Inhaltsverzeichnis
With forex trading to passive income and financial freedom within one year
What is passive income?
What is forex and forex trading?
What is the foreign exchange or currency market?
The various market participants in the foreign exchange market in detail once again
Foreign exchange transactions and currency trading
How foreign exchange trading works
Foreign exchange business with private customers
The most frequently traded currencies and currency pairs in the foreign exchange market
Market supervision in the foreign exchange or currency market
How do profits arise in foreign exchange trading?
The historical development of foreign exchange trading
The requirements for foreign exchange trading
Forex trading basic knowledge
The forex broker
The advantages of foreign exchange trading
Possibility of making profits regardless of the direction of the market
Low barriers to entry
The disadvantages of foreign exchange trading
Dubious and non-transparent brokers
Behavior of exchange rates
Learn the forex basics
What is a pip?
What is meant by majors and minors?
The Forex Broker
What does margin mean in Forex trading?
Forex trading and emotions
Choosing the right Forex broker
Documentation and analysis
Being always up to date with the latest news
Exact daily planning and precise objectives
How is a trade opened?
The correct position size at the trade opening
When does a profit arise and when does a loss arise?
Find the right forex broker
Leverage in Forex trading
The trading platform of the Forex Broker
Free demo account
Customer support and customer care
The different types of forex brokers
Deposits at the forex broker
Withdrawals at the forex broker
Crypto currencies with a forex broker
Summary of the most important criteria for finding the right forex broker
The lot sizes
The most important different types of trading
Buy and hold
Swing trading
Day trading
Scalping
Technical analysis in foreign exchange or forex trading
The basics of technical analysis
The beginnings and the origin of technical chart analysis
The different chart designs
The Line Chart
The Candlestick Chart
The Bar Chart
The different colors of the charts in Forex trading
The technical indicators
The basic principles of technical analysis
Conclusion on technical forex analysis
The fundamental analysis of foreign exchange trading
Exchange rates and central banks
Bad or good news
Which factors are important in fundamental analysis?
Interest rate development
The practical implementation of fundamental analysis
Conclusion Fundamental Analysis
Forex strategies for beginners, advanced traders and professionals
Simple strategies for beginners
3 concrete practical examples for beginners
Strategy Moving Average Crossings
Forex strategies for advanced traders or professionals
The entry signals for scalping
Combined use
Which broker is suitable for scalping?
The INSIDE-BAR strategy with a relatively high hit rate
The MACD Strategy
The GAP Strategy
The EMA Strategy
Summary Forex Strategies
Risk or money management in foreign exchange trading
Trading Psychology: How to begin thinking like a professional trader
Financial psychology - origin until today
Framing effect
Sunk cost effect
Heuristics
Disposition effect
Trading fears - The central issue in trading
Meaningful fears and meaningless anxieties
The longing for security
The view of things
The control center in the brain
The power of the unconscious
Statements of faith
Autoaggression (self-injury)
Which characterize the first years of life
The power of discipline - training the will
Stress and trading - the right dose makes the difference
Combat escape response
Stress due to loss of control
Recognizing and overcoming stress
Trading and personality
Trading trap: Thinking, believing, hoping
Small trading account - big problems
Trading with sense
Important technical terms in forex trading that you need to know
Bar chart
Basic currency/ exchange rate currency
Broker
Buy Stop Order
Candlestick Chart
Central Banks
Chance-Risk-Ratio
Course Order
Cross Currencies
Currency Pair
Day Trading
Dealing Desk Broker
Demo Account
Decentralized Market
Exchange Rate
Forex Trading
Forex Trading Software
Fundamental Analysis
Go Long or Short
Hidden Order
Iceberg Order
Indicators
Leverage
Limited Order
Line Chart
Lot Sizes
Majors and Minors
Manual Trading Strategy
Margin
Margin Call
Minimum Deposit and Minimum Stake
Momentum
Money and Risk Management
Obligation to make additional contributions
No-Dealing-Desk-Broker
Open and Close Position
Pips
Requotes
Return on Investment
Scalping
Short Position
Sell Limit Order
Sell-Stop Order
Simple Moving Average (SMA)
Scaling
Slippage
Social Trading
Spread
Stop Loss
Supports and Resistors
Swing Trading
Take Profit
Technical Analysis
Technical Indicators
Trading Platform
Trading Hours
Unlimited Order
Volatility
With forex trading to passive income and financial freedom within one year
With forex trading to passive income and financial freedom within one year
Many people have the desire to leave the hamster wheel of working life behind them or to step back a little here. But each person, who strives here for financial freedom, independent of the work income, must be ready to take its finances into the hand. That means for this person, independently of its earned income or from national allowances to develop additional own sources of income. Here one speaks in the following of a passive income.
