What is Forex Trading?
Forex trading is trading currencies from different countries with the aim of making a profit. In this case, forex stands for Foreign Exchange. An example of forex trading is buying Euros (major European currencies), while simultaneously selling USD (American currency), can be abbreviated as EUR / USD.
In the shadow of ordinary people, the notion of forex trading is the activity of exchanging money in a Money Changer, which is buying and selling foreign currency manually through a money changer. In fact, forex trading is different from manual transactions such as in Money Changer.
Generally, a person's goal to buy and sell money at a Money Changer is because of the need to exchange currencies for transactions in different countries, so that there is a physical exchange of money. Whereas forex trading is done online with the aim of gaining profit. It needs to be understood, forex trading is a business activity, investment, and even a profession.
On an international scale, foreign exchange trading is carried out by various parties, ranging from the government, central banks, multinational companies, to certain individuals who have large assets. Currency trading transactions among various parties do not occur in a market with physical buildings, but in an invisible network called the "forex market".
Along with the development of technology, forex trading reaches a wider scope. Through the internet, forex trading can now be done by anyone, anytime, anywhere. Now, everyone can trade forex. You and I can also trade forex online easily and with capital as small as 10 Dollars.
Illustration of Understanding Forex Trading
The principle of online forex trading is quite simple, which is to get a profit from the difference between the purchase price and the selling price by making a purchase transaction when the price is low and the transaction is selling when the price is high. For example, we buy US dollars as much as $ 100 when the exchange rate of the Rupiah against the Dollar is at a value of Rp13,250. The rupiah we spend to get the $ 100 becomes Rp1,325,000.
A week later, the US Dollar grew stronger until the exchange rate became IDR 13,300. If we sell the $ 100, it will make a profit of IDR 50,000, because other people who want to buy the $ 100 must now spend IDR 1,300,000 in Rupiah.
Such is the illustration of forex trading. However, forex trading is not carried out physically and there will be no exchange of currencies different from the seller's hand to the buyer or vice versa. Forex traders transact in cyberspace through a container called software or trading platform. (Read full: How to get money from Forex trading)
Forex market
The forex market is different from traditional markets. Because here the traded is a currency, the market (where the traders / market participants make buying and selling) is not a particular building, and every market actor can play a dual role as a seller and buyer. Who are these forex market players? very diverse: can be multinational banks, central banks, large companies, government of any country, financial institutions, speculators, etc.
Given the global scope and actors, the forex market is very attractive and profitable. Because it is global, the forex market is the biggest market for money circulation (reaching $ 4 trillion per day), and highly liquid (can sell and buy at market prices, regardless of the amount). The forex market is also open 24 hours non-stop, from Monday to Friday. So, we can trade at any time according to our free time.
The forex market can be open 24 hours a day due to differences in time and working hours in each of the world's financial centers. In more detail, trading is carried out in four sessions:
Australian Market (Sydney) at 05.00 - 14.00 WIB.
Then to the Asian market (Tokyo), namely Japan, Hong Kong & Singapore at 07.00 - 16.00 WIB.
Then to the European market namely Germany and England (London) at 13.00 - 22.00 WIB.
American Market (New York) at 8:00 a.m. to 5:00 p.m. (tomorrow).
Wherever you are, buying and selling can still be done because the forex market does not have a specific physical location, and transactions can be done online through the forex trading platform. The platform can be software for PCs, browser-based web applications or mobile applications. Thus, forex trading activities can be done anywhere and anytime. (Also read: Various Advantages of Forex Trading)
Forex Trading Opportunities
Simply put, the purpose of forex trading is to gain profits from the rise and fall of currency exchange rates. This can be achieved because the conditions and prices in the forex market move very dynamically, can change at any time to quickly respond to economic, political, war, disaster, etc.
Even for regions with advanced and strong economies such as the United States, Britain, the Euro Zone, or Japan; there is little sensitive information, so the price of the currency can move up and down. This is what traders see as an opportunity and opportunity for profit.
Online Forex trading with the aim of gaining such profits is done through the brokerage of forex. The capital needed is very affordable; can start from only $ 10, or even free using bonus funds provided by the broker.
Risk of Forex Trading
Apart from various advantages, forex trading can be likened to a double-edged sword. Forex trading can make us rich, but it can also quickly erode our capital. No matter whether you consider forex as one type of investment or as ordinary trading, it is clear that forex trading risk is high.
The biggest risk comes from the price movement itself. If you can analyze market conditions and make transaction arrangements properly, then profits can be obtained. But what if your analysis is wrong? To overcome the emergence of unwanted losses, everyone who will be involved in the world of forex must clearly understand three things first: