Forex Tutorial

Learn how to trade forex through our simple & easy to follow guides.

Here’s our guide for beginner traders that will put the main ideas of the Forex market in a nutshell.

CFD stands for Contract for Difference.

These have been around for many years in different guises and are very straight forward. They are simply a vehicle to buy or sell financial products such as equities or commodities without having to put up the entire value of the trade, by trading on margin. Equity CFD trading in its present form began in the 1990s. It was introduced by stock brokers to allow their hedge fund clients to gain large downside exposure to the market using high leverage. CFDs gave them exactly what they needed with the added advantage of not having to pay stamp duty. This was the main market for CFD’s for most of the decade, until the technology boom of the late 1990s began at which point the awareness of CFDs became more prominent.
Traders then had the ability to speculate on the increased volatility of stocks using leveraged CFDs over a short time period. Today, CFDs are available on a vast array of markets, not just equities. They are also available to the retail user at home rather than just the city professionals. Current reports estimate that as much as 25% of the UK stock market turnover is attributed to CFD trading, CFD are also beginning to start trading in countries such as Canada, Singapore and Eastern Europe.

Modify Order

Once you have opened an order, it is possible to modify your order any time the market is open.

Partially Close Order

You can partially close your trade order by closing an order with a double click on the open order to bring up a trade ticket. On the trade ticket select the volume (lot size) of the trade you want to close. For example if you had bought 3 lots of EUR/USD and you wanted to close 1 lot at the current market price you would open the trade ticket, enter 1 as the volume (lot size), and select close at market. This would close one lot of EUR/USD and leave 2 lots of EUR/USD open.

How to Add an Indicator

Indicators are price analysis tools that you can add onto your MT4 charts. MT4 has multiple default indicators already built into the platform. You can view the list of available indicators in the Navigator section.
To add an indicator to your chart, click on the name of the indicator in the Navigator box and drag it onto the chart. When you add it to the chart, a box will pop up and allow you to specify the settings of the indicator.
To remove an indicator from your chart, right click on the chart and select Indicators List. Select the indicator you want to remove and hit Delete. Or you can simply right click on the indicator on your chart and hit Delete Indicator.

How to Create a Template

If you have customised your chart or added multiple indicators to a chart, you may wish to save the chart template so that you can quickly add the same format to other charts.
Imagine you have changed the background colour on a 1 -minute EUR/USD chart to blue and the colour of the prices on the graph to red. You’ve also added a 15 -day moving average indicator to your chart. Your output should look like this:

What is Margin Trading?

Margin trading mirrors normal market trading except the trade will not mature and you will never have to exchange any commodities, equities or anything else other than money. Because you are never actually going to have to settle a trade or come up with the full amount of the initial transaction, margin trading has evolved to allow clients to trade in a larger amount than they are holding as collateral or deposit, known as margin. This can vary depending on what you are trading, due to volatility issues, and also on which trading company you trade with. A company that lets you trade with massive leverage is not necessarily doing you any favours as you are potentially exposing yourself to large losses, which can accrue very quickly in a volatile market. Our system will close your positions out if they are losing 90% of the funds available in your account, although it is always your responsibility to ensure that this has been done and that you are not left with positions you are not aware of or that are costing you more money than you have.

Trading

To trade CFDs, simply fund your account with the required initial margin for that product in the amount you wish to trade. For a stock like Vodafone for example, if the margin requirement is 5% then you only have to deposit that percentage of the value of the trade you wish to do. So to buy £50,000 worth of Vodafone shares you would only need to initially fund your account with £2,500 (which is 5% of £50,000). You are trading on the price movement of the market concerned, and when you close the trade the difference between the opening price and the closing price will determine how much money you make or lose. You do not have any entitlement to voting rights, are subject to corporate actions, and are liable to pay the dividend if you are short, but you do benefit from any dividends that are awarded if you are long. CFDs are not regulated on any exchange because they are a derivative product. This simply means that we derive our CFD prices from the underlying market price which will usually mimic that price in every way. We do not charge any commission to trade CFDs. The price you see is the price you get.
The other benefits from trading CFDs, besides being able to trade on margin, is that you are generally not liable to pay stamp duty on shares, as you have not actually bought any. Also you can offset any losses made against your Capital Gains Tax liability in the UK (tax laws can change). If this benefit is significant to you then we recommend that you seek independent financial advice for a more in depth explanation.
All rolling CFD markets are subject to overnight financing. If you are long CFDs (i.e. you have a position on which you will profit if the market concerned goes up) then as you have only put up a fraction of the actual value of the trade then you have ‘effectively borrowed’ the balance. For this we charge a financing charge of 2% above the overnight borrowing rate for the currency concerned.
If you had gone short on CFDs (i.e. you have a position on which you will profit if the market concerned goes down) then you have effectively deposited the entire value of the trade with us and will receive financing which is the overnight lending rate minus 2% (subject to a minimum of 0%). This is much better than most of our competitors as some do not have a minimum of 0%. This would be like a savings bank charging you on having savings.
As mentioned previously any profit or loss made on a CFD trade is calculated from the difference between the opening and closing prices of the trade. So if you bought £50,000 worth of Vodafone at £1.40 and sold them at £1.60 then you would make 20 pence profit which is £7,143 (£50,000 / 1.40 x 20p). If the price had fallen to £1.20 then you would have lost this amount. To calculate the number of CFDs you want to trade you simply divide the price of the CFD into the amount of CFDs you wish to trade in. So in this example that would be £50,000 / £1.40 = 35,714.
Please make sure that you have read our Risk Warning to make sure you understand the risks involved.

