Guide

Learn forex trading

Foreign exchange (also known as forex or FX) refers to the global, over-the-counter market (OTC) where traders, investors, institutions and banks buy and sell currencies.

Trading is conducted over the ‘interbank market’, an online channel through which currencies are traded 24 hours a day, five days a week. Forex is one of the largest trading markets, with a global daily turnover estimated to exceed US$5 trillion.

Forex trading is the act of buying or selling currencies. Banks, central banks, corporations, institutional investors and individual traders exchange foreign currency for a variety of reasons, including balancing the markets, facilitating international trade and tourism, or making a profit.

Currency is traded in pairs, in both spot and futures markets. The value of a currency pair is driven by economic, political and environmental factors, such as wars, natural disasters, or national elections.

Brokers act as intermediaries, facilitating trades by providing clients access to the 24-hour interbankin order to conduct trades.

OWM offers a number of different accounts, each providing services and features tailored to our clients’ individual trading objectives.

Understanding Currency Pairs

All transactions made on the forex market involve the simultaneous purchasing and selling of two currencies.

These are called ‘currency pairs’, and include a base currency and a quote currency. The display below shows the forex pair EUR/USD (Euro/US Dollar), one of the most common currency pairs used on the forex market.

*Hover for more information
BASE CURRENCY
QUOTE CURRENCY

EUR

BASE CURRENCY

The base currency is the first currency that appears in a forex pair. This currency is bought or sold in exchange for the quote currency.

So, based on the example above, it will cost a trader 1.0916 USD to buy 1 EUR.

Alternatively, a trader could sell 1 EUR for 1.0916 USD.

/

USD

QUOTE CURRENCY

The quote currency – also referred to as the ‘counter’ currency – is the second currency that appears in a forex pair.
SPEAD
Ask Price - Bid Price      1.0918 - 1.0916 = 0.0002 (2 pips)

SPEAD

A spread is the difference between the ask price and the bid price. In other words, it is the cost of trading.

For example, if the Euro to US dollar is trading with an ask price of 1.0918 and a bid price of 1.0916, then the spread will be the ask price minus the bid price. In this case, 0.0002.
BID PRICE
ASK PRICE

1.1283

BID PRICE

The Bid Price is the price a trader is willing to buy a currency pair at. It is given in real-time and is constantly updated.

/

1.1285

ASK PRICE

The Ask Price is the price a trader will sell a currency for.

It is given in real-time and will change constantly, driven by market demand, as well as the political and economic factors

that influence the value of individual currencies.
PIPS
Ask Price - Bid Price      1.0918 - 1.0916 = 0.0002 (2 pips)

PIPS

A point in price – or pip for short – is a measure of the change in a currency pair in the forex market.

The acronym can also stand for ‘percentage in point’ and ‘price interest point’. A pip is used to measure price movements, and it represents a change in a currency pair. Most currency pairs are quoted to five decimal places.

Forex Trading Q&A

An FX trader is any individual who exchanges one currency for another. Individual traders commonly use different platforms to exchange foreign currency. These include banks, financial institutions, money changers, or FX brokers. Most trades are completed over-the-counter, which means that the trade is facilitated via a bank rather than a centralised entity.
The difference between the ask price and bid price is known as the spread. The spread represents the cost of a transaction; the lower the spread, the lower the cost. A spread is influenced by a number of factors: the supply of the asset, the stock’s trading activity, and the total demand or interest in a particular asset.
PIP is the abbreviation of “point in price” or percentage in point” and it is the smallest unit of price movement in the foreign exchange market. For example, when the exchange rate of EUR/USD moves to 1.1552 from 1.1550, the currency pair has risen by 2 pips (or 0.0002).
Hedging is a technique designed to reduce the risk caused by adverse price fluctuations. Investors and traders might implement a forex hedge in order to protect their position from risk as exchange rates change. Foreign currency options are a common hedging method, and grant the trader the possibility to buy or sell at a future exchange rate.
Forex scalping is a trading strategy which aims to benefit from small price movements in the market. Scalp traders will target intraday price movements and only hold positions for a small amount of time to take advantage of small market opportunities. Forex scalpers must be prepared to monitor the markets all day long.
A swap is simply an exchange of one currency for another. At a later date, the two parties who made the swap will receive their original currency back with a forward rate. The forward rate locks in a specific exchange rate and therefore acts as a kind of hedge. The swap varies significantly among different financial instruments.
Forex leverage is offered by brokers to enable traders to maximize their trading potential. The forex market offers higher leverage than other markets, and this attracts potential traders. Leverage allows traders to deposit small amounts and trade with high volumes. The term ultimately means borrowing money in order to increase the potential returns on a trade, but this means losses get increased too.
A drawdown is the difference between a relative peak and a relative trough in the value of an investment. After a new high is reached, drawdowns track the percentage change between the previous high and the smallest trough. In this way, drawdowns are useful for determining the financial risk of a certain asset.
Slippage refers to the difference between the requested price of a trade and the price at which it is eventually executed. Slippage is usually found when the markets are particularly volatile, and prices have moved quickly during the time it takes for the trade to be ordered and completed. Slippage can have positive and negative consequences.

Understanding Forex Charts

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CANDLESTICK CHART

A candlestick is a chart, also known as a Japanese Candlestick Chart, and is favoured by traders due to the wide range of information they portray. The chart displays the high, low, opening and closing prices.

A candlestick has three pips; open close and the wicks.The wicks show the high to low range and the ‘real body’ (wide section) shows investors if the closing price was higher or lower than the opening price.

If the candlestick is filled then the currency pair closed lower than it opened. If the candlestick is hollow, then the closing price is higher than the opening price.

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BAR CHART

A bar chart shows the opening, close, high and low of the currency prices.

The top of the bar represents the highest paid price and the bottom indicates the lowest traded price for that specific time period.

The actual bar represents the currency pair’s overall trading range and the horizontal lines on the sides represent the opening (left) and the closing prices (right).

A bar chart is most commonly used to identify the contraction and expansion of price ranges.

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LINE CHART

A line chart is easy to understand for forex trading beginners. In a line chart, a line is drawn from one closing price to the next.

When connected, it is easy to identify a general price movement of a currency pair throughout a time period and determine currency patterns.

What are technical indicators and FX signals?

Technical indicators are mathematical calculations that use historic price action and volume to forecast future price movements, providing trade entry and exit signals. These signals suggest a potential time and price for a trader to enter a trade, in order to profit from the predicted move in price. Technical indicators are usually displayed over or below price charts to help traders identify trends and overbought or oversold situations.

Forex indicators are designed to describe short-term price trends and are useful for finding the right currency pair, price level and time to enter or exit a trade. Common technical indicators include:
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Moving average

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Bollinger Bands

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Stochastic indicator

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MACD

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Relative Strength Index

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Alligator Oscillator