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“The mark of a well-educated
person is not necessarily in
knowing all the answers, but in
knowing where to find them.”
Douglas Everett
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Content
What is Forex 4
What affects the Forex market 5
How a Forex trade works 6
Trading strategies 8
Trading platforms 10
How to start trading Forex 11
© Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
What is Forex
The forex market is If you have traveled, you probably already In other words, forex trading occurs
the world’s largest have forex trading experience: when you from Monday morning in New Zealand until
buy the currency of your destination country midnight Friday on the west coast
financial market while paying with your own currency, that is of the USA.
forex trading.
Forex trading You might enjoy trading the major
Forex traders buy and sell currencies for profit currency pairs, or have knowledge about the
occurs from or to protect investments. An estimated USD strength of an exotic currency, or a feel for
Monday morning in 5 trillion is traded daily, most of it speculative. commodities; some opportunities present
New Zealand until themselves to people who keep up with
The forex market is the world’s largest news and events, while others require patient
midnight Friday on financial market, and since trading is between analysis. Traders bring their own strengths and
the west coast of market participants, there is no “open” or preferences to their trading and, over time,
the USA “close” of market except on weekends. create their own trading style.
Most traded
currency pairs London
New York
Tokyo
EUR/USD
USD/JPY
GBP/USD Sydney Sydney
USD/CHF
00 23 22 21 20 19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 00
4 © Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
What affects the Forex market
People trade forex Each market participant has their goals; The various market participants place different
based on expectations some are companies who are hedging weight on information about interest rates,
currency exposure to protect their business; policy (laws), economic announcements
of the future, which some are fundamental traders who focus and natural or man-made events: all affect
are shaped by many on factors that affect the strength of whole expectations and thus market movements.
factors. economies; others are technical traders who
look for price patterns to trigger their trades. Remember that in the forex market, you can
profit from down-turns as well as rising prices.
In addition, there are central banks, hedge
funds and financial institutions who all bring
different goals and interpretations to their
trading.
Participants
Central
Banks
Individual
Financial Forex
institutions traders
Companies
Forex Natural/
geopolitical
Market events
Interest Economic
rates news
Trade
Laws
Influencers
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How a Forex trade works
currency: 1.0525
EUR/USD Time
1/1.0500
Margin
Imagine that you believe the EUR will rise Also called leverage, margin is money borrowed from your
in value relative to the USD. You buy EUR Forex broker. Leveraging amplifies price changes and thus
100,000, paying USD 105,000 from your the profit or loss from a given trade. A 2% margin means
trading account (regardless of the account’s that you can command positions that are 50 times greater
denomination). than the funds in your account.
6 © Swissquote 2017. All rights reserved. Forex and CFD trading involves a high degree of risk and is not suitable to all investors.
Now imagine that in the example above, Value Long trade (buy)
the Euro did not rise; indeed instead it fell to
1.0475 at the end of the day. Therefore, Buy EUR 100,000
when you close your position by selling the Sell USD 105,000
Time
Bearish
Bullish
You think a currency will rise You think a currency will fall
You buy the currency You sell the currency
You take a Long position You take a Short position
When you trade Forex, you have the choice between buying or selling a currency pair.
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Trading strategies
Fundamental trading
Some traders find opportunities to trade Events that move a given currency quickly
by looking at fundamental indications of enable intra-day trades, i.e. trades that are
economic health. For example, supply and opened and closed on the same day. If your
demand for a currency decide the price and expectation is for price movement over longer
liquidity, so traders keep an eye on the central time, you will hold your trading position open
bank’s interest rates to see which way the for longer; in general, your position is closed at
market might move. 22.00 GMT and rolled over (“swapped”) into a
new trade opened immediately after. This new
If a currency has a high interest rate, it might position takes into account the closing price
be profitable to invest for the interest alone; and adds or subtracts interest.
however, the reason for the high interest rate
might be economic instability. All market Anything that makes an economy look
participants trade based on their information stronger points at taking long positions, while
and expectations. weaknesses point at taking short positions.
Carry trade
If one currency has a low interest rate
and the other a high interest rate, you
can participate in carry trading by buying
the currency with the high interest rate
while selling the currency with the low
interest rate. While you pay the low
interest on the currency you borrowed
to sell, you receive the high interest on
the currency you bought.
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Technical trading
Most forex traders use charts to decide when
to enter and exit trades, and technical traders
in particular pay attention to price patterns.
By looking at charts and weighing price,
volume, volatility and timing, it is possible to
find patterns that indicate opportunities.
Resistance:
key price level where the asset price tends to find
resistance as it rises. This means the price is more likely
Value to “bounce” off this level and fall afterwards.
Support:
key price level where the asset price tends to find
Resistance support as it fall. This means the price is more likely
to “bounce” off this level and rise afterwards.
line
nd Trend line:
Tre
Support It is formed when a diagonal line can be drawn between
a minimum of three or more price pivot points.
Time
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Trading platforms
EURUSD
The forex market participants create the forex
market; this is called an Over-the-Counter
(OTC) market. This is in contrast to, for example, Ask
1.13324
the stock market, where all trades go through
stock exchanges. Spread
Bid
1.13308
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How to start trading Forex
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