Forex FAQ

Forex Trader Basics FAQ

What is Forex or Forex trading?

Forex, FX, and Foreign exchange trading refer to the trading of foreign currency from one country’s currency to another in the Forex market. 

What is the Forex market? 

The Forex market is the largest global financial market in the world with trillions of dollars changing hands every day. It is a global marketplace that is open 24 hours a day for the exchange of global currencies for different reasons that include, but are not limited to, trading, travelling, tourism and commerce. 

When is the Forex market open? 

The Forex market is open 24 hours a day from Sunday at 5:00 pm EST / 10:00 pm GMT to Friday 5:00 pm EST / 10:00 pm GMT. 

What are the main Forex market sessions? 

The Forex market hours are broken down into 4 trading sessions: the New York session, the London session, the Tokyo session (or Asia session), and the Sydney session. 

What are the drivers of the Forex market?

Some key drivers of the Forex markets include, but are not limited to, economic news releases, central bank interest rates, central bank interventions, fear, greed, and the futures market.

Can the Forex market crash?

No, the Forex market as a whole can not crash like the stock market, unless one day currency ceases to exist. This is because each currency moves independently against one another. A good analogy would be that currency pairs are like elevators. Let’s say we’re looking at the Euro against the US Dollar. If the EUR elevator is going down relative to the USD elevator, then the USD is going up (against the EUR). So while a European may think that the EUR crashed that day, an American may think the USD soared that day. It is all relative to the currency they are trading against. 

What are the 8 Major currencies of the world? 

The 8 major currencies include the US Dollar (USD), the Great Britain Pound (GBP), the Euro (EUR), the Japanese Yen (JPY), the Swiss Franc (CHF), the Canadian Dollar (CAD), the Australian Dollar (AUD), and the New Zealand Dollar (NZD).

What are the Major currency pairs?

These are the major currencies cooped with the US Dollar (USD). These include: EUR/USD, GBP/USD, USD/CAD, USD/JPY, USD/CHF, AUD/USD, and NZD/USD. 

What are the Minor Currency pairs?

These are the major currencies paired with one another, that don’t include the US dollar (USD). These are also called cross pairs, and they include: EUR/CAD, GBP/JPY, AUD/NZD, CHF/JPY, etc. 

What are some advantages of Forex trading vs. Stocks and Equities trading?

Lower barrier to entry, lower transaction costs, longer hours of operation, higher leverage, higher liquidity and higher volume are just some advantages of Forex trading over the traditional equities/stock market. 

How do I develop a winning trading strategy?

You must first test different trading styles and strategies to see what works best for you, then backtest until you find something that works consistently for you. It does not need to work for everyone else but yourself, because everyone has a different trading personality. 

How can I backtest my trading strategy?

You can backtest by opening a demo trading account to test your trading strategy, with the goal of seeing what type of performance you can achieve using that particular strategy. You can also backtest by looking back at past price data and determining how many times you would have won and lost based on your trading strategy and the parameters you set. 

What is a ‘Pip’?

A  “PIP” stands for Point in Percentage, and is the unit of measure used by forex traders to define the smallest change in value between two currencies. This is represented by a single digit move in the fourth decimal place in a typical forex quote (except JPY pairs). For example, if the price of EUR/USD moves from 1.1402 to 1.1403 this would be a one pip change. If the price of a JPY pair like USD/JPY moves from 113.31 to 113.30, that would be also one pip. To understand the value of a pip, you must first understand what “Lots” are. 

What are ‘Lots’?

Lots refer to the specific units traded with currency pairs, which essentially means the number of currency units you wish to buy or sell. There are 3 types of lots: 

    • Micro Lot size = 0.01 = Controls 1,000 units of currency
    • Mini lot size = 0.10 = Controls 10,000 units of currency
    • Standard Lot size = 1.00 lot = Controls 100,000 units of currency

What is the Value of a Pip?

If your account is in US Dollars, and you are trading a pair with USD as the base currency (ex. EUR/USD), then the following is true:

  • 1 pip trading with a 0.01 (Micro Lot) is equivalent to $0.10 USD
  • 1 pip trading with a 0.10 (Mini Lot) is equivalent to $1.00 USD
  • 1 pip trading with a 1.00 (Standard Lot) is equivalent to $10.00 USD

What is a Candlestick?

