School of Pipsology
Forex education is crucial for beginners.
We, the FX-Men, firmly believe this.
This is why we've come up with the New School of Pipsology. More lessons, more content,
and more corny jokes to satisfy your hunger for forex education.
The New School of Pipsology is designed to help you acquire the skills, knowledge, and
special abilities to become a successful trader in the foreign exchange market.
Our definition of a successful trader is having the ability to do three things:
- Make pips
- Keep pips
- Repeat
If you can repeatedly do these three things, then you're on your way to being a superstar forex
trader! But we warn you, it's no cakewalk.
Remember when you were but a little teeny weeny bopper attending grade school?
No?
Well, according to our memories, here's how it worked.
You start schooling by rolling into pre-school with your chocolate milk and snack pack. The
next year, you bring your kiddie backpack to kindergarten. If you pass, you'll join the big
boys and girls in elementary school. But don't worry, we still have nap time in Grade 1. If you
pass Grade 1, the next year you'll enter Grade 2, and so on, all the way up to Grade 12.
It basically went like this:
• Kiddie School: Pre-school and Kindergarten
• Elementary School: Grade 1 to Grade 5
• Middle School: Grade 6 to Grade 8
• Summer School
• High School: Grade 9 to 12
This is how our lessons are broken apart, so you can relive the past and also be able to learn and study forex trading techniques at your own pace.
You might have noticed that there's summer school right before high school.
Wait. What's that?
Summer school?
Yep. Summer school.
We think that high school is one of the most important times of your life. It's when you get
potty trained and stop using diapers, learn to read and write, and get your very first hugs and
kisses from your mom and dad.
Oh wait...that was Forex Gump. Our mistake.
But for you more normal folks, to make sure you are fully prepared for high school and the
awkward challenges you will face, we've added summer school classes to at least help ease
your academic transition.
As for trying to get a date for the prom, we can't help you there. Even Dr. Pipslow is still
looking for one. And he's 600 years old. Too bad he's forgotten that his prom already
happened 583 years ago but we feel bad breaking the news to him.
So....shhhhhhhh. It'll be our little secret.
Aside from dating drama, try not to get senioritis in Grade 12.
Why?
Because our high school goes up to Grade 14!
But there's more!
Just like in real life, learning doesn't end in the high school!
If you've done well throughout grade school and high school, you get a full scholarship to our
college! All expenses paid!
We won't even require you to fill out any applications or write essays. That's right....we like to
hand out scholarships just as much as we like to hand out cute bunnies to Cyclopip for him to
eat.
Hey now, don't judge Cyclopip. He's already given up eating soft cuddly cute kittens. He's
trying okay?
Let's get back on track...
Our curriculum here at the New School of Pipsology will make a bold attempt to cover all
aspects of forex trading.
Yes we are crazy, but that's how we roll yo.
That's also how much we believe in having a solid forex education.
You will learn how to identify trading opportunities, how to time the market (aka smart
guessing), and when to take profits or close a trade.
But that's still not all folks. There's more!
You will also learn how to predict the future and never have a losing trade.
Yeah right. In your dreams pal.
Forex trading isn't easy, but with a lot of studying and hard work, you can become a
successful trader.
So grab your security blanket and favorite teddy bear and let's head over to Pre-School!
What is Forex?
If you've ever traveled to another country, you usually had to find a currency exchange booth
at the airport, and then exchange the money you have in your wallet (if you're a dude) or
purse (if you're a lady) or man purse (if you're a metrosexual) into the currency of the country
you are visiting.
You go up to the counter and notice a screen displaying different exchange rates for different
currencies. You find "Japanese yen" and think to yourself, "WOW! My one dollar is worth
100 yen?! And I have ten dollars! I'm going to be rich!!!" (This excitement is quickly killed
when you stop by a shop in the airport afterwards to buy a can of soda and, all of a sudden,
half your money is gone.)
When you do this, you've essentially participated in the forex market! You've exchanged one
currency for another. Or in forex trading terms, assuming you're an American visiting Japan,
you've sold dollars and bought yen.
Before you fly back home, you stop by the currency exchange booth to exchange the yen that
you miraculously have left over (Tokyo is expensive!) and notice the exchange rates have
changed. It's these changes in the exchanges rates that allow you to make money in the
foreign exchange market.
