Copyright Alpha Markets Ltd.

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2 Platforms & Accounts - Module 5 Welcome to this unit on Platforms & Accounts. In this module we will be explaining what a trading account is, as well as how you can go about configuring and using your own trading platform. Key Learning Outcomes: - You will understand the different types of trading accounts that are available to financial traders and how to open your own trading account for free. - To learn how to configure the charting platform as well as the various tools and indicators that you can use when analysing and trading the markets. - You will understand how to use an order ticket including the different order types used by financial traders - You will learn the concept of leverage and margin and how it can affect you when trading the financial markets. Page 1

Trading Account A trading account allows traders to deposit funds into an account via a financial brokerage company in order to begin trading the

These specialist brokerage companies provide individuals with the facility to trade their accounts electronically online and/or via telephone.

that of a high street bank. - You do not need to be regulated to trade the financial markets as an independent trader.

3 Trading Account A trading account allows traders to deposit funds into an account via a financial brokerage company in order to begin trading the financial markets. These specialist brokerage companies provide individuals with the facility to trade their accounts electronically online and/or via telephone. - To open a trading account with one of these brokers, there is no need for any licenses or permits with many online applications taking less than 10 minutes to complete. - The majority of trading accounts that you may wish to open are free to do so and allow you to deposit and withdraw funds as you wish, similar to that of a high street bank. - You do not need to be regulated to trade the financial markets as an independent trader. However a brokerage company providing trading accounts in the UK will be regulated by the Financial Conduct Authority (FCA). There are two main types of trading accounts which a trader may look to open in order to begin trading the financial markets. This includes a Forex & CFD account, or a Spreadbetting account. Please note that a Spreadbetting account is only available to residents of the UK & Republic of Ireland. Page 2

Any profits that are made when trading will be funded automatically into your trading account. In addition, any losses that are incurred when trading will be debited from your trading account.

There are different types of trading accounts that can be opened in order to trade the financial markets, each with different features and benefits.

Spreadbetting Spreadbetting is one of the more common forms of trading account used by independent traders in the UK and allows traders to essentially speculate on the direction of a currency pair

4 Any profits that are made when trading will be funded automatically into your trading account. In addition, any losses that are incurred when trading will be debited from your trading account. It is a trader s responsibility to ensure that there are adequate funds in the trading account, totalling more than the amount of risk on any open trades. There are different types of trading accounts that can be opened in order to trade the financial markets, each with different features and benefits. Let s now discuss some of these different trading accounts that can be used to trade the financial markets. Spreadbetting Spreadbetting is one of the more common forms of trading account used by independent traders in the UK and allows traders to essentially speculate on the direction of a currency pair without ever owning the underlying asset. The advantages of this include: - The ability to profit from a rising or falling market by either taking a long position or short position. In other traditional investments, investors may only be able to profit when markets rise in value. - When spreadbetting in the UK and the Republic of Ireland there is no capital gains tax or stamp duty to be paid. It is important to note that tax laws may differ depending on your personal circumstances and location. - There is a variety of financial instruments that are available to trade when spreadbetting, including Forex, certain commodities and global indices. Most of the examples used throughout the course are based upon spreadbetting. Page 3

Forex & CFD Trading Forex & CFD s, or Contract for Difference, are a common way for individuals to trade various financial instruments such as Forex, Commodities and Indices.

5 Forex & CFD Trading Forex & CFD s, or Contract for Difference, are a common way for individuals to trade various financial instruments such as Forex, Commodities and Indices. It is an agreement between two parties to exchange the difference between the opening price and the closing price of a contract. Traders can use CFD s to speculate on the future movement of market prices regardless of whether the underlying markets are rising or falling. CFD s are derivatives that allow traders to speculate on future market movement without owning the underlying asset on which the contract is based. Spreadbetting v CFD s Let s now compare how trading a spreadbetting account and CFD account may differ. Let s assume we are looking to place a trade and take a long position on the GBP/USD currency pair. Spreadbetting Account CFD Account When trading using a spreadbetting account a trader would use a stake amount, which represents the value per pip. Therefore if a trader made 10 PIPs profit at 6 per point they would make 60 profit. In contrast when trading using a CFD account, traders use what is known as a lot. A standard lot is valued at 100,000 units of the quote currency. When using leverage, a trader can look to control a larger asset with a relatively smaller initial investment. If price were to rise in our favour by the same 10 PIPs, we would make a profit of $100. Any profit or loss is calculated in the quote currency before being converted back into your home currency. The main difference between the two types of trading account is the use of a stake amount or lots. Page 4

The Spread The spread is the difference between the buying and selling price of a currency pair.

