FOREX Trading In Sri Lanka

FOREX Trading In Sri Lanka

Sri Lankans have fallen victim to a large number of scams in recent years. Investment scams such as Sakvithi and Golden Key have promised extraordinarily high returns on deposits. However, all of these have failed at some point, costing depositors their hard earned money. What is worse, pyramid schemes are still running rampant throughout the area. FOREX trading however, is not a scam. This is truly a viable means of making money in the foreign currency market.

A relative lack of internet usage in this region makes FOREX trading in Sri Lanka a little known and littler explored option for seeking an investment income. However, for those with internet access, a bit of practice can make this a very lucrative investment opportunity for the savvy investor.

The first step is to choose a FOREX broker. Two very good options exist for FOREX trading in Sri Lanka. The first is eToro. This FOREX trading platform is ideal for the beginner. This is because the market data is presented using a graphic interface that makes trading in FOREX almost like playing a video game. Real time data is converted graphically to show a runner gaining or losing ground in a race. There are other graphic simulations that work in a similar manner to help the newcomer become comfortable with the FOREX market.

FOREX TRADING

Money Management

Is there a secret to becoming a successful trader?
There is a method that all successful traders use, and it’s no secret. It’s called
money management.
Money management is not some vague industry lingo – it simply means the
knowledge and skill of managing your Forex trading account. As simple as that
may seem, it’s the key to a long and successful trading career. And yet it is often
forgotten or neglected in the thrill of the trade. We’d like to take this opportunity
to lay out some ground rules by which you can effectively manage your account.
Don’t go looking for the Big Win; it will most likely result in a big loss. Successful
trading means consistent trading, where small wins amount to large long term
profits. Never assume that all your trades will be profitable, and plan on losses.
You should only risk a small percentage of your total account balance on each
trade. This simply minimizes your risk, so that even if you end up losing your
entire investment on a trade, it doesn’t have a critical effect on your account
balance. The recommended amount is 2% of your account balance per trade.
More aggressive traders go as high as 5%, but never higher than that. It is a very
important rule to keep, since the lower your account balance drops, the harder it
is to rebuild it.
Using Limit Orders
Learn to use the Stop Loss and Take Profit orders effectively. These orders protect
your investment and realize your profits. They are very simple tools that can make
all the difference to your account balance.
Size of Trades
You are suggested to open small trades, because in the case of a losing trade, you
can then open the opposite trade with a bigger investment or higher leverage,
thus compensating for losses.
Practice with Virtual Money
Use virtual money mode for practice. One of the unique features of eToro is that
our platform provides you with a practice environment. Virtual money mode
works exactly the same as real trading mode and uses the same real time rates,
with the small difference of no risk involved. We recommend using the practice
mode to get to know the platform and gain Forex trading experience.
And even after you’ve begun trading with real money, it is the perfect place to try
out your trading strategies. There is no point in risking your money to test out a
possible theory, when you can do so with the same success minus the risk. After

The Quest for Volatility

The Forex market is open 24 hours a day, but what are the best times to make a
profit?
Even though the Forex market is open 24 hours a day with the exception of
weekends, not all hours are as equally good for trading. The reason that the Forex
market is open 24 hours a day is that it is made up of different sessions around
the globe that between them cover 24 hours.
The more markets are active at the same time, the more trades are being
executed, and the more action for you to cash in on.


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
London
New York
Sydney
Tokyo
Since the London session is the busiest out of the four, the best times for trading
are 8am‐9am (GMT) and 13pm‐17pm (GMT), because that’s when the London
session overlaps with other sessions.
Abuse the news.
As for news reports, these are times to be careful. Many profitable trades are
made moments prior to or shortly after major economical announcements. You
can gain a fortune as well as lose one if you’re not sure of what you’re doing. This
is why it’s important to stay on top of what’s happening in the international
finance arena. Market sentiment becomes crucial at these times, since traders
basically stampede to the market around the time of the report. eToro makes sure
to give you a heads up whenever anything major is going down.
Remember, even though you’re able to trade 24 hours a day, it’s better to plan
your trading activity in order to catch the best action for a chance to maximize
your profits and minimize your losses