What is passive income?
Passive income is money and income that a person regularly receives for which that person does not work directly. This means that time is no longer exchanged for money, as it is the case in an employee-existence or as an independent person. This is usually money from passive sources of income in which this person has once invested time or money. However, these income streams must have been built up beforehand in order to benefit from them later. Passive income decouples time from income. This creates financial and time flexibility.
Especially in a time when jobs are no longer secure due to digitalization and rationalization, it is increasingly important not to be dependent on a job as an employee. Similarly, there is no source of income that is taxed as heavily as earned income. Taxes on investment returns or corporate profits are much lower. Therefore, flexibility, independence from earned income and low tax rates are important reasons to build up passive income.
An average income millionaire usually has between 7 and 10 different sources of income outside of his or her work income. One way of doing this is to build up a passive income in the world's largest market, the currency or forex market, in the form of Forex.
The following explanations in this book serve to present this field and its possibilities in detail and to show how a passive income can be built up in the world's largest market, the currency and foreign exchange market. First of all, it is a matter of explaining some of the terms used in Forex, so that even a beginner can become familiar with this subject.
What is forex and forex trading?
The term Forex (short for Foreign Exchange Market) is the most common name for the foreign exchange or currency market today. Also the terms FX market, foreign exchange market or currency market are used colloquially. The Forex market is the most liquid and largest market in the world, which includes all the currencies existing in the world. In this market, the demand for foreign exchange meets the supply of foreign exchange and the exchange of foreign exchange takes place at the current exchange rate.
There is no central marketplace where this foreign exchange trading is carried out, because the trade is mainly between the market participants.
Forex trading is then understood to be the sale and purchase of foreign exchange or currencies. In doing so, investors try to profit from the exchange rate changes and thereby make a profit. In order to maximize the profit amount, very high financial levers are used. However, the use of high financial levers also means the risk of realizing high losses, which can far exceed the original investment.
What is the foreign exchange or currency market?
The foreign exchange or currency market is the largest financial market in the world with a daily turnover of more than 5 trillion dollars. In contrast to the floor exchange, trading is possible here 5 days a week, 24 hours a day. Trading is usually possible practically from Sunday night until late Friday evening. Thus, trading is possible from Sunday to Friday non-stop without interruption.
The foreign exchange or currency market is a sub-sector of the financial market, which also includes the capital and money market. As already mentioned, the foreign exchange market cannot be localized to a specific location because trading in foreign exchange is primarily conducted between market participants and the foreign exchange exchanges have largely been abolished or have lost much of their importance. The market participants in the foreign exchange market are, among others, central banks (here, the foreign exchange market intervention also plays a role), credit institutions, the state, large companies from the private sector, medium and small businesses and private households, this for their foreign exchange transactions must then also turn to the credit institutions. Trading on the foreign exchange market is done with foreign exchange (book money in foreign currency).
The participants in the market as well as the trading objects on the foreign exchange or currency market
The Foreign Exchange Market instrument is used to exchange domestic currency for foreign currency and vice versa. As a result, the purchasing power of the domestic currency is then exchanged for foreign currency. The foreign exchange markets are mainly shaped by foreign exchange trading.
Various market participants are active in the foreign exchange market. These include, as already mentioned, banks and credit institutions, larger industrial companies, private foreign exchange dealers, trading houses and foreign exchange brokers. Enormously important market participants are the central banks. For economic as well as political reasons, the central banks have the possibility to intervene in the foreign exchange markets with foreign exchange market interventions (for example, to restore a foreign exchange market balance).
