Lesson 3: Trading Mechanics Explained
You'll Learn: How to actually place trades, manage your money, and understand the tools brokers give you
Buying and Selling Made Simple
Think of Forex like a currency exchange booth at the airport, but supercharged! When you:
BUY (Long): "I think Euros will become more valuable than Dollars"
SELL (Short): "I think Dollars will become more valuable than Euros"
Vacation Example:
If you exchange $1,000 for €900 today, and tomorrow €900 = $1,050:
That's a 5% profit! Forex works similarly, but digitally.
Buying Coffee Analogy
If coffee is $5 today and you buy 10 bags:
- Tomorrow price rises to $6 → You make $10 profit
This is going LONG (buy first, sell later)
Borrowing First
If you borrow 10 coffee bags at $5 and sell them:
- Price drops to $4 → Buy back, return bags, keep $10
This is going SHORT (sell first, buy back later)
Understanding Your Trading Power
Leverage lets you control big amounts with little money. But be careful - it's like driving a sports car!
Car Rental Analogy:
With $1,000 you can:
- Rent a regular car (1:1 leverage) → $1,000 value
- Rent a Ferrari (100:1 leverage) → $100,000 value!
But if you crash the Ferrari, you owe much more!
Real Calculation:
1. You deposit $1,000 (like a security deposit)
2. Broker lends you $99,000 (at 100:1 leverage)
3. You control $100,000 total
4. If value changes 1% → Your $1,000 changes 100%!
PRO TIP: Never use full leverage! Start with 10:1 or lower.
Your Trading Toolkit
Market Order
"Buy/Sell NOW at current price"
Like buying concert tickets at door price
Limit Order
"Buy if price DROPS to $1.20"
Like waiting for Black Friday deals
Stop Loss
"Auto-sell if price drops 2%"
Like a seatbelt - limits damage
Flight Ticket Example:
Market Order: Buy ticket now at $500
Limit Order: "Notify me if tickets drop to $400"
Stop Loss: "Sell my ticket if price drops to $450"
Let's Practice Together
Your First Trade:
Account: $2,000 | Leverage: 30:1 | Trade EUR/USD
1. You want to buy 1 lot (€100,000)
2. Required margin = €100,000 ÷ 30 = €3,333
3. Convert to USD: €3,333 × 1.10 = $3,666
Wait! You only have $2,000
4. Maximum position: $2,000 × 30 = $60,000
5. Trade size: 0.6 lots ($60,000)
Think of margin like a security deposit when renting an apartment.
The bigger the apartment (position size), the bigger the deposit (margin) required.