What is Forex Trading
Forex Trading is the activity of transacting various types of currencies (foreign exchange/forex) to benefit from the difference in exchange rates. Forex trading is a very profitable business and can be done online. However, the risk is very high, so prospective forex traders are advised to learn the ins and outs of this business first before investing in investment funds.
Forex is short for Foreign Exchange, aka forex exchange. Meanwhile, “Trading” which is an English word can be translated into Indonesian as “Trading”. However, Forex Trading is different from buying and selling or trading foreign currencies via Money Changers, banks, or the like. The difference is, Forex Trading is done online, does not involve the physical movement of money, and is based on prices created in transactions on international interbank networks.
The probability of profit in Forex Trading is also greater because it can be done with very low capital, can profit when prices go up or down, and can be done anytime within 24 hours, 5 days a week. Here is the full review.
- Forex Trading Can Be Done 24 Hours
As stated above, forex trading is carried out based on the prices created in transactions on the international interbank network. That is, the largest forex market participants are multinational banks, world central banks, Hedge Funds, import-export companies, and so on. In addition, trading hours last 24 hours, because working hours alternate from one country to the next.
Forex trading hours each day are divided into three sessions, as follows:
- Asian Session (Sydney and Tokyo) at 05:00-16:00 WIB.
- European Session (London) at 13:00-22:00 WIB.
- American Session (New York) from 20:00 to 05:00 WIB the next day.
Each session corresponds to the working hours of each region. However, due to successive changes, forex trading takes place 24 hours a day globally, five days a week from Monday to Saturday (05:00 WIB).
For forex traders, that means there are trading opportunities almost every day. Even if you already have a permanent job, you can still trade on the sidelines or outside working hours, either early in the morning or in the middle of the night. In fact, the moment that coincides with the opening of the European session and the American session (20:00-22:00 WIB) is known as the best and most profitable time for Forex Trading.
- Overview of Forex Trading
Forex Trading targets profit from the difference in exchange rates, but this advantage can be obtained not only when the exchange rate strengthens, but also when the exchange rate weakens. Why is that? Because Forex trading is carried out on currency pairs, for example, EUR/USD (Euro-US Dollar), USD/JPY (US Dollar-Japanese Yen), GBP/USD (Pound sterling-US Dollar), and so on.
When the price ( rate ) of GBP/USD rises, it means that the Pounds are strengthening and the US Dollar is weakening. On the other hand, when the GBP/USD price drops, the Pounds weaken and the US Dollar strengthens. An illustration like this will be easier to see from a graph like this:
Well, in Forex Trading, traders will benefit if:
- If the trader opens a buy position (Buy) when the price is still low, then closes the position (Close) after the price moves up to a higher level.
- If a trader opens a sell position (Sell) when the price is in a high position, then closes the position (Close) after the price moves down to a lower level.
This is why Forex Trading is said to be profitable in both directions.
- You have a forex trading account filled with 200 US Dollars of capital. Since the trading account uses a leverage of 1:100, you can trade as if you had US$20,000 in funds. Leverage is a special facility from forex brokers, which serves to enlarge your funds, so you can trade in large volumes, even if you only have limited funds.
- When the price of GBP/USD is at 1.25000, you expect the Pounds to strengthen against the US Dollar, so you open a Buy position of 1 Mini lot. Lot is the smallest volume in Forex Trading. Calculation of 1 mini lot = 10000 currency units (USD), so you have enough funds to open this trading position.
- After that, the price really continued to move up, until when it arrived at the level of 1.26500, you decided to take profit (Take Profit). So, you close the position (Close) at that level.
- Your profit is (1.26500-125000) = 1500 points or 150 pips. A pip is the smallest unit of price change in forex, which is usually calculated from four decimal places behind the comma for the GBP/USD currency pair.
- Converting pips to US Dollars based on the latest GBP/USD exchange rate determines that 1 pip for a Mini lot equal 1 USD. So, from this trading position, you get a profit of 150 US Dollars!
It’s very easy to get profit from Forex Trading. However, that advantage will only be obtained if you can analyze and predict price movements correctly. If in the example above it turns out that the price continues to fall, then you will experience a loss. In fact, it could be all your funds forfeited because of it.
- Capital For Forex Trading
Compared to other businesses in the financial world, Forex Trading has a very low minimum capital and can be done with facilities that are easily available anywhere. As an initial capital, you only need a PC, laptop, or smartphone, as well as a reliable internet connection.
PCs or laptops don’t have to be too expensive; even the lower middle class such as netbooks or tablets can be used for Forex Trading. As for gadgets, you should choose Android or iPhone with large enough RAM (about 1 MB) in order to operate the online trading platform application smoothly.
In terms of funding, a number of forex brokers allow you to open a trading account with an initial capital starting from around 1 US Dollar, or even provide free trading capital bonus promos between 5-200 US Dollars. However, it is very difficult to really benefit from such promotions. Realistically, in order to be able to Forex Trading to make a profit, a minimum capital of around 200-500 US Dollars will be required.
The last and most important capital is knowledge and experience. Forex Trading does open up huge profit opportunities, but it is a high risk. Most novice traders experience large losses and their initial capital is sold out, usually because of the Buy-Sell origin without in-depth analysis. Note: Forex Trading cannot be done only by hunch, but must use fundamental analysis and or technical analysis. In addition, it’s a good idea to try trading simulations on a demo account ( demo account ) first after opening a trading account at a broker, so you can practice at no cost before actually investing big capital for Forex Trading.