Candlesticks (or Japanese candlesticks) is a style of chart used to present price movements of a currency. Each candlestick represents a specific amount of time depending on the timeframe. If you’re on the 15 minute timeframe, each candle is equivalent to 15 mins (M15). If you are on the Daily (D1)  timeframe, each candle represents 24 hours. 

What is a Wick?

A wick, or a shadow, is the vertical lines above and below the body of the candle. 

What information does the Candlesticks give you? 

A candlestick give you the following information: open price, close price, and the high and low of the candle (top and bottom of the wicks). 

What is Bullish? 

Going long, or buying, is a bullish action for a trader to take. Put simply, being a bull or having a bullish sentiment means that you believe a currency pair will increase in value, or go up. To say “he’s bullish on USD/JPY,” for example, means that he believes the price of the US Dollar will rise against the Japanese Yen. 

What is Bearish? 

Going short (shorting), or selling, is a bearish action for a trader to take. Put simply, being a bear or having a bearish sentiment means that you believe a currency pair will decrease in value, or go down. To say “he’s bearish on EUR/USD,” for example, means that he believes the price of Euro will fall against the US Dollar. 

What does ‘Short’ or ‘Shorting’ mean?

Traders can think of ‘short’ as another word for ‘sell.’ If you are ‘going short’, or ‘shorting’, it means you are selling it. When traders sell (or go short on) a currency pair, it means they believe it will decrease in value.

What does ‘Long’ or ‘Longing’ mean?

Traders can think of ‘long’ as another word for ‘buy.’ If you’re ‘going long’ in a currency, it means you’re buying it. When traders buy (or go long on) a currency pair, it means they believe it will increase in value. 

What is the Spread?

Spread is part of the cost you pay the broker to open a position. It is the difference between the bid and ask price. The bid price is the best price a buyer is willing to pay, and the ask price is the best price a seller is willing to accept. 

What is Metatrader 4 (MT4)?

Metatrader 4 is the most commonly used trading platform for Forex traders, despite the release of Metatrader 5. There is both a desktop and mobile version.

What is a Market Order?

A market order is a direct entry in the markets with an option of buying or selling at the current market price.

What is a Limit Order?

Limit orders are placed when you are only willing to enter a new position at a specific price. The order will only be filled if the market trades at that price. A buy-limit order is an instruction to buy the currency pair at the market price once the market reaches your specified price or lower; that price must be lower than the current market price. A sell-limit order is an instruction to sell the currency pair at the market price once the market reaches your specified price or higher; that price must be higher than the current market price.

What is a Stop Order?

A stop order becomes a market order only once a specified price is reached. A buy-stop order is an instruction to buy a currency pair at the market price once the market reaches your specified price or higher; that buy price needs to be higher than the current market price. A sell stop order is an instruction to sell the currency pair at the market price once the market reaches your specified price or lower. That sell price needs to be lower than the current market price.

What is Leverage?

Leverage allows you to control a larger amount of money using a limited amount of your own. For example, with a $1,000 account trading on 100:1 leverage, you will be able to control a $100,000 position. 

What are the advantages of Leverage?

Ability to profit from small moves in price, and allowing you to amplify your winning positions as if you were trading a much larger account size. But, don’t forget this is a double edged sword. Your losses are also amplified as high as the profits. Trading with leverage requires implementing good risk management principles. 

What is Margin? 

Margin is the amount of money you need to have as a good faith deposit in order to open a trade with your account. Using the above example, your margin is the $1,000 that’s trading on 100:1 leverage. 

What is a Margin Level?

This is the threshold where your broker will send you a notification to take action before they liquidate your position, or close your trade(s). 

What is a Margin Call? 

You never want to see this. It means you are over-leveraged on your account or don’t have enough margin and your broker forcibly liquidates your position, thereby closing your trade(s) at market price.  

What is Risk to Reward (R/R Ratio)?

This measures how much you are risking in relation to the potential gain. The risk is usually defined by the stop loss from the entry point of the trade. Whereas the take profit price from the entry point defines the potential gain. 

How is the Risk to Reward Formula?

Risk-reward ratio = Absolute value (Price entry value – stop loss value) divided by Absolute value (Price entry value – Target price value)

What is Ebb and Flow?

