Trading

What is a currency pair?

A measure of a currency’s value against another

E.g. EUR/USD/JPY

What is a base currency?

1st currency that appears in a currency pair

What is a quote currency?

2nd currency that appears in a currency pair

different types of currency pairs

Major currency pairs

Cross currency pairs

Exotic currency pairs

Major currency pairs

EUR/USD

GBP/USD

USD/CAD

USD/JPY

USD/CHF

AUD/USD

NZD/USD

Cross currency pairs

refers to currency pairs which are non-USD

Euro crosses: EUR/GBP, EUR/AUD, EUR/NZD

Pound crosses: GBP/JPY, GBPIAUD, GBP/NZD

Yen crosses: AUD/JPY, NZD/JPY, GBP/JPY

Exotic currency pairs

When one major is paired with a developing country’s currency

USD/MXN

EUR/TRY

INR/GBP

Leverage

Leverage is when your broker lets you trade with more money than you have, using your deposit as a guarantee.

Pip

The smallest unit of measurement for price movement in forex. It is always the 4th decimal place.

An example of a pip

EUR/USD moves from 1.1050 to 1.1060

That is 10 pips

wider understanding of leverage

The broker is basically saying, “you put in $500, I’ll let you trade as if you have $25,000”

Pip analogy

If a shirt goes from 12.48 you don’t make $348. You make $1.00 because that’s how much it moved.

Pip

how many sessions are there

There are four sessions

The four sessions

Sydney, Tokyo, London, New York

Never risk more than 1% / Trade

The 1-2% rule is basically saying: don't let any single trade have the power to seriously hurt your account.

Stop loss

Your "get out if it goes DOWN too much" decision.
You only ever hit this because the price dropped against you.

"If it drops to $X, I'm out" (stop loss)

Take profit

Your "get out if it goes UP enough" decision.
This only triggers because the price rose in your favor.

"If it rises to $Y, I'm out" (take profit)

The 1-2% rule ever risk more than this per trade

never bet so much on one trade that a loss actually hurts you.

What is "risk" in a trade?

The amount you lose if the trade goes wrong (distance from entry price to stop loss).

What is "reward" in a trade?

The amount you gain if the trade goes right (distance from entry price to take profit).

What does a risk-reward ratio of 1:2 mean?

You're only willing to risk $1 to make at least $2 — your potential win is at least double your potential loss.

Why use a minimum 1:2 risk-reward ratio?

You can lose more trades than you win and still profit overall, because each win is worth more than each loss.