6 Derivatives A derivative is a financial instrument that you can trade the value of, whereby the price derives from an underlying asset. If you spreadbet or CFD trade on the GBP/USD currency pair, for example, you are trading a derivative. The value quoted on your trade is derived from the true value of the GBP/USD currency pair. The Spread The spread is the difference between the buying and selling price of a currency pair. When placing a trade the broker will usually charge the spread on that currency pair as commission for doing so. The spread can vary between currency pairs with the more commonly traded pairs and majors having smaller spreads than others. If we were looking to place a trade on the GBP/USD currency pair, with a stake amount of 1, we can see that the difference between the buying and selling price in this example is 3 PIPs. Therefore, the broker would charge 3 commission, this being the stake amount multiplied by the spread. It is worth noting that many strategies and profitable trades may seek to capitalise on a high number of PIPs and therefore the spread may be considered negligible by many traders. Page 5

Leverage Leverage is used to obtain greater exposure in the financial markets with a relatively smaller initial output and is therefore used to gain a better return on investment.

It is important to remember that although leverage can be used to obtain larger profits, a trader is also liable for any potential greater losses that can be occurred when using leverage.

7 Leverage Leverage is used to obtain greater exposure in the financial markets with a relatively smaller initial output and is therefore used to gain a better return on investment. By using leverage we can control a relatively larger amount of capital in order to profit from the change in value of a currency pair. It is important to remember that although leverage can be used to obtain larger profits, a trader is also liable for any potential greater losses that can be occurred when using leverage. An example of how leverage can work is shown when purchasing a property using a mortgage. If we were looking to purchase a property worth 100,000 we may do so by putting down a deposit of 10,000 and then use a financial product such as a mortgage to gain leverage over the larger asset. If the value of the house increased by 10% over a 12 month period the house would be worth 110,000. This means that with a 10,000 deposit an individual has obtained 100% return on investment. The same concept of leverage applies when trading the financial markets. Let s take a look at an example of how this applies. For every 100 PIPs, or one cent move within the market, a trader would make a profit or loss of 100 in this example. To do this we would require a nominal deposit of less than If we did not use a leveraged product, a trader would have to purchase a significantly greater amount of Euros in order to gain the same exposure in the markets. Page 6

Margin The term margin refers to the minimum amount required to execute and hold any open positions.

If your account were to fall below the initial margin requirement you may be issued with a Margin Call from your broker, instructing you to add more funds into your account or to close all open

It is worth noting that the broker is not obliged to do so and if your open trades have a negative balance, greater than the sum of money in your account, your broker will require you to pay the

8 Margin The term margin refers to the minimum amount required to execute and hold any open positions. It is a trader s responsibility to ensure that there are adequate funds available in their trading account at all times, totalling more than the amount of risk held on any trades. If your account were to fall below the initial margin requirement you may be issued with a Margin Call from your broker, instructing you to add more funds into your account or to close all open positions. It is worth noting that the broker is not obliged to do so and if your open trades have a negative balance, greater than the sum of money in your account, your broker will require you to pay the difference to them. By using features such as Stop Losses, as well as implementing some of the money management techniques discussed, you may avoid a potential margin call and reduce your risk accordingly. Trading Platforms A trading platform is a piece of software that enables traders to obtain live market data on various currencies and commodities in the form of charts. Many of these platforms give traders the ability to use various technical indicators and templates, which can be directly loaded onto various charts. These platforms allow traders to view historical data by scrolling back through the charts to perhaps determine certain patterns or trends over a longer term perspective. Many of the trading platforms can be linked with a trading account, giving you the ability to execute trades directly through your software in live market conditions. Page 7

We also have the ability to trade directly through the application, which can be linked to our trading account.

9 There are various types of trading platforms available to financial traders including web based software and desktop applications. The example below shows an MT4 platform which allows traders to view various currency charts along with different technical indicators. We also have the ability to trade directly through the application, which can be linked to our trading account. Mobile Applications There are a number of mobile applications that are available to download, which enables traders to view live market data as well as information on their trading account. The Metatrader 4 application is available to download on your mobile device online or via popular mobile app stores such as itunes. The mobile app can be linked to an existing live or demo account of your choosing and allows users to place and amend their trades directly through their mobile device. Users also have the ability to view live market data and currency charts, allowing for great flexibility and on-the-go trading. Page 8

ETX Capital ETX Capital is a FCA regulated UK based company that provides institutional and retail traders the ability to trade CFD s and Spreadbetting products using the MT4 Platform.

10 ETX Capital ETX Capital is a FCA regulated UK based company that provides institutional and retail traders the ability to trade CFD s and Spreadbetting products using the MT4 Platform. This gives users the ability to not only view live market data through various currency charts but also the ability to place trades directly through their platform linked to their trading account. ETX Capital also provides a dedicated mobile application allowing users to access a wide range of markets and respond to changing market conditions. ETX Capital partake in the FSCS (Financial Services Compensation Scheme) which ensures that your funds are protected up to the amount of 50,000 in the event of the company going into insolvency. For more information on these brokers, please visit our website: MT4 Software There are various tools and features that are available to use within the MT4 software which enable traders to analyse and interpret the currency charts and their account information. MT4 Toolbar The MT4 toolbar allows traders to perform various actions and use the different features found within the trading platform. It is located at the top of the MT4 platform and can be moved and edited according to personal preference. Users can change the timeframe on their charts as highlighted above for either longer term or shorter term timeframe perspectives. It is worth noting that the Alpha Template is based upon a 30 minute chart timeframe. Page 9

Users can also use various line tools which they can draw on the charts in order to help visualise important levels and trendlines as highlighted below.

11 Users can also use various line tools which they can draw on the charts in order to help visualise important levels and trendlines as highlighted below. Users can change the type of chart from which to analyse the markets as shown below, to either a line, bar or candlestick chart. You can also use the magnify tool to zoom in our out of specific candlesticks. You can place an order directly through the charting platform by using the New Order button highlighted. This will open up the order ticket on that specific currency pair allowing traders to enter their entry, stop loss and target levels as well as place their trade, as shown below. Market Watch The market watch feature in the charting platform shows the various financial instruments available for you to trade, as shown below, including the bid and asking price. - Users have the ability to open relevant charts on the various financial instruments by right-clicking on that currency pair and selecting New Chart. - Users can also trade and place orders directly through the market watch feature by right-clicking on that currency pair and selecting New Order. Page 10

Order Tickets An order ticket is used to place a trade directly through your charting platform with the ability to set your entry, stop loss and target levels as well as your

When selecting the instant execution option highlighted below your trade will be entered at the current bid or asking price depending on whether you choose to buy or sell that

12 Order Tickets An order ticket is used to place a trade directly through your charting platform with the ability to set your entry, stop loss and target levels as well as your trade size. When selecting the instant execution option highlighted below your trade will be entered at the current bid or asking price depending on whether you choose to buy or sell that currency pair. If we were looking to enter the trade at a specific level, we would select the pending order option. There are four different pending order types including a buy limit, buy stop, sell limit and sell stop. Each of these specific order types are used in different scenarios depending on the type of position you are looking to take. Page 11

13 Buy Limit A buy limit order would be used if you were looking to buy a currency pair or take a long position at a level lower than the current market value. In the chart below, the black line represents the current market price. If we were looking to enter a buy position below the current market value, highlighted by the green line, we would use a buy limit order. Buy Stop A buy stop order would be used if you were looking to buy a currency pair or take a long position at a level higher than the current market value, represented by the black line in the chart below. If we were looking to enter a buy position above the current market value, highlighted by the green line, we would use a buy stop order. Page 12

14 Sell Limit A sell limit order would be used if you were looking to sell a currency pair or take a short position at a level higher than the current market value, represented by the black line in the chart below. If we were looking to enter a sell position above the current market value, highlighted by the red bar, we would use a sell limit order. Sell Stop A sell stop order would be used if you were looking to sell a currency pair or take a short position at a level lower than the current market value, represented by the black line in the chart below. If we were looking to enter a sell position below the current market value, highlighted by the red bar, we would use a sell stop order. Page 13

MT4 Terminal The MT4 terminal feature is where various information about your trading account will be displayed, such as the account balance and trade history.

15 MT4 Terminal The MT4 terminal feature is where various information about your trading account will be displayed, such as the account balance and trade history. The terminal will also display any open trades or pending orders, which can be modified or deleted by right-clicking on the trade and selecting the relevant option. When an order is filled or opened, the current profit or loss on that trade will be displayed in the terminal as well as information on where your stop loss and target levels are. The terminal feature can be toggled on or off on the MT4 toolbar depending on personal preference. Page 14

Platforms & Accounts - Summary - There are various types of trading accounts available to financial traders including Spreadbetting and CFD accounts.

16 Platforms & Accounts - Summary - There are various types of trading accounts available to financial traders including Spreadbetting and CFD accounts. Each of these accounts has different features and benefits. - Traders can use leverage to gain greater exposure within the financial markets in order to earn greater profits from a relatively smaller initial investment. However it is important to remember that higher leverage can result in greater losses, which traders can mitigate against by using money management techniques. - Margin is the minimum amount of funds required in your trading account in order to cover all risk on any open trades. You may be issued with a Margin Call from your broker should your account balance fall below the minimum amount required however brokers are not obliged to do so. - A trading platform allows traders to view live market data, as well as historical price patterns, in order to help predict future price movement. There are also various features and indicators that can be used within the trading platform to help us better analyse the markets. Page 15

THE CM TRADING METATRADER 4 USER GUIDE:

THE CM TRADING METATRADER 4 USER GUIDE: THE MAIN SCREEN Main menu (access to the program menu and settings); Toolbars (quick access to the program features and settings); Market Watch window (real-time