Ebb and Flow refer to something repeatedly increasing and decreasing, or rising and falling, like ocean tides. It is the visual representation of how markets respond to daily events.

What is a Doji?

A Doji is a candlestick with a very small body (or no body) of the candle, with an upper and/or lower wick, and often indicates a swing high or a swing low in price action. 

What is a Hammer?

A Hammer is a candlestick with a short body of the candle, a very short upper wick, and a long lower wick which typically occurs following a down-move. A reverse hammer is the opposite.

What is an inside bar pattern? 

An inside bar pattern is a price action continuation pattern. It is characterized by two candles, in which the second candle is smaller and within the high and low of the first candle. 

What is a Head-and-Shoulders (H&S) pattern ?

A head-and-shoulders pattern is a Price Action reversal pattern found on an uptrend. The pattern is characterized by having 3 peaks, with the middle (the head) being highest, and the two smaller peaks on either side (these are the left and right shoulders). A straight line is then drawn to connect the base of the 3 peaks, and that is called the neckline. A break of the neckline will signal a reversal to the downside. An inverted head-and-shoulders pattern is the same, but flipped horizontally and found when price is on a downtrend.  

What is Support and Resistance (S&R)?

Support refers to significant levels below current market price and Resistance refers to significant levels above market price. These levels are notable areas that price has reacted in the past and might do so again in the future. 

What is a Fib or Fibonacci tool?

Fibonacci is a widely used technical trading tool used to measure two swing points in price (a high and low), dividing the vertical range into percentages. This includes the Fibonacci retracement and extension.

What is a Fibonacci Retracement?

This refers to measuring retracements as percentages of a price range. Traders tend to look for confluence at the 50%, 61.8%, and 78.6% levels. In Smart Money traders, we like to look at the 70.5% retracement as a ‘sweet spot’ for entries. 

What is a Fibonacci Extension?

This refers to the continuation of the Fibonacci retracement scale, beyond the 100% retracement level. The levels of interest are the 127.2%, 161.8%, 200%, etc. These levels are used to identify potential targets for price. 

What are Fractals?

Fractals are a recurring geometric pattern that occurs in the markets among larger price movements, and is repeated on all time frames. You may have heard the phrase ‘price is fractal’… this means there are recurring patterns found in price.  

What is Swing trading?

Swing trading is for those who have the patience to wait for a trade. Swing traders have lots of patience and are willing to hold a trade for days or even weeks. Swing trading requires a larger stop loss than day trading in order to allow the trade to breathe. Swing traders are able to handle high drawdowns and keep a calm mind when the trade is floating in drawdowns. 

What is Intraday trading?

This is a style of trading where trades are executed and completed on the same day, which is why it is sometimes referred to as ‘Day Trading’. These types of traders look for repeating patterns that occur on a daily basis. They would not take any longer term trades or swing positions, as they may be uncomfortable holding open trades overnight. 

What is Scalping?

Scalping is a very fast style of trading. These types of traders are called scalpers, and they like to get in and out of the markets quickly. Scalping is best suited for traders who can make quick decisions and act without hesitation. These are often traders who don’t have the patience to hold trades for long periods. Instead, they expect their trades to become profitable immediately, and they will usually exit trades promptly if a trade goes against them. 

What is Non-Farm payroll (NFP)?

Non-Farm payroll is a key economic indicator for the US economy, representing the number of jobs added or lost. NFP releases generally cause large movements in the market and are released on the 1st Friday of every month at 8:30 AM EST. 

What is the FOMC?

FOMC is the Federal Open Market Committee that meets 8 times per year to discuss mainly 2 things: review the present financial information, and make a decision on what type of intervention will be required. If the FOMC decides to increase interest rates, there is a possibility for increase in demand for the US dollar value, so traders can speculate on the price increase of USD.

What is Technical Analysis?

Technical Analysis refers to the study of historical price action in order to identify patterns in the market to determine future price action. This can be done using technical indicators, and a combination of other analysis tools. Technical analysts will often look for support and resistance, and identify trends and trend changes. 

What is Fundamental Analysis?