In interbank trading, the majority of foreign exchange trading is carried out over the counter. Since the foreign exchange exchanges were hardly involved in foreign exchange trading, they have either been abolished or greatly reduced (in Germany, this took place in December 1998). The essential function of the foreign exchange markets, the official determination of exchange rates, is nowadays determined by reference values (such as EuroFX or as a trading medium in the form of online trading via trading platforms, such as the electronic brokerage EBS, or via telephone trading).
The trading object used here is foreign currency, which has a currency designation representing its country of origin. The pound sterling was introduced as the first important trading currency in 1750. This was followed by the Swiss franc in 1850, the yen in 1871 and the US dollar in 1875. The youngest currency, the euro, was introduced in 2002.
Nowadays, the foreign exchange trade between the individual banks is handled electronically in practice. Very large amounts are traded between banks and credit institutions within seconds. Here then exclusively book money is used and also transferred.
The various market participants in the foreign exchange market in detail once again
Investment banks
Here one speaks also of institutional dealers, which are composed of large financial institutions as well as banks. Through them, liquidity is made available to the foreign exchange market. These traders then trade among themselves on the interbank market. This is, as already mentioned, an electronic communication network, which is supported by predetermined credit lines between the participating banks and credit institutions. This interbank market basically consists of a network of institutional foreign exchange dealers who trade currencies among themselves in order to keep the entire banking system liquid. According to the Bank of International Settlements, this network of foreign exchange dealers accounts for approximately 40 percent of the daily turnover in the entire foreign exchange market.
Central banks
Central banks, such as the Federal Reserve (FED), the Bank of England or the European Central Bank (ECB), are responsible for the money supply, interest rates and the supervision of the banking systems in their territories. Due to the fact and in the context of their task to manage monetary stability and growth, they have a great influence on the foreign exchange market.
The companies
Companies are also among the major customers of institutional traders. Foreign exchange is indispensable for any international trade. In every international transaction in which services or products are sold to corporate clients or purchased from their suppliers
are required here for the sale or purchase of foreign currencies. Especially in today's age of globalization, foreign currencies are an indispensable part of every large company.
The institutional and retail traders
Traders are the most diverse group of market participants in the foreign exchange market. These market participants profit from the price fluctuations. Traders working for hedge funds are a very influential group of currency speculators and are also able to influence currency rates due to the size of the stakes they place in the foreign exchange market at regular intervals. This type of market participants is also a very knowledgeable and experienced clientele. Such hedge funds invest on behalf of pension funds, private individuals, companies and also to some extent governments. These professional traders use various techniques, including discretionary and algorithmic trading or a combination of both, as well as fully automated trading.
The retail traders are the private traders. These are small private investors who want to earn a reasonable income in Forex or foreign exchange trading. The problem here is that for this purpose, a sufficient and good education must be available to be able to survive especially in the foreign exchange market, because the smallest wrong decision triggers corresponding consequences and thus it can quickly come to losses.
Foreign exchange transactions and currency trading
Foreign exchange trading is understood to be the interbank market. There the trade of internationally active banks and credit institutions takes place in the form of standardized foreign exchange transactions with the trading object foreign exchange. Foreign exchange transactions consist of the basic forms of forward exchange transactions, spot exchange transactions and the resulting currency swaps (derivatives) and currency options.
The forward exchange transaction
A forward exchange transaction is also referred to as a forward, outright or solo transaction. In this case, there is a period of time between the settlement date (on the day on which the transaction is executed) and the day the transaction is concluded of at least 3
working days. However, the time span can also extend over several months. Both parties to the contract must meet the conditions agreed on the day of the transaction (which includes the exchange rate valid on that day), regardless of how the current exchange rate situation has changed.
The forward exchange transaction is thus one of the hedging transactions or exchange rate hedging transactions.
Spot exchange business
In the case of a spot exchange transaction (also referred to here as spot transactions), there is a maximum period of 2 bank working days between the day on which the transaction is concluded and the day on which the claim is fulfilled.
The currency swap transaction
A foreign exchange swap (also known as a swap in short, derived from English to swap exchange) is a combination of a spot and forward foreign exchange sale or vice versa. Here the currency exchange of 2 currencies on the day,
on which the transaction is concluded. However, the redemption action will be carried out at a later date. As this is a combination with a forward exchange transaction, the swap solutions also fall under a currency hedging transaction.