The foreign exchange market, which is usually known as "forex" or "FX," is the largest
financial market in the world. Compared to the measly $74 billion a day volume of the New
York Stock Exchange, the foreign exchange market looks absolutely ginormous with its $4
TRILLION a day trade volume. Forex rocks our socks!
Let's take a moment to put this into perspective using monsters...
The largest stock market in the world, the New York Stock Exchange (NYSE), trades a
volume of about $74 billion each day. If we used a monster to represent NYSE, it would look
like this...
You hear about the NYSE in the news every day... on CNBC... on Bloomberg...on BBC...
heck, you even probably hear about it at your local gym. "The NYSE is up today, blah, blah".
When people talk about the "market", they usually mean the stock market. So the NYSE
sounds big, it's loud and likes to make a lot of noise.
But if you actually compare it to the foreign exchange market, it would look like this...
Oooh, the NYSE looks so puny compared to forex! It doesn't stand a chance!
Check out the graph of the average daily trading volume for the forex market, New York
Stock Exchange, Tokyo Stock Exchange, and London Stock Exchange
The currency market is over 53 times BIGGER! It is HUGE! But hold your horses, there's a
catch!
That huge $4 trillion number covers the entire global foreign exchange market, BUT retail
traders (that's us) trade the spot market and that's about $1.49 trillion.
So now you know not to be fooled when you read how the stock market is the biggest game
out there. It's definitely huge, but not as huge as the media would like you to believe.
What is Traded?
The simple answer is MONEY.
Because you're not buying anything physical, this kind of trading can be confusing.
Think of buying a currency as buying a share in a particular country, kinda like buying stocks
of a company. The price of the currency is a direct reflection of what the market thinks about
the current and future health of the Japanese economy.
When you buy, say, the Japanese yen, you are basically buying a "share" in the Japanese
economy. You are betting that the Japanese economy is doing well, and will even get better as
time goes. Once you sell those "shares" back to the market, hopefully, you will end up with a
profit.
In general, the exchange rate of a currency versus other currencies is a reflection of the
condition of that country's economy, compared to other countries' economies.
By the time you graduate from this School of Pipsology, you'll be eager to start working with
currencies.
**Major Currencies **
Symbol Country Currency Nickname
USD. United States. Dollar Buck
EUR Euro zone member Euro. Fiber
JPY. Japan. Yen. Yen
GBP. Great Britain. Pound. Cable
CHF Switzerland. B Franc Swissy
CAD. Canada Dollar Loonie
AUD Australia. Dollar Aussie
NZD. New Zealand Dollar Kiwi
Currency symbols always have three letters, where the first two letters identify the name of
the country and the third letter identifies the name of that country's currency.
Take NZD for instance. NZ stands for New Zealand, while D stands for dollar. Easy enough,
right?
The currencies included in the chart above are called the "majors" because they are the most
widely traded ones.
We'd also like to let you know that "buck" isn't the only nickname for USD.
There's also: greenbacks, bones, benjis, benjamins, cheddar, paper, loot, scrilla, cheese, bread,
moolah, dead presidents, and cash money.
So, if you wanted to say, "I have to go to work now."
Instead, you could say, "Yo, I gotta bounce! Gotta make them benjis son!"
Or if you wanted to say, "I have lots of money. Let's go to the shopping mall in the evening."
Instead, why not say, ""Yo, I gots mad scrilla! Let's go rock that mall later."
Did you also know that in Peru, a nickname for the U.S. dollar is Coco, which is a pet name
for Jorge (George in Spanish), a reference to the portrait of George Washington on the $1
note?
**Currencies Are Traded in Pairs **
Forex trading is the simultaneous buying of one currency and selling another. Currencies are
traded through a broker or dealer, and are traded in pairs; for example the euro and the U.S.
dollar (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).
When you trade in the forex market, you buy or sell in currency pairs.
Imagine each pair constantly in a "tug of war" with each currency on its own side of the rope.
Exchange rates fluctuate based on which currency is stronger at the moment.
Major Currency Pairs
The currency pairs listed below are considered the "majors". These pairs all contain the U.S.
dollar (USD) on one side and are the most frequently traded. The majors are the most liquid
and widely traded currency pairs in the world
.