Fundamental Analysis refers to research done on the political, economical and social factors and the impact they have on a country’s currency. Fundamentals look at the supply and demand forces of currencies, commodities, and equities that can be influenced by economic releases, geopolitical tensions, seasonalities, interest rate changes, news released by central banks, etc. 

What is Trading Psychology?

Trading Psychology refers to the study and training of a trader’s mindset, and how it behaves while actively trading. It reveals core human tendencies of traders, because trading requires a different type of mindset than what our primitive brain is programmed to do in order to be successful.  

What is Risk Management?

This refers to managing risks on your trading account. The general rule of thumb is never risk more than 2% per trade. 

What is Trade Management?

This refers to the management of open positions. This includes reducing risk while trade is in profit by moving the stop loss closer to market price, or cutting losses on losing trades.

Forex Signals Related FAQs

What are Forex Signals?

Forex signals, or alerts are planned trade ideas and setups with specific Entry Price, Take Profit (TP) and Stop Loss (SL) provided to offer traders levels of consideration. These are based on the analysis and opinion on what our traders see in the market. For example, we send out a notification when they are taking a trade. It is important to remember that Trade Ideas are strictly for educational purposes only, and should never be misconstrued as financial advice.

What does TP and SL mean?

TP means ‘take profit’, and SL means ‘stop loss.’  Take profit is the target price you set for your trade to exit once it reaches the set price. Stop loss is the safety net you set for your trade to exit if it reaches a point of invalidation to limit your loss. 

Is this Financial Advice?

Absolutely not. Our Trade Ideas are just our traders’ analysis and opinion of the market. It must NOT be interpreted as financial advice. Our Trade Ideas are meant for educational purposes only, to help demonstrate the key points of a coherent trade plan. Each Trade idea reflects just one trade scenario, the success of which is impossible to predict on an individual basis due to many factors. You should always use your own judgement and analysis to tailor a plan according to your personal goals and risk-tolerance.

What Currency Pairs do we focus on?

Our main focus is on the major and minor currency pairs. These are any of the 8 major currencies paired with one another. 

How many pairs should I trade?

This is completely up to you to decide, and will depend on the trading strategy you develop. While each trader has their own preferences, many successful traders find it beneficial to focus on only 1-2 pairs. This is highly recommended for beginner traders. 

What time are the trade ideas sent out? 

Trade Ideas are not sent out at a pre-set time. Instead, they are sent out when a trade opportunity presents itself in the markets and meets their criterias of the individual trader.

Can I use any Forex Brokerage to trade?

Yes, you can use any Forex broker you choose as long as you are able to trade the instruments you wish to trade, with the leverage you wish to trade with. We focus mainly on the major and minor currency pairs, which all brokers should offer. 

How do I open a Demo Account?

We have a video that helps explain this in detail – you can find it in the training library.

How do I open a Live Account?

We have a video that helps explain this in detail – you can find it in the training library.

What broker should I use?

You must do your own research to find a trusted broker that is available in your country of residence and also meets your trading needs. We have a video that helps explain this in detail – you can find it in the training library.  

How much should I trade with?

We always recommend that traders only trade with what they can afford to lose. However, if you are a beginner, we strongly recommend starting with a demo trading account until you are comfortable trading live funds. 

How much should I fund my live account?

This is not a question we can answer for you. You must figure out for yourself what is an appropriate amount based on your risk appetite and your trading goals. You should never risk more than you can afford to lose, and we always recommend trading in a demo account when you are a beginner. 

Can I use your service if I am new to Forex Trading? 

Yes, our service is designed for both beginners who are looking to get started, as well as advanced traders who have been trading for years. If you are a complete beginner, we recommend starting with a demo account first, and continue learning there until you are comfortable starting to trade with live funds. 

How much leverage should I use?

This is another one of those things you must decide on your own, as it really depends on your comfort level. Take into consideration your experience, trading style and overall risk tolerance. If you’re a beginner, we’d recommend choosing the lowest possible leverage.  

Why should I trade a demo account?

Trading a live account without any experience is like betting on a new game you’ve never played before at a casino. You are essentially gambling your money against the house. A demo account allows you to get comfortable with the environment before you risk real money. 

What is an average stop loss?

Our stop loss will vary depending on the trade setup. However, this is not relevant because a 20 pip stop loss or 100 pip stop loss should both be 1-2% of your account balance. We recommend that you always calculate the position size using a Risk/Position Size Calculator.  

