.The Major Pairs are the EUR/USD, USD/PY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD. The Cross Pairs are GBP/JPY, GBP/NZD, GBP/AUD, AUD/JPY, AUD/NZD, and more.
Who Trades Forex?
The Forex market has a broad range of participants that play an important role and all of them have different motives. Here are some of the major participants:
Central Banks – Government agencies that control their national currencies in order to maintain a healthy economy. They are responsible for employment situation, interest rates, trade balance, and gross domestic product (GDP). These are impacts that affect the foreign exchange market.
Hedge Funds – Investment funds administered by professional investment firms that collects capital from investors, accredited or institutional, and invests in assets. Hedge funds are an alternate route of investing that targets aggressive returns using a variety of strategies to generate profit for their investors.
Financial Institutions – Companies that deal with financial and monetary transactions such as loans, deposits, investments, loans and currency exchange. Financial Institutions engage in a broad range of business operations for individual and commercial clients such as commercial banks, investment banks, insurance companies and brokerage firms.
Foreign Exchange Brokers – Brokerage firms that provide a platform for traders to buy and sell foreign currencies. Foreign Exchange Brokers mostly service retail investors and leverage their money so they can trade larger amounts than what is deposited in the account.
Retail Traders – Individual investors who buys and sells securities or exchange traded funds through brokerage firms or other types of investment accounts. Retail traders typically invest for their own personal accounts and often trade with small amounts as compared to institutional investors such as mutual funds.
When Do You Trade Forex?
The Forex market is open 24 hours a day, 5 days a week. You can trade anytime you want throughout the week and the market is closed on the weekends from friday 4pm CST to sunday 4pm CST.
Traders prefer to trade during active trading periods, known as sessions. With the forex market being open most of the time, it is important to know which are the most active trading periods. Active Traders known as Scalp Traders or Day Traders often look for large movements to make large profits in a short amount of time. If you are looking for times of large movements, that is during when sessions overlap such as the London Session overlapping the New York Session.
How Does It Work?
To keep it simple, you “bet” whether or not a currency will fall down or rise up. If the price goes with your prediction, you will earn money, oterhwise you will lose money.
There are many ways to predict the movement of the market. You will find that there are thousands of strategies online, each one claiming that their strategy is the best.
You can think of trading as drawing a car. If you ask different people to draw a car, each person will have their own method. One person may start with the wheels, the other person may start with the body kit. Another person may start with a sketch, the other one may just draw the final version only. There is no “wrong” way and each way will have its own unique results. Similarly in trading, the goal will be to make money consistently, but the journey to get there is the missing piece of the puzzle.
What Are Sessions?
Majority of trading in forex is focused in these financial centers. This market can be traded in 4 major sessions; the London Session, New York Session, Tokyo Session & Sydney Session. Each session is about 9 hours.
The London Session
The London Session controls essentially the movement of the European market. Roughly 30% of all market transactions take place during the London Session due to overlapping sessions with the New York Session, which leads to a massive surge in liquidity. European news that is released during this session creates volatility and major movements carry over into the New York Session.
The London Session begins at 2am CST to 11am CST. This session is primarily watched by traders who trade European pairs.
The New York Session
The New York Session is the most traded session American news that is released during this session creates volatility and typically in the beginning of the session. Every major transaction involves the US dollar so anything that is directly related to it will create a large movement. The New York Session slows down about halfway through the session. This is the last session before trading day officially ends.
The New York Session begins at 7am CST to 4pm CST. This session is primarily watched by traders who trade US pairs.
The Tokyo Session
The Tokyo Session is the third busiest financial center. The Bank of Japan has a heavy influence over the market due to the massive government printed money that are injected, should they feel the strength of their currency getting too strong. During the beginning of this session are usually the busiest due to the economic news being released. The trading volume often drops after halfway through the session.
The Tokyo Session begins at 5pm CST to 3am CST. This session is primarily watched by traders who trade Japanese pairs.
The Sydney Session
The Sydney Session is where the trading day officially begins. It is the smallest market compared to the other sessions. However, this shows a lot of initial actions when markets reopen for the week due to retail traders and financial institutions trying to regroup since the market is closed from Friday afternoons to Sunday afternoons.
The Sydney Session begins at 4pm CST to 1am CST. The pairs that are often traded during this time are the Australian Dollar (AUD) and New Zealand Dollar (NZD).
Overall, these times vary and slightly change during a specific season. Oftentimes, if you are looking for volatility, it is best to trade when two sessions overlap and during a major news release because the news are capable of increasing volatility on a normally slow trading period.
Where Do You Trade Forex?
Trading is better now than it ever was due to being able to access instantly from your smartphone or computer. This opened a big door to individual retail traders to participate in the foreign exchange market without having to get certified or licensed, and invest small capital compared to corporations and banks that invest millions of dollars. If you have access to the internet or have a reception of a signal, then you can trade from your smartphone or computer.
The beauty of forex is that you can trade anywhere in the world at any time of the day that the market is open, and you can profit in both selling and buying currency. It does not require a high initial investment and you can potentially make a lot of money from a small investment as little as $25 or you can trade with larger capital.
