Forex is an abbreviation of Foreign Exchange.
Simply put: forex is the activity of buying and selling foreign currencies to profit from the difference in exchange rates.
Example: you exchange Rupiah for Dollars when 1 USD = IDR 15,000.
A week later the dollar rose to IDR 15,500.
You sell the Dollar, and get a profit of IDR 500 per 1 USD.
Main Goals of Forex
Looking for profits from the rise and fall of the value of the country's currency.
The forex market runs 24 hours, 5 days a week. So you can trade at any time.
Currency Pairs in Forex
In forex, currencies are always traded in pairs. Written example: EUR/USD
1. Major Pair: main pair. Examples are EUR/USD, GBP/USD, USD/JPY
2. Minor Pair: does not involve USD. Examples: EUR/GBP, AUD/JPY
3. Exotic Pair: a combination of major currencies + developing country currencies. Example USD/IDR
The most widely traded is USD because it is the world's reference currency.
Who are the Players in the Forex Market
1. Central banks and big banks: make international transactions
2. Import-export company: to pay for goods abroad
3. Government: create foreign exchange reserves
4. Retail traders: ordinary people who trade using a broker via cellphone/laptop
The forex market volume is the largest in the world. Reaches 7 trillion USD per day.
How Forex Trading Works
1. Analysis: use technical and fundamental analysis to guess the direction of the currency
2. Buy or Sell: if the prediction is that currency A will rise against currency B, then buy. If it goes down, sell
3. Close Position: take profit when the price difference meets the target
In forex there is the term Leverage. This means you can trade with small capital but the transaction value is large.
Example: capital of 100 USD can be used for trading worth 10,000 USD.
But remember, leverage also multiplies the risk of loss.
Advantages of Forex Trading
1. Open 24 hours from Monday to Friday
2. High liquidity, fast and easy buying and selling
3. You can profit when prices rise or fall
Forex Trading Risks
1. High volatility: prices can move quickly due to economic news
2. Leverage risk: big profits but losses can also be big
3. Need strategy and risk management
Differences between Forex vs Stocks
Forex:
The country's currency is traded
The market is open 24 hours
You can profit in both directions, up and down
Use leverage
Stock:
The traded ownership of the company
The market is open during stock exchange working hours
The main profit when prices rise
No need to use leverage
Conclusion
Forex is a market where currencies from various countries are bought and sold.
Suitable for those who like fast analysis and can monitor the market flexibly.
But because the risks are high, it is very important to learn money management and control your emotions before starting.
What currency pair do you want to learn to start with first? USD/IDR or EUR/USD?
