over the course of the next few minutes
we're going to go through some of the
basics of the foreign exchange market
how it works how people trade it and
what makes currency pairs move so in
this latest video with trading - and so
what I thought we'd do is take maybe
something of a step back now I
appreciate plenty of people are quite
familiar with foreign exchange trading
but for some people it might be a new
thing so we'll do a few minutes just
explaining how this market works when
you're trading what you're actually
trading and what makes currency pairs
move now first of all foreign exchange
market it's the biggest market in the
world
Bar None it trades trillions of dollars
a day around the clock so it appeals to
both traders who are trading small size
and larger size because it's relatively
easy to get your trades filled and the
cost of doing business is much lower
when compared to other markets with
currency markets no currency moves in
isolation so we have the idea of of
currency pairs one currency quoted
against another so to make sense of this
let's take a quick look on the platform
so we're on the trading two-on-two
platform
let's click the search tool up here top
left and see what's available to trade
let's click on currencies now so here's
the list of various currencies
Australian dollar Canadian dollar Swiss
franc Czech koruna
and so it goes on so there are
potentially hundreds of permutations we
could trade for example if we go down to
here the PLN polish zloty if you wanted
to you could take a view on the Polish
zloty against the Japanese yen polish
zloty against the Mexican pesos there
are all sorts of combinations you can do
it what most people tend to do in the
beginning at least is stick to the major
markets that the major currency pairs
because there's normally plenty going on
in those markets and with trading - and
- if you're trading 25,000 units or less
you can trade these with zero spread so
let me just highlight these by typing in
zero at the top so there we go that the
most popular market euro dollar then we
have the other Majors dollar Japanese
yen Pound US dollar and the dollar
against the Swiss franc so when we're
looking at currencies and currency pairs
it's all about relative value is one
currency stronger or weaker than another
currency and to get an idea of this
let's take a look at how one currency
pair has moved over recent months so all
the currency pair is showing is the
relative value of one currency versus
another so if we're looking here in this
example pound US dollar we can see at
the beginning of 2017 so January 2017
one pound would buy you around about one
dollar and 22 cents at the beginning of
September the pound had risen in value
and one pound would buy you one dollar
and and almost thirty two cents so when
we're looking at Forex pairs foreign
exchange trading we're looking at the
value of one currency versus another
now because we have currency pairs I
think it can be a bit confusing in the
beginning for some people when they
click and they buy dollar yen or what am
i buying am I saying that dollars gonna
go up my saying the yen's gonna go up
it's understandable why this is
confusing to some but it's really easy I
think to understand so again let's take
a quick look on a platform to understand
when we're trading what direction are we
actually trading in when it comes to the
directional trading it's really easy
like I said it can be a bit confusing
for people in the beginning but the way
to remember if you buy pound US dollar
it's the first quoted currency in the
currency pair that you're buying and
selling buying or selling so if I buy
pound US dollar I'm speculating that the
pound is going to go up means this chart
is going to go up and correspondingly
the US dollar is going to fall so the
pounds value is going to increase
against the US dollar so for example if
I'd bought down here bought pound US
dollar at the beginning of the year and
we're still holding the position I'd be
sitting on a reasonable profit if I
thought the pound had gone up too far
and I think why the markets gonna fall
how do I profit from this well how do I
try and profit from this the way to do
it I would click on sell I would sell
pound against the US dollar so I'm
speculating the value of the pound is
gonna drop on this
it's going to turn lower okay so that's
that that's the rule of thumb when
you're buying or selling it's the first
quoted currency that you're buying or
selling against the other one so if we
sold the dollar against the Japanese yen
we're speculating the dollar yen is
gonna fall so the dollars gonna fall and
the yen is correspondingly gonna rise
when it comes to trading hours foreign
exchange market is a true 24-hour market
so it starts off Sunday night UK time
when the Asian markets open for business
and it trades all the way around the
clock till Friday evening when New York
finishes off for the weekend then on
Sunday the whole thing starts again but
you don't need to be intimidated or
worried by there's 24-hour market let's
let's take a look at some of the moves
that we see and how we might want to
trade it here's a snapshot of a few days
pairen against the dollar where each of
these candlesticks represents 10 minutes
worth of trading so going back to the
5th of September and ending up at the
end of that particular week on the 8th
of September so we can see you can see
from the scale just down here that this
is a 24 market for example this section
here we've got from 11 o'clock UK time
Asian trading kicks in the market moves
higher then we have sort of 7:00 to 8:00
in the morning UK time when the focus
shifts to Europe and the market
continues to rise in this example and
then we have US time so from about five
six o'clock in the evening
UK time the focus is very much on the US
and we had something of a quiet finish
but but don't be I think worried about
this being a 24-hour market you know
thanks to stop losses and take profit
orders you can set up your trade so if a
certain level gets hit you come out for
a small loss or you come out for the
profit you're expecting just because
it's a 24-hour market you don't need to
watch these markets around the clock
sitting there in your pajamas with
matchsticks holding your eyes open you
know you can use orders to manage the
risk for you when you're trading foreign
exchange that like so many other
products these days you're trading using
leverage so even though you might have
let's say $100,000 position in one
currency you don't actually tie up the
whole amount because traditionally
currencies don't move that much during
the day you're trading using leverage so
you may only have to put up half a
percent or one percent value of the
position so you have a situation where a
small sum of money can control a much
bigger financial position of course that
gives you the potential for greater
profits but hand-in-hand with that goes
the risk of bigger losses which is why
it's important I think to manage the
risk using stop losses and we've done
plenty of videos about how you might
want to use stop losses the last thing
we might want to look at is what moves
foreign exchange pairs the short answer
and maybe not too helpful is potentially
everything can have an impact on the
currency markets you know from things
like interest rates for example if the
interest rates in one country higher
than the interest rates in another
country that can make that currency
appealing but hand in hand with that
sometimes higher interest rates mean
maybe a weaker economy so that can make
money flow the other way things like
unemployment numbers have an impact as
well and as we've seen you know in the
past from 12 to 18 months political
events can have an impact the great
example of that is the pound you know
we've seen the pound very volatile since
the referendum vote in June 2016 so all
of these things can come together an
effect of foreign exchange markets so
that's it that's it that's a brief
introduction to some of the basic
mechanics of foreign exchange now every
week we do different videos on trading
strategies but if you have any questions
about this one leave us a message in the
comments down below if you liked the
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next video goes up but we'll bring
things to an end I hope you found it
useful and I hope you have a good
trading week