What is the Bid/Offer?

Nearly every financial market in the world has a two way price. This is the price that you buy and sell that particular market at. When dealing in CFDs, the currency you are trading in is usually whatever the underlying currency of that market is. So a UK equity would be traded in Sterling while a US commodity would be traded in US Dollars.

What is a Point/Pip/Tick?

A point, pip or tick is the smallest unit that a market usually moves in. So for example with Vodafone, as it is a UK stock, it trades in pence. The smallest it moves is in tenths of a penny. Equities from all other countries are quoted normally so in France for example, France Telecom may be at 16.95 which mean 16 Euros and 95 cents. So here one cent is a tick.

What is tick value?

It is often useful to know what the tick value of a trade is to help calculate what your profit or loss (P L) is or would be in a given situation. It simply represents the financial implication of a 1 point move in the trade. So if you had bought £5,000 of Vodafone CFDs then for every point it moves you would make or lose £5,000 / price (say 142) = £35.21 depending if it went up or down. You could also calculate this by knowing the number of CFD’s you had traded in. So in this example to buy £5,000 worth of Vodafone CFD’s you would have to have bought 3,521 CFDs (£5,000/£1.42). So for every pence movement the tick value would be 3,521 x 0.01 = £35.21.

What is lot size?

Some trading platforms have been designed to simplify trading for clients. Meta Trader for example uses a system known as ‘lots’ to enter the amount that you wish to trade. Basically on MT4 1 lot is equal to one share, and it is as simple as that. If you wanted to buy 500 shares, which is the same as 500 CFDs then you would buy 500 lots. On most CFDs you can trade in tenths of a lot. So you can limit the amount you trade in. (Please note that for Foreign Exchange trading the lot size is different. All lot sizes are shown on our Market Information Sheets).

What are Orders? (Risk Management)

An order is an instruction to open or close a position at a specific price chosen by you. They are useful if you are unable to follow the live prices of that market, as you can choose at what price you wish to enter the market (by placing an opening order) or exit the market (by placing a closing order). Closing orders can be used for limiting your risk or taking profits. An order can be valid over a specific time period and will either be triggered or will expire, whichever one comes first. They can be used to limit losses to a predetermined limit, although this is not necessarily guaranteed as markets can gap through levels.

What are Stops and Limits?

A stop order is an instruction that is executed only when the price of a market reaches a specified level that is less favorable than the current market level. A stop loss order is an instruction that is executed only when the price of a market reaches a specified level that is less favorable than the current market level, this is typical used to close an open position. A limit order is an instruction that is executed at a specified level when the price of a market reaches a level that is more favorable than the current market price. This type of order can be used to open or close a position. The following three examples are of different types of orders. These are all in Vodafone and assume that the current market price is 141 – 142.

An example of a stop order

You decide that if the market falls to 135 then it is going to keep going down, and you want to sell £5,000 of Vodafone (3,700 CFDs) if it gets there. So you want to leave an order that will trigger if we get to that level and open a new position. The order you leave is Sell 3,700 Vodafone at 135 stop. As you have not specified a cancelation time for the order it will be worked until such time as it is executed or canceled manually.

An example of a stop loss order

You currently are short 3,700 Vodafone at £1.30 and are losing money as it trading higher. You want to try and limit your potential loss to 35 ticks. This would be at (£1.30 £0.35) £1.65. If this was triggered at that price then you would lose £1,295 (3,700 x £0.35). The order that you would attach to your open position is Buy 3700 Vodafone at 165 Stop Loss. If our offer gets to 165 then the system would close you out. An example of a limit order You currently are short 3,700 Vodafone at £1.41. You want to leave an order to take your profit if it goes lower to say £1.30. So you would attach a T/P (take profit) order to your position to BUY 3,700 Vodafone at 130. If this order is triggered then you would make £407 (3,700 x £0.11).

How do I place an order?

You can place an order on the trading platform you will need to specify an order type, trade size, price and duration for the order.

What happens if the market gaps through my order level?

In volatile market conditions it may be possible for an order to be triggered at a level that is less favorable than the order price you specified. This is known as ‘Gapping’ and in this situation GKFXPrime will endeavor to execute the order at the first or most reasonable price available to us.

What happens to orders that are attached to an open position when that position is closed?

If you have any orders that are attached to a position that has been closed then these will automatically be cancelled. But it is your responsibility to ensure that this has been done. If you have left orders that are not specifically attached to a position then these will carry on being worked.