Pair
Countries
FX Geek Speak
EUR/USD Euro zone / United States "euro dollar"
USD/JPY United States / Japan. "dollar yen"
GBP/USD United Kindom / United States "pound dollar"
USD/CHF United States/ Switzerland "dollar swissy"
USD/CAD United States / Canada "dollar loonie"
AUD/USD Australia / United States "aussie dollar"
NZD/USD New Zealand / United States "kiwi dollar"
**Major Cross-Currency Pairs or Minor Currency Pairs **
Currency pairs that don't contain the U.S. dollar (USD) are known as cross-currency pairs or
simply as the "crosses." Major crosses are also known as "minors." The most actively traded
crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.
Euro Crosses
Pair
Countries
FX Geek Speak
EUR/CHF Euro zone / Switzerland "euro swissy"
EUR/GBP Euro zone / United Kingdom "euro pound"
EUR/CAD Euro zone / Canada "euro loonie"
EUR/AUD Euro zone / Australia. "euro aussie"
EUR/NZD Euro zone / New Zealand "euro kiwi"
**Yen Crosses **
**Pair
Countries
FX Geek Speak **
EUR/JPY Euro zone / Japan "euro yen" or "yuppy"
GBP/JPY United Kingdom / Japan "pound yen" or "guppy"
CHF/JPY Switzerland / Japan "swissy yen"
CAD/JPY Canada / Japan "loonie yen"
AUD/JPY Australia / Japan "aussie yen"
NZD/JPY New Zealand / Japan "kiwi yen"
Pound Crosses
Pair
Countries
FX Geek Speak
GBP/CHF United Kingdom / Switzerland "pound swissy"
GBP/AUD United Kingdom / Australia "pound aussie"
GBP/CAD United Kingdom / Canada "pound loonie"
GBP/NZD United Kingdom / New Zealand "pound kiwi"
Other Crosses
Pair
Countries FX Geek Speak
AUD/CHF Australia / Switzerland "aussie swissy"
AUD/CAD Australia / Canada "aussie loonie"
AUD/NZD Australia / New Zealand "aussie kiwi"
CAD/CHF Canada / Switzerland "loonie swissy"
NZD/CHF New Zealand / Switzerland "kiwi swissy"
NZD/CAD New Zealand / Canada "kiwi loonie"
Exotic Pairs
No, exotic pairs are not exotic belly dancers who happen to be twins. Exotic pairs are made up
of one major currency paired with the currency of an emerging economy, such as Brazil,
Mexico, or Hungary. The chart below contains a few examples of exotic currency pairs.
Wanna take a shot at guessing what those other currency symbols stand for?
**Pair
Countries
FX Geek Speak **
USD/HKD United States / Hong Kong
USD/SGD United States / Singapore
USD/ZAR United States / South Africa "dollar rand"
USD/THB United States / Thailand "dollar baht"
USD/MXN United States / Mexico "dollar peso"
USD/DKK United States / Denmark "dollar krone"
USD/SEK United States / Sweden
USD/NOK United States / Norway
Depending on your forex broker, you may see the following exotic pairs so it's good to know
what they are. Keep in mind that these pairs aren't as heavily traded as the "majors" or
"crosses," so the transaction costs associated with trading these pairs are usually bigger.
It isn't unusual to see spreads that are two or three times bigger than that of EUR/USD or
USD/JPY. So if you want to trade exotics pairs, remember to factor this in your decision.
Market Size and Liquidity
Unlike other financial markets like the New York Stock Exchange, the forex spot market has
neither a physical location nor a central exchange.
The forex market is considered an Over-the-Counter (OTC), or "Interbank", market due to the
fact that the entire market is run electronically, within a network of banks, continuously over a
24-hour period.
This means that the spot forex market is spread all over the globe with no central location.
They can take place anywhere, even at the top of Mt. Fiji!
The forex OTC market is by far the biggest and most popular financial market in the world,
traded globally by a large number of individuals and organizations.
In the OTC market, participants determine who they want to trade with depending on trading
conditions, attractiveness of prices, and reputation of the trading counterpart.
The most actively traded currencies.
The dollar is the most traded currency, taking up 84.9% of all transactions. The euro's share is
second at 39.1%, while that of the yen is third at 19.0%.