Understanding, How It Works, Benefits And Risks
Hearing the word “Forex Trading” maybe some of you think it’s something foreign to hear. It’s only natural if you feel foreign, because this term is indeed closer to people who are already quite experienced in the investment world.
Forex has the meaning of buying and selling foreign currencies. IN Indonesia itself, Forex is better known as foreign exchange or foreign exchange.
If you are already curious what is Forex Trading? Forex trading is an investment product by buying and selling foreign currencies. The activity of buying and selling foreign currencies, known as Forex Trading, offers attractive benefits, friend.
Maybe you think that when you exchange money at a money changer, it is one of the Forex Trading activities. But in general Forex is a transaction of exchanging the currency of the country where you live with the currency of the foreign country of your choice.
Forex needs are also usually personal or individual, one of which is as a means of payment in other countries that will be his visit. So, if you exchange money at a money changer, this activity can be referred to as foreign exchange. Meanwhile, forex trading has a different meaning.
And, Forex Trading is also an activity of buying and selling foreign currency which is usually done online. The purpose of Forex Trading as an investment itself is to seek profit from some of the sales figures made. Usually those who carry out an activity are known as traders.
Understanding of Forex Trading
Trading Forex or the foreign exchange market can also be abbreviated as forex, which is a type of trade or transaction that trades a foreign currency for the currency of another country (currency pair / pair) that is involved in the world’s main money market for 24 hours with continuous.
In simple terms, Forex Trading is like buying foreign currency and then storing that currency for a certain period of time and selling it again when the value of the currency experiences an increase or strengthening of the exchange rate.
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The following is a brief history of Forex trading
In its history, Forex Trading in the 90s was only rich people, various large financial institutions such as central banks, private or government banks, as well as large commercial companies such as Apple or Toyota who ran this business.
They do Forex Trading usually for trade, hedging (hedging), paying debts, or investing. The capital required is also quite large, and not just anyone can do forex business.
After the worldwide expansion of the internet in the 90s, the Forex market was finally accessible to almost all people, from entrepreneurs to housewives, parents and young people.
The brokers also began to arrange forex so that it could be traded at retail by each individual. So at this time, starting from banks, money changers, to motorcycle taxi drivers who hang around can also enter the world of the forex market.
The exchange of money has been going on since ancient times, but the history of Modern Forex Trading as it is today was actually just pioneered after World War II.
For information, there was a lot of chaos and economic crisis at the end of World War II, so that the governments of various allied countries felt they needed a system that would be able to unify the global economy.
Then formed the “Bretton Woods System” to realize this dream. In a Bretton Woods system that was born in the town of Bretton woods, New Hampshire, United States around 1944.
For the first time there was an official rule to govern a monetary relationship between countries. The United States, which at that time held two-thirds of the world’s gold reserves, insisted that the system be based on gold and the US dollar.
Eventually this system destroyed all the countries involved in linking the currency’s value to gold and the US Dollar. However, it didn’t last long.
On August 15, 1971, the United States unilaterally cut off the relationship between the currency and gold, thereby automatically ending the Bretton Woods system.
The value of the dollar is also no longer obtained from the gold reserves that are owned, but only from a promise by the US government. This action certainly makes the US Dollar a reserve currency for various countries in the world.
At that time, exchange rates between currencies could no longer be determined by default, but by following a simple economic system, namely demand and supply.
The latest phase in the history of Forex Trading was born, namely the period of the Floating Exchange Rate System.
Here’s the System or How to Work From Forex Trading
Trading Forex is basically buying one currency and selling another at the same time. Currency pairs are then traded simultaneously. For example EUR/USD = 1.23700.
The currency on the left (the Euro in this case) is the base currency and the currency on the other side is called a quote currency. The notation above shows that 1 unit of base currency is equal to 1.23700 of the quote currency (1 euro = 1.23700 USD).
This way, if you want to buy 1 euro, you have to pay 1.23700 USD. Conversely, if you sell 1 euro, you get $1.23700.
Forex trading is a foreign exchange transaction that has been widely chosen as a way to make investments. When trading forex, certain currency pairs are selected and can be traded under certain conditions to achieve maximum returns.
Various Kinds Of Advantages And Advantages Of Forex Trading
As for here, we will explain some of the advantages possessed by Forex Trading, so please just look at the reviews below.
1. Forex Trading Transactions Tend to be Flexible
In fact, forex can be done anywhere because it is very flexible. Forex trading transactions can be carried out through applications provided by online forex brokers.
Of course, with the availability of internet access in almost all places, it will also make it easier for traders to make transactions. The rest, you only need to prepare the following things, such as:
- Hardware such as your computer, tablet, laptop or even your smartphone.
- Download and install the application provided by the trading broker
- Availability of adequate internet network
Forex trading is not only flexible in terms of location, but also in terms of timing. Forex trading is accessible 24 hours a day. In addition, the market is only closed on Saturdays and Sundays.
2. Benefit from Differences in Exchange Rates
The name of the investment definitely wants to profit. So, the “salary” or income of a forex trader for those of you who plan to trade forex is an advantage in the form of an exchange rate difference when you buy it at the current exchange rate. The trick is that you buy dollars when their value is still low and sell them back at a higher price, or buy them at a high price and sell them back at a higher price.
In general, there are three options for dollar movement, namely rising or uptrend, fixed or sideways, and closed or downtrend. When it goes up, huge profits are made. But if it goes down, then the value of the currency will also tend to go down.
3. Forex Trading is Liquid
For information, not all stocks are liquid. This means that many stock investors have difficulty buying and selling shares quickly.
This phenomenon indicates illiquid stocks, which usually occur in fried stocks and stocks that are not included in the LQ45 index. Suspended stocks instead make investors’ money stuck, who knows how long the suspension will be opened.
In terms of forex trading, you don’t need to worry because the forex market is very liquid. The high number of transactions proves that there are almost always people buying and selling every second.
Traders can also make quick profits according to the chosen Forex strategy without worrying about their money being held up or worrying about not being able to spend money because the market is quiet.
Because of the high level of liquidity, the forex market does not recognize “stock traders” or people with large amounts of money who can manipulate low-liquidity stocks. These “bookies” certainly have their own background and goals in carrying out buying and selling actions that can touch the emotions of retail investors.
4. Profits from Forex Trading can be felt immediately
Another advantage that traders can get is that they can take advantage of price increases due to the difference in the price of buying and selling buy orders. Meanwhile, when selling, profits are obtained from the difference between the selling price and the buying or closing price.
5. No Additional Fees
It should be noted that transaction fees do not actually exist in the online forex market, only that some fees vary widely. An example is the fee for withdrawing funds from a forex account.
6. Forex Trading Has a Margin System
The last advantage is trading on a margin system, which can make investors’ purchasing power exceed their capital.