Are there any drawdowns?

There will always be some drawdowns in trading. Not even the best traders in the world are able to call the exact top or bottom of a trend. Drawdowns are absolutely necessary in trading, and is not something you should worry about if you are using 1-2% risk management. 

What if the price has moved already and I missed the entry?

If price has moved against your direction, you can still take the trade. This is because you will be getting a better entry price in the market. If price has moved toward the direction of the trade, your risk will be slightly higher. You can then either wait and see if the price will retrace to entry level, or you can assess your risk to reward and decide if the trade is still worth taking. If not, move on to the next trade. There will always be more.  

How do I calculate the Risk to Reward of a signal?

The best way to calculate your Risk to Reward in Forex is by using pips as a measure from entry point to stop loss and take profit target. If the risk to reward ratio is 1:3, this means that for every 1 dollar you are willing to risk, you will gain 3 dollars in reward.

Risk-reward ratio = Absolute value (Price entry value – stop loss value) divided by Absolute value (Price entry value – Target price value)

How much should I Risk per trade?

The general rule is 1-2% per trade. If you’re a beginner, we recommend sticking to just 1%. This will build discipline and train yourself to not be greedy. If you develop a bad habit, you will need to eventually break those habits… and we all know how hard it is to break bad habits. 

What Lot Size should I use?

We suggest using a Risk/Position size calculator to help you determine the appropriate lot size for your account based on the risk you want to take and the currency pair you want to trade.

How do I Calculate my Risk?

To manually calculate your risk, you can take your risk %, multiplied by your account balance, then set a Stop Loss equal to that amount. For example, let’s say you want to use 1% risk on your $5,000 account. You take 0.01*5000 = $50. Then you find out how many pips from your entry price to Stop Loss price, and enter that amount into the Risk/Position size calculator. 

How do I Calculate my Risk to Reward (RR)?

Risk-reward ratio = Absolute value (Price entry value – stop loss value) divided by Absolute value (Price entry value – Target price value)

Price Action FAQs

What is Price Action Trading? 

Price Action trading is based on the concept that price is fractal, and that patterns often repeat in the market. Price Action traders analyze historical past price movements to forecast future price tendencies. This style of trading relies on price behavior and candlestick analysis, with limited or no use of technical indicators.

What is the Best Timeframe for Price Action Trading? 

Price Action can be used on any timeframe. It can be used on a large timeframe such as the monthly, as well as a smaller time frames like the 15 minute charts. Generally speaking, higher time frames are more accurate because they offer you a broader perspective.

Can I combine Price Action Trading with Other Strategies?

Yes, you can combine Price Action trading with any other form of trading. Since Price Action trading is a minimalist way of trading, it easily complements other forms of technical analysis. 

What is Top-down Analysis?

Top-down analysis refers to the application of technical analysis that starts from the higher timeframes and proceeds to the lower timeframes. 

What is a Support Zone? 

This is a region of price which prevents a currency pair from heading lower with ‘support’. As it is a zone, it covers a small ‘range’ of price, rather than a specific price. 

What is a Resistance Zone?

This is a region of price which prevents a currency pair from heading higher. As it is a zone, it covers a small ‘range’ of price, rather than a specific price. 

Why are most of our trades Market Orders?

In our Price Action trading strategy, candle closures are of utmost importance, therefore, we rarely ever use pending orders. We recommend setting alerts for when price enters a point of interest, then look for confirmation in Price Action (example: for price to close above a level), before entering a market order. 

Smart Money FAQs

What and Who is Smart Money? 

The Smart Money that our trader refers to is any entity, individual or organization, or collective force that has the financial capacity to move price in the market. 

Who are included in ‘Dumb Money’, ‘Street Money’ or ‘Retail’?

These are market participants other than the Smart Money. Smart Money has more access to information, faster and easier than Street Money. 

What is a Central Bank?

A Central Bank is the entity that is responsible for overseeing a nation’s currency and monetary system. The United States’ central bank is the Federal Reserve System, commonly known as the Fed. 

Who is the Interbank Network?

This refers to a group of top-tier banks, electronically linked through EBS or Reuters for FX trading among themselves and with other major clients. 

What is Inter-Market Analysis?