The currency option business
A currency option transaction gives the buyer the right to deliver or purchase a currency at a specified rate and on a precise date within a specified period of time. So that then the buyer receives the option of this right, the seller receives a price from him (the so-called option premium). The seller then has the obligation to provide or receive the currency.
How foreign exchange trading works
Two currencies have a certain value relationship to each other. One of them is the reference currency with a certain value and the other currency is set in relation to it, depending on its value. The corresponding values change in relation to each other. Also in the foreign exchange market a change takes place through supply and demand. If the one currency is in strong demand, it increases in value. If however the supply exceeds the demand, also at the foreign exchange market the value of this currency gives way opposite the other currency.
An important indicator of how the exchange rate of the currency changes is the key interest rate of the respective country. The higher a country's key interest rate is, the more capital flows into the respective currency and the more the currency appreciates. A change in the key interest rate not only has serious effects on the foreign exchange market, but also on the stock and commodity markets.
It is therefore important to suspend activities on the foreign exchange market before making a key interest rate decision for the most important currencies or, in the case of ongoing campaigns, to combine this with hedging.
As with all legal transactions, foreign exchange trading transactions are based on both performance and consideration. Here, for example, dollars are exchanged for euros or dollars for yen.
Here the exchange rates in the so-called currency pairs (also called price quotation) are given. Then the source currency (for example, exchange from dollar to euro, here dollars) becomes the base currency and the target currency (the euro) becomes the quote currency.
In addition to the pure exchange ratio, there is also a note of the codes (the so-called ISO 4217 code) of the respective currencies - i.e. source and target currency. This is done either with a separating symbol or with a slash or a dot. The exchange rate is often indicated with 5 significant digits.
Example: display 1 () 2345/B.Q)
Here, for an equal amount of base currency, you get more from the target currency when the exchange rate increases. If the exchange rate goes down, the reverse is true.
Foreign exchange business with private customers
One of the most common foreign exchange transactions for private customers is the transfer of money abroad to a country that has a foreign currency. There is also the occasional need to hedge larger foreign currency debts.
This may be the case if, for example, the maintenance of a vacation home located in a country with a foreign currency has to be paid and this has to be handled by a local bank in foreign currency.
Foreign exchange business also plays a role for private customers in securities settlement in foreign currencies. For example, if these generate income in foreign currencies and are then repaid in foreign currency. Here then the bank or the credit institute executes the appropriate foreign exchange. This also applies to foreign currency checks. Certificates can also be linked to the development of exchange rates.
However, foreign exchange transactions are carried out by those private investors who do so in the form of forex trading. However, there is no direct access to interbank trading and currency futures for the retail investor, as the volumes traded there are simply too large. This is where the so-called "Forex brokers" come into play, who then also give the private investor access to the foreign exchange market.
The most frequently traded currencies and currency pairs in the foreign exchange market
The most widely used reserve currencies internationally, such as the US dollar, Japanese yen, euro and the British pound, as well as the currency in the regional area, the Australian dollar or the Canadian dollar (commodities), are the currencies that make up the largest share of daily trading.
In terms of currency pairs, the EUR/USD pair has the highest trading volume with about 28 percent of all trades. In second place is the USD/JPY currency pair with about 14 percent and in third place is the GBP/USD currency pair with about 9 percent.
In practice, the major currency pairs are also called "majors". If there is no US dollar included as a part of the currency pair, they are called "crosses".
The exotic currencies (also called exotic currencies or "exotics" for short) are currencies that are traded relatively little and the liquidity available there is very low. Such currencies are sometimes not always sufficiently available for transactions. Such exotic currencies can be convertible (for example, the Mexican peso) or non-convertible (such as the Brazilian real). This also results in a relatively low trading volume for exotic currency pairs.
Such exotic currencies often come from economically and politically unstable developing countries. These include the South African rand (ZAR), the Mexican peso (MXN), the Chinese yuan (CNY), the Indian rupee (INR), the Hong Kong dollar and the Brazilian real (BRL).
Trading in these exotic currencies is also subject to much higher fees.
