What is Forex Trading: Definition, Markets and Forex Basics

Many people say you can get rich quickly if you trade forex. However, the tantalizing lure is not necessarily accompanied by an understanding of what is forex trading, both its characteristics, advantages, and risks.

In this review, we will cover a number of forex trading basics that everyone should know.

What is Forex Trading?

Forex trading is the trading of currencies from different countries with the aim of making a profit. In this case, forex is short for Foreign Exchange (foreign exchange).

An example of forex trading is buying Euros (the main European currency), while simultaneously selling USD (the American currency), which can be abbreviated as EUR/USD.

what is forex trading

In the minds of ordinary people, the notion of forex trading is the activity of exchanging money in a Money Changer, namely buying and selling foreign currencies manually which is done through a money changer. In fact, forex trading is different from manual transactions such as in Money Changer.

Generally, the purpose of a person to buy and sell money in Money Changer is because of the need to exchange currencies to transact in different countries, so there is a physical exchange of money.

While forex trading is done online for the sole purpose of making a profit. It should be understood, forex trading is a business activity, investment, it can even become a profession.

On an international scale, foreign exchange (forex) trading is carried out by various parties, ranging from the government, central banks, multinational companies, to certain individuals who have large amounts of assets (Big Players).

Currency buying and selling transactions between 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, and anywhere. Now, everyone can trade forex. You and I can trade forex online easily and with only 10 dollars worth of capital.

Illustration of Understanding Forex Trading

what is forex trading

The principle of online forex trading is quite simple, which is to profit from the difference between the purchase price and the selling price by making a purchase transaction when the price is low and a sale transaction when the price is high.

For example, we buy US Dollars for $100 when the Rupiah exchange rate against the Dollar is at Rp 13,250. The rupiah that we spend to get that $100 becomes IDR 1.325,000.

Such is the illustration of forex trading. However, forex trading is not done physically and there will be no movement of different currencies from the hands of the seller to the buyer or vice versa. Forex traders transact in cyberspace through a container called software or trading platform.

Forex Markets

The forex market is different from the traditional market. Because currency is being traded here, the market (where traders/market participants conduct buying and selling) is not in the form of a particular building, and each market participant can play a dual role as a seller as well as a buyer.

Who are the participants of this forex market? Very diverse: can be multinational banks, central banks, large corporations, governments of any country, financial institutions, speculators, and so on.

Given its global scope and actors, the forex market has become very attractive and profitable. Because of its global nature, the forex market has become the market where the velocity of money is greatest (up to $4 trillion per day), and is highly liquid (you can buy and sell 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 anytime according to our spare time.

The forex market can be open 24 hours a day due to differences in working hours and hours in each of the world’s financial centers. In more detail, trades are carried out in four sessions:

  1. Australian Market (Sydney) 05.00 – 14.00 WIB
  2. Then to the Asian market (Tokyo) namely Japan
  3. Hong Kong & Singapore at 07.00 – 16.00 WIB.
  4. Then to the European market, namely Germany and England (London) at 13.00 – 22.00 WIB
  5. American Market (New York) at 20.00 – 05.00 (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.

Platforms can be in the form of software for PCs, browser-based web applications, or mobile applications (mobile apps). Thus, forex trading activities can be done anywhere and anytime.

Forex Trading Opportunities

what is forex trading

In simple terms, the purpose of forex trading is to profit from the rise and fall of currency exchange rates.

This can be achieved because conditions and prices in the forex market move very dynamically, can change at any time quickly in response to events, be it economics, politics, wars, disasters, and others.

Even for regions with advanced and strong economies such as the US, UK, Eurozone, or Japan; There is a little bit of sensitive information, then 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 making such a profit is carried out through the intermediary of a forex broker. The capital required is very affordable; Can start from $ 10 only, or even free by using the bonus funds provided by the broker.

Forex Trading Risks

The greatest risk comes from the price movement itself. If you can analyze market conditions and make the right transaction settings, then profits can be obtained.

Forex trading can quickly make you rich or poor. Because of this great risk, you must be wise and truly understand forex completely before deciding to jump into it.

If you are very new to forex trading, it is highly recommended to join the Forex Mentoring program which is widely available for free.

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