Hedging Risks and Rewards

Forex trading is a risky business. This chapter will explain the usage of Stop Loss
(SL) and Take Profit (TP) orders. These are used for hedging your risks and
rewards, realizing your profits and minimizing your losses.
eToro places an automatic Stop Loss order on all your trades to prevent you from
losing more than you’ve invested. If the rate of your open trade drops below
what’s covered by your investment, the trade is closed by the automatic Stop
Loss. This means the maximum amount you can lose on a trade is almost always
limited to the initial investment of the trade.
Still, there is no reason why you should wait until you lose your entire investment
to close the trade. By setting a Stop Loss order you make sure that the value of
your trade doesn’t drop below a certain level. This way you control the maximum
amount that you are willing to lose on a trade, without having to monitor each
trade around the clock.
Take Profit orders are similar to stop loss orders, only referring to profits. Take
Profit orders make sure that once your trade reaches a certain level of profit it will
be closed.
For instance, imagine that you’ve opened a Long EUR/USD trade for at the rate of
1.5400. After a few hours the rate rises to 1.5500, but an hour later drops to
1.5300. Without a Take Profit order, you might miss the rise in the rate, and end
up with a loss on your hands.
If you had set a Take Profit order, the potential profit of the trade would have
been realized, without you having to monitor the trade around the clock.
Remember, Stop Loss and Take Profit orders are very simple tools that can
make the difference between a successful trading career and a big hole in
your pocket. Consider using these orders with every trade that you make

A Simple Trade Example

Are you ready? It's time to trade!
Here is a to‐do list of actions to be taken as you open a trade:
‐ Identify the pair to buy/sell
‐ Decide on the initial investment amount
‐ Choose the appropriate leverage
‐ Consider applying trade limits (covered in the next chapter)
‐ Open trade
Let’s say that after spending some quality time on gazing at the charts of several
currencies, you’ve concluded that:
1) The EUR is trending up
2) The USD is trending down
Now, what is the reasonable decision based on this conclusion?
Clearly you can profit by first selling USD and buying EUR, and then buying
cheaper USD and sell expensive EUR.
We could do this by buying and then selling the EUR/USD currency pair.


Imagine that you bought $100 worth of EUR/USD with a leverage of 1:100 at the
exchange rate of 1.5461. The details of your trade are:
Investment $100
Leverage 1:100
Units sold 10,000
EUR/USD (Ask) 1.5461
In plain English, what you’ve just done is bought (100X100=) 10,000 Units of EUR
/USD, which at that specific rate represents 1.5461 USD per 1EUR.
Now, let’s assume that at the end of the day, or possibly even a few minutes later,
the EUR/USD rate has risen to 1.5538. You sell those 10,000 Euro/USD Units at
the new rate of 1.5538 and get $177 back.

Tactical usage of Leverage

If you’ve been at all exposed to the world of Forex you’ve probably heard the
word “Leverage” being tossed around. But what exactly is “Leverage”?
Leverage is a very important part of Forex trading, and it’s critical that you know
exactly how it works and how to use it. It is the term Forex traders use to refer to
the ratio of invested amount related to the trade's actual value.
Forex brokers usually provide their customers with the option to trade on
borrowed capital, so that traders don’t have to invest tens of thousands of dollars
for the chance to make any real profit. When you trade at a leverage of 1:100, or
X100, it means that for every $1 that you invest in the market, the broker invests
$100. As a result, you can control an amount of $10,000 by investing $100. eToro
provides traders with the opportunity of trading at up to 1:400 leverage.
It probably won’t surprise you when we say that with greater opportunity for
profit comes greater risk. Just like slight fluctuations in currency rates can make
you significant amounts of money, it can also cause you to lose your money very
quickly. The higher the leverage, the larger the profit that you stand to make and
the quicker you might lose your investment. A leverage of 1:400 can make you
more money than a leverage of 1:100, but it also puts your initial investment at
more risk.
If you trade with a leverage of 1:100 the market would have to move 100 pips
against you for your position to be wiped out. On the other hand, if you trade with
a leverage of 1:400 the market would only have to move 25 points against you for
your position to be wiped out.
We recommend first opening a position with a low 1:100 Leverage, and only once
you see that you’ve hit a strong trend, consider opening one with a 1:400
leverage.
The Ratio between Minimal Lot Size, Trade Size and Leverage
Fundamentally, the minimal lot size for a trade is $10,000, thus the leverage
limitations are set according to the amount you choose to trade:
Trade
Size
Minimal
Leverage Lot
25 400 10,000
50 200 10,000
100 100 10,000
The advantage of trading with Leverage is that while your profits potential is
virtually infinite, at eToro your loss is limited to the amount of your initial