Market supervision in the foreign exchange or currency market
There is no supraregional or global supervisory institution for foreign exchange and currency markets. However, some market participants are supervised at the national level. If the market participants are banks or credit institutions, they are subject to the respective banking supervision of the respective country.
As far as Germany is concerned, foreign exchange trading is a banking transaction requiring a license. The legal basis for this is §1 paragraph 1 No. 4 KW (German Banking Act). According to this legal regulation, a banking transaction is considered to be "the sale as well as the acquisition of financial instruments in one's own name for the account of a third party".
In accordance with Section 1 (11) of the German Banking Act (KWG), financial instruments (including money market instruments, securities, foreign exchange or units of account and derivatives) are defined precisely here.
Similarly, proprietary trading of foreign exchange is also a financial service requiring a license (see § 1 (1a) No. 4 KWG). Proprietary trading (according to §
32 para. 1a sentence 1 KWG) is not directly subject to permission.
Compliance with the legal regulations (such as the minimum requirements for risk management -BA- in Germany, for example, which sets out the organizational structure for foreign exchange trading by banks and credit institutions) is monitored by the respective banking supervisory authorities.
Banks and credit institutions are also subject to regulatory reporting obligations based on the inventory risks of foreign exchange in accordance with the SolvV (Solvabilitäsverordnung - this is a legal regulation issued by the Federal Ministry of Finance in 2006 as part of the banking supervisory law). This regulation regulates the requirements for banks and credit institutions on the basis of Sections 10 ff of the German Banking Act (Kreditwesengesetz) in terms of capital adequacy (solvency) and liquidity.
The unclosed foreign exchange positions (uncovered or closed out positions) of banks and credit institutions are subject to a commitment to the available own funds of the bank or credit institution in accordance with sections 294 et seq. of the above-mentioned SolvV. If the total outstanding items account for 2 percent of the own funds, they are weighted at 8 percent. This then results in an automatic limit on the risky open overall positions in foreign exchange trading.
How do profits arise in foreign exchange trading?
How do profits arise in foreign exchange trading?
For laymen or beginners it sounds a little strange at first that you can make a lot of money by changing just a few or just one cent from one currency to the other. In foreign exchange trading, not only, as normal, from the 2nd decimal place is assumed here, but from the 4th place. This 4th place is then also in the technical language in forex trading as "pip". A 5th decimal place again makes a finer scaling possibility in the strategy and the 5th decimal place is called "pip".
Thus, an increase in the EUR/USD exchange rate from 1.1759 to 1.1760
the change of 1 pip and this results in either a profit or a loss of approximately 8.50 Euro for a position size of 1 lot (trading unit in foreign exchange trading). Such an amount only works because of the leverage used in foreign exchange trading. Here it is then also possible, with a relatively small investment foreign exchange worth 100,000
Euro.
Example
The EUR/USD pair is showing greater resistance at the 1.15 level. This is where a sell limit order (such an order is used in Forex trading to sell a certain number of forex or securities at a fixed price or above. Each limit order has a precisely defined validity period) can be set with a standard lot (for example 100,000 units).
If the EUR/USD exchange rate drops only 2 cents to 1.13 and then the sell limit order is set at this level, and thus the position is closed out when this price level is reached, this trade will result in 200 pips and thus a profit of 2,000 Euro (for a position size of 1 lot, one pip is worth about 10 Euro). Therefore only very small
This is done either to make a larger profit if the estimate is correct or to make a larger loss if the estimate is incorrect.
Due to the leverage effect mentioned above, it is possible to trade with a small and manageable amount of money. For example, it is possible to trade an amount of 10,000 Euro with a leverage of 1 : 100 with a stake of 100 Euro.
As already mentioned, the size of a position in foreign exchange trading is measured in lots. A complete lot corresponds to 100,000 units of one currency. For example, if a whole lot in the EUR/USD currency pair
is opened, the movement of the price by 1 pip is enough to increase or decrease the result by 10 euros. Thus, a small bet would have the risk that this bet would be wiped out in a short period of time when working with such large positions as with a complete lot.
Therefore there are different lot sizes, such as 1 Minilot (corresponds to 1 Euro or USD per pip) or a Microlot (0.10 Euro or USD per pip).