Forex has one of the most self-made millionaires and created an opportunity for everyone to engage in the same market as big corporations, banks, and more. With the help of the market that has a high liquidity, a broker that leverages your money to make more and it can be done through your smartphone or laptop is what attracts a lot of people to get started with forex.
There are a lot of advantages that come with trading forex. With the forex market open for 24 hours a day, this gives you the option to trade on your own time compared to trading the stock market.
Types Of Trades?
Technical Analysis – This type of analysis is used by traders who use a combination of tools and historical data to create a projection of direction of direction of a currency.
Fundamental Trading – This type of analysis is used by traders who watch the economics and political events that might come into play using the economic calendar and create a projection of direction of a currency.
Each time frame in a chart will consist of Open, High, Low, Close.
The Open is the opening price of that current time frame. The High is highest price of that current time frame. The Low is the lowest price of that current time frame. The Close is the closing price of that current time frame.
The image below is a bar chart. Each bar represents a time frame. Each one could be one day, one hour, or one minute. It’s a way to be able to look at price in a visual way and know what price is doing.
The image above is a bar chart. Each bar represents a time interval. Each one could be one day, one hour, or one minute. It’s a way to be able to look at price in a visual way and know what price is doing.
When the closing price is higher than the opening price, it would colored in as green which means that price is going up. When the closing price is lower than the opening price, it would be colored in as red which means that price is going down.
This is a candlestick chart. This is the type of chart you will be using 99% of the time and is the preferred way for trading. It’s essentially a bar chart but filled in. As you can see, you have a lot clearer picture of what price is doing. Each green candle shows that price was going up for that period of time and each red candle shows that price was going down for that specific time.
This is a line chart. With the line chart, only the closing prices are plotted. This is quickest and easiest way to see what price is doing. The good thing about line charts is that it’s simple but it does not give full information. For example, on the daily time frame you will see prices for the previous time intervals but you won’t know what happened during each day.
You may have heard the term “Bulls” and “Bears” when it comes to trading. All it simply means is that the people who think that price is going to go up, they are called “Bulls”. People who think that price is going to go down, they are called “Bears”. When price is bullish, it means price is expected to push up. When price is bearish, it means price is expected to push down.
This is a simple depiction of what happens when you place a buy order on a currency pair. You don’t necessarily own the currency pair but rather, you have a prediction that price will go up at its current price. As shown in the image above, your buy order level is around 139.400. When price has moved significantly into the direction that you had intended it to go to, that’s when you make a profit. When you close your order, you’re securing floating profits and now you have made money.
Similarly to the buy order, when you place a sell order, you have an expectation that price will go down. And if you’re prediction is right, you’ll make a profit.
To be able to access the forex market, you will need to go through a broker. The broker facilitates your trades and acts as the middle man. They connect your buy orders to people who are willing to sell theirs and vice versa. In return, the broker will make money through spread or commission.
Our recommended brokers Hugosway and LQDFX.
Ask & Bid
Whenever you place a buy or sell order, it will not be the exact current price. It will either be slightly above or slightly below. The Ask price is where the broker will place your sell order and the Bid price is where the broker will place your buy order. The difference between the ask and bid price is called the Spread. The spread is how your broker will make money. So when you first open a new trade, you will already be in the negatives because the broker placed your order slightly away from the current price so they can make money from your trade.
A Lot is a unit of volume in trading. When you place an order, you will be required to specify how much volume you are willing to trade.
1 Lot = 100,000 Units of Base Currency
0.1 Lot = 10,000 Units of Base Currency
0.01 Lot = 1,000 Units of Base Currency
To keep it simple, we recommend a 0.01 Lot for every $100 in your account balance. So if you have a $500 account, the lot size you can use is 0.05.
Take Profit (TP)
A Take Profit or TP is an order you send to your broker to close your trade automatically at a specific level when it is in profit. With this concept, you won’t have to constantly look to your charts to see where price is. You can just leave your trades be and let it automatically close for you when it reaches a specific profit level.
Stop Loss (SL)
A Stop Loss is a crucial concept in trading. When price goes the opposite of your intended direction, the stop loss is there to close your trade automatically for you. It’s there to protect your account from further losses. It’s recommended to always have a stop loss for every trade that you have because no trade is guaranteed.
A Buy Limit is a type of market order that is set below the current market price. There is an expectation that price will go down first before pushing up. When price doesn’t reach that specific level, the order will not be filled, therefore you won’t have an open trade on that currency pair. Using pending orders such as a buy limit allows a trader to enter at an even better price than the current price.
A Sell Limit is a type of market order that is set above the current market price. There is an expectation that price will go up first before going down.
A Buy Stop is another type of market order. The difference between a buy stop and a buy limit is that in a buy stop, price is currently below the buy stop level. When price hits the buy stop level, a trade will automatically be placed.
Similarly to the buy stop, a Sell Stop is only triggered when price is above the level and it lowers down to the sell stop. With a sell stop, you have an expectation that price will keep going down past the sell stop level.
Market execution is the default type of order. Price is instantly executed at current price, whether it is a buy or a sell.