This refers to the analysis of the correlations between interest rates, equities, commodities and global currencies during conditions of inflation or deflation

What is the Commitment of Traders (COT) Report?

This is a weekly report released by the United States’ CFTC (Commodity Futures Trading Commission) on the aggregate holdings of different market participants in the futures market including the Smart Money and Retail participants. 

What is an Institutional level? 

This refers to a price level that ends in 20, 50 or 80 (ex. 1.1220, 1.1250, or 1.1280). These levels are where many institutions do their commerce. 

What is the Equilibrium?

Some refer to this as Fair Value. It is the medium price of a previous range from it’s High and Low. 

What is Market Profile?

Market profile refers to one of 4 market environments that have different characteristics. These profiles include: 

  • Consolidation Range 
  • Expansion or Breakout
  • Retracement
  • Reversal 

What is Accumulation?

When Smart Money is buying, to either enter long positions or cover short positions, this is referred to as Accumulation. 

What is Manipulation?

This is when Smart Money is using a false price move to lure Retail traders to the wrong side of the market before they move price to the opposite side. It can also be a move to stop out traders and their position at a certain level. 

What is Distribution?

When smart money is selling, to either enter short positions or to liquidate long positions at a near swing high or low. 

What is a Stop-Run or Stop-Hunt?

These refer to a false price move engineered by Smart Money, with the goal of triggering stop losses resting above or below a price level. This is also referred to as Manipulation. 

What are Equal Highs and Equal Lows?

In a lot of traditional teachings, these may be called double tops and double bottoms which are reversal patterns. However, in smart money trading, these are areas we look for price to target, as price tends to be drawn to these areas. They act as a magnate for price because there is liquidity resting above or below these areas.

What is Liquidity?

When we refer to Liquidity in Smart Money trading, we are referring to the intersections of orders. Pools of liquidity can be found in near big swing areas in price where many stop orders and stop losses are placed.  

What is an Inside Day?

Refers to a daily candle with a lower high and a higher low than the previous daily candle, and usually signals a trend continuation.

What are Correlated Pairs?

Correlated pairs are 2 currency pairs that tend to move together. For example, EUR/USD and GBP/SSD usually move in tandem, as do NZD/USD and AUD/USD. 

What is Directional Bias?

Refers to the bias of the current direction of Price Action on the higher timeframe during a trending and tradable market profile. 

What is Swing High and Swing Low?

We refer to a swing high as a three-bar high where the middle candle creates a high-point, and the 2 neighbouring candles closes with a lower high. A swing low is the opposite. 

What is a day trade?

Refers to a trade that is entered and exited within the same trading day. 

What is an Up Candle?

This is another term for a Bullish Candle. 

What is a Down Candle?

This is another term for a Bearish Candle. 

What does ‘sit on your hands’ mean?

This is an expression used by our trader when market conditions are not ideal for trading, and it simply means to stay on the sidelines of the market, sit on your hands and just watch. 

Abbreviations

What is AMD? 

This is short for Accumulation, Manipulation, and Distribution. 

What is HTF and LTF?

Higher Time Frame and Lower Time Frame. HTF usually refers to the timeframes higher than 1 hour; the 4-hour (H4), Daily (D1), Weekly (W1), and Monthly (MN). LTF usually refers to the timeframes lower than the 4-hour; the 1-hour (H1), 15 min (M15), and 5 min (M5). 

What are HH, HL, LH, LL? 

Higher High, Higher Low, Lower High and Lower Low. These refer to the price swings and helps determine if market structure is bullish or bearish. 

What is EU, GU, UJ?

This is short for EUR/USD, GBP/USD, and USD/JPY.  The same goes for any other pairs with these types of abbreviations (UC = USD/CAD, AN = AUD/NZD, etc.) 

What is XAU?

This ticker symbol refers to Gold: XAU/USD.

What is WTI?

This ticker symbol refers to West Texas Intermediate or Crude Oil.

What is US30 or DJ30?

These ticker symbols refer to the Dow Jones. 

What is FOMO? 

Fear Of Missing Out. This is one of the great enemies for inexperienced traders. 

What is RR?

Short for Risk/Reward.

What is NFP?

Non-Farm Payroll.

What is the FOMC?

Federal Open Market Committee.