The Trend is Your Friend Trend

Trend analysis is based on the idea that what has happened in the past gives
traders an idea of what will happen in the future.
Although this may seem pretty basic, being able to identify when a pair is in a
trend and when it isn't will help you to increase your chances to profit
consistently in the Forex market.
When you can identify a trend, you can estimate what direction the rate of a
currency pair is going to go in. You should exploit the direction of the trend you
identify by placing a trade in that direction.
If it’s an uptrend, meaning that the rate is increasing, buying the currency pair will
give you a better probability for profit. If it’s a downtrend, meaning that the rate
is decreasing, selling the currency pair will give you a better chance of making
money.
How do I identify a trend? What are the characteristics of a trend?
The simplest way to identify a trend is through the distinct patterns that the price
forms. These can tell you if the market is moving in an uptrend or downtrend.
Identifying a Forex Trend
When a trend is taking place in a Forex pair, the price movements start to form
peaks and valleys in the chart of that pair, which are easily identified.
In an uptrend, the price movements form a series of higher peaks and higher
valleys.
(Higher Highs and Higher Lows.)
Since a picture’s worth a thousand words, lets look at the following chart:
This chart suggests that the trader should buy the currency pair (and close the
trade by selling at profit after the rate rises).

Cashing in on Price Movements

Cashing in on Price Movements


Trading Forex is exciting business. The market is always on the move, and every
tiny shift in currency rates can mean profits and losses of hundreds and even
thousands of dollars!
Let’s demonstrate how that can happen:
In general, the eight most traded currencies on the Forex market are:
USD U.S. Dollar
EUR Euro
GBP British Pound
JPY Japanese Yen
CAD Canadian Dollar
CHF Swiss Franc
NZD New Zealand Dollar
AUD Australian Dollar
Forex trading is always done in pairs, since any trade involves the simultaneous
buying of a currency and selling of another currency. The trading revolves around
18 main currency pairs. These pairs are:
USD/CAD EUR/JPY
EUR/USD EUR/CHF
USD/CHF EUR/GBP
GBP/USD AUD/CAD
NZD/USD GBP/CHF
AUD/USD GBP/JPY
USD/JPY CHF/JPY
EUR/CAD AUD/JPY
EUR/AUD AUD/NZD
When buying or selling a currency pair, each pair has its own Bid/Ask rate, for
example:
Pair Bid Ask
EUR/USD 1.5420 1.5422

2 Forex Profitability

Profitability 


It doesn’t take a financial genius to figure out that the biggest attraction of any
market, or any financial venture for that matter, is the opportunity of profit. In the
Forex market, profitability is expressed in a number of ways.
First of all, just to set the record straight, you don’t have to be a millionaire to
trade Forex. Unlike most financial markets, the Forex market allows you to start
trading with relatively low initial capital. At eToro, you can start trading Forex with
as little as $25!
Right about now you’re probably asking yourself: “What chance do I have of
profiting with such a low initial investment?” The Forex market doesn’t require
large initial investments because it allows you to use leveraged trading. Leveraged
trading lets you open positions for tens of thousands of dollars while investing
sums as small as $25. This means that Forex trading has the profit (and loss)
potential of tens and even hundreds of percent a day!
What is also unique about the Forex market is that any sort of movement is an
opportunity to trade. Whether a currency is crashing or soaring, there is always
room for speculation, since you always have the option of buying or selling the
currency of your choice. Unlike the stock market, you are not limited to
speculating on rising stocks, and a falling market is just as good for business as a
rising market.
Having said all that, it is important to remember that as profitable as the Forex
market is, it still carries all the risks involved with financial trading. You should
always be aware of the risk, and never risk money that you can’t afford to lose

1 Why Forex?

If you are reading this guide, you have most likely taken some sort of interest in
the Forex market. But what does the Forex market have to offer you?
Accessibility – It’s no wonder that the Forex market has the trading
volume of 3 trillion a day ‐ all anyone needs to take part in the action is a
computer with an internet connection.
24 Hour Market ‐ The Forex market is open 24 hours a day, so that you can
be right there trading whenever you hear a financial scoop. No need to
bite your fingernails waiting for the opening bell.
Narrow Focus – Unlike the stock market, a smaller market with tens of
thousands of stocks to choose from, the Forex market revolves around
more or less eight major currencies. A narrow choice means no rooms for
confusion, so even though the market is huge, it’s quite easy to get a clear
picture of what’s happening.
Liquidity ‐ The foreign exchange market is the largest financial market in
the world with a daily turnover of just over $3 trillion! Now apart from
being a really cool statistic, the sheer massive scope of the Forex market is
also one of its biggest advantages. The enormous volume of daily trades
makes it the most liquid market in the world, which basically means that
under normal market conditions you can buy and sell currency as you
please. You can never be in a jam for currency to buy or stuck with
currency that you can’t unload.
The Market Can’t Be Cornered ‐ The colossal size of the Forex market also
makes sure that no one can corner the market. Even banks don’t have
enough pull to really control the market for a long period of time, which
makes it a great place for the little guy to make a move.