Closing an open position

To close an open position on MetaTrader you must either attach an order to the position, or right click on the position viewable in the ‘Trades’ tab and then choose the ‘close order’ option and then click the yellow close button. If you simply do a trade of equal and opposite value then this will not close the position but leave you both long and short.

What is Financing?

As mentioned previously, if you have a position open in a CFD at 10pm (London time) you will be subject to financing. If you have simply day traded and have no open positions left open, then you are not subject to any financing. If you are long a CFD then you will incur a financing charge. As you have only put up a fraction of the actual value of the trade then you have ‘effectively borrowed’ the balance. For this we charge a financing charge of 2% above the overnight lending rate for the currency concerned. If you are short a CFD then you may receive financing. You have effectively deposited the entire value of the trade with us and will receive financing which is the overnight lending rate minus 2% (subject to a minimum of 0%). If you have a position where you are long and short the same CFD then these do NOT cancel each other out and you would be liable to both pay and receive financing, losing whatever the difference is. Financing works differently for Foreign Exchange, so please read the section on that to find out how that is applied.

What is Margin Trading?

Margin trading mirrors normal market trading except the trade will not mature and you will never have to exchange any commodities, equities or anything else other than money. Because you are never actually going to have to settle a trade or come up with the full amount of the initial transaction, margin trading has evolved to allow clients to trade in a larger amount than they are holding as collateral or deposit, known as margin. This can vary depending on what you are trading, due to volatility issues, and also on which trading company you trade with. A company that lets you trade with massive leverage is not necessarily doing you any favours as you are potentially exposing yourself to large losses, which can accrue very quickly in a volatile market. Our system will close your positions out if they are losing 90% of the funds available in your account, although it is always your responsibility to ensure that this has been done and that you are not left with positions you are not aware of or that are costing you more money than you have.

Trading

To trade CFDs you simply have to fund your account with the required initial margin for that product in the amount you wish to trade. For a stock like Vodafone for example, if the margin requirement is 5% then you only have to deposit that percentage of the value of the trade you wish to do. So to buy £50,000 worth of Vodafone shares you would only need to initially fund your account with £2,500 (which is 5% of £50,000). You are trading on the price movement of the market concerned, and when you close the trade the difference between the opening price and the closing price will determine how much money you make or lose. You do not have any entitlement to voting rights, are subject to corporate actions, and are liable to pay the dividend if you are short, but you do benefit from any dividends that are awarded if you are long. CFD’s are not regulated on any exchange because they are a derivative product. This simply means that we derive our CFD prices from the underlying market price which will usually mimic that price in every way. We do not charge any commission to trade CFDs. The price you see is the price you get.
The other benefits from trading CFDs, besides being able to trade on margin, is that you are generally not liable to pay stamp duty on shares, as you have not actually bought any. Also you can offset any losses made against your Capital Gains Tax liability in the UK (tax laws can change). If this benefit is significant to you then we recommend that you seek independent financial advice for a more in depth explanation.
All rolling CFD markets are subject to overnight financing. If you are long CFDs (i.e. you have a position on which you will profit if the market concerned goes up) then as you have only put up a fraction of the actual value of the trade then you have ‘effectively borrowed’ the balance. For this we charge a financing charge of 2% above the overnight borrowing rate for the currency concerned.
If you had gone short on CFDs (i.e. you have a position on which you will profit if the market concerned goes down) then you have effectively deposited the entire value of the trade with us and will receive financing which is the overnight lending rate minus 2% (subject to a minimum of 0%). This is much better than most of our competitors as some do not have a minimum of 0%. This would be like a savings bank charging you on having savings.
As mentioned previously any profit or loss made on a CFD trade is calculated from the difference between the opening and closing prices of the trade. So if you bought £50,000 worth of Vodafone at £1.40 and sold them at £1.60 then you would make 20 pence profit which is £7,143 (£50,000 / 1.40 x 20p). If the price had fallen to £1.20 then you would have lost this amount. To calculate the number of CFD’s you want to trade you simply divide the price of the CFD into the amount of CFDs you wish to trade in. So in this example that would be £50,000 / £1.40 = 35,714.
Please make sure that you have read our Risk Warning to make sure you understand the risks involved. If the price continues.


Risk Warning: Trading in Forex/ CFDs and Other Derivatives is highly speculative and carries a high level of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent advice if necessary. Speculate only with funds that you can afford to lose. Domain usage rights belong to RHL Ltd. BDS Ltd Registration No. 8424660-1 is authorized and regulated by the Financial Services Authority (the FSA, License no. SD047) Registered address: Suite 3 Global Village, Jivan’s Complex, Mont Fleuri, Mahe, Seychelles. RHL Ltd. is a registered company of St. Vincent and the Grenadines, Number 25956 BC 2020 by the Registrar of IBC, and registered by the Financial Services Authority, and whose address is Suite 305, Griffith Corporate, P.O.Box 1510, Beachmont Kingstown St. Vincent and The Grenadines. Regional Restrictions: RHL Ltd. does not provide services to residents of the USA, Sudan, Syria and North Korea. RegalX is a trademark of Regal Holdings Ltd.

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