Is the foreign exchange market liquid and is there so much movement in the exchange rates so that you can make money with it?
The foreign exchange market is very liquid and the foreign exchange moves sufficiently to make money even with small movements. But also because of the sometimes very long and pronounced trend phases, currencies are also popular with hedge funds. Thanks to the possibility of using leverage in forex trading, only very small changes in currency pairs are sufficient here (so only very few pips of movement) to make a good and reasonable profit. It is important to use good money management.
Foreign exchange trading is therefore not riskier than trading in other financial instruments, such as shares. Due to the fact that there is a clean technical market, it is easy to trade here. The foreign exchange market also offers a corresponding leverage, which is not available in other markets
The historical development of foreign exchange trading
The historical development of foreign exchange trading
The first beginnings of currency trading go back to ancient Greece. There, traders from the surrounding Europe and the Middle East met to exchange various currencies among themselves. In the port city of Piraeus, for example, the money changers of the time exchanged the coins of different countries and cities by comparing their gold ratio to their weight. It was also possible at that time to exchange raw materials, such as silver or gold, for a corresponding amount of coins (i.e. money).
In the 16th century, the then powerful Florentine Medici family produced a book in the shape of a nostro account. Among other things, it contained a corresponding list of local and foreign currencies and their exchange values.
In 1880 the actual international foreign exchange trading began. At that time it was possible for the first time that foreign payments could be received in a bank account abroad that belonged to one, in the form of a credit there.
The establishment of the International Monetary Fund (IMF) and the World Bank has resulted in fixed exchange rates. The Bretton Woods Agreement (July 22, 1944) also contributed to this. The fluctuation margins of this agreement were then internationally established. At that time, the central banks were also obliged to intervene in the markets if the so-called intervention points for the respective currencies were not reached or exceeded, in order to restore the current situation.
In September 1969 these fixed exchange rates were then relaxed and in March 1973 the European Community (EC) started block floating. Block floating means that the monetary authorities of at least two, but often more countries, undertake to keep the central rates of their currencies stable in relation to each other or within a certain range with corresponding intervention points. However, the exchange rates of their currencies vis-à-vis third countries fluctuate freely against the US dollar. As a result, the previously fixed exchange rates were replaced by freely fluctuating exchange rates. The floating exchange rates increased the risks of the market participants. As a result, the interest rate, stock and foreign exchange markets experienced greater exchange rate fluctuations.
Particularly in times of crisis, there have been strong fluctuations in the past century (as an example, the 1973 Yom Kippur War and the resulting oil crisis). In 1982, Mexico also closed its foreign exchange market, which led to the debt crisis in developing countries and Latin America. Further crises (such as the Tiger State Crisis in 1997) followed and this caused strong fluctuations on the foreign exchange markets. Thus, these few examples show that the foreign exchange markets, unlike the money and securities markets, are strongly influenced by government policies and thus a currency affected by this is in crisis. For this reason, it is now possible for a country's central bank or an association of states (such as the EU with the ECB - European Central Bank) to intervene directly in the events.
In the last century until the 80s, all foreign exchange transactions were handled over the telephone. This meant that the person trading in foreign exchange was able to follow the ups and downs of the currencies in real time over the telephone, in order to be able to react directly.
With the introduction of the PC in the 80's of the last century the possibility was then created for the dealers also to conclude a fast trade over the Internet. This procedure then became more and more accepted.
The requirements for foreign exchange trading
The requirements for foreign exchange trading
With the introduction of computers and ever faster Internet connections, foreign exchange trading became easier and faster. Especially in recent years, the foreign exchange or Forex market has become more and more popular among private investors. An on-line foreign exchange trade is possible up-to-date for each investor without larger problems. This would not have been conceivable only a few years ago.
Minimum age for online trading of foreign exchange
If someone wants to participate in foreign exchange trading online, they should be at least 18 years old. There are also some providers where the minimum participation age is 21 years. This is related to the respective laws, which are valid here at the respective countries where the corresponding online platform is registered and operates. However, interested persons can use the period up to the age of 18 to prepare for this market. Then the start from
Impressum
Verlag: BookRix GmbH & Co. KG
Tag der Veröffentlichung: 08.01.2024
ISBN: 978-3-7554-6666-6
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