What is forex? How to make money from online trading?

get money online forex
Trading illustration

Many people say that they can get rich quickly when they trade

However, what is the reality of forex trading? What are the advantages and risks?

Maybe lately you often hear the word "Forex". As an introduction, this time I will discuss understanding what forex is.

What is the meaning of forex? Forex is foreign exchange.

The term we hear more often is foreign exchange trading.

Forex is trading currencies from various countries to make a profit.

Here, the forex aims to generate profits or profits from trading foreign currencies from various countries.

Example of forex trading: You buy Euros (the main currency in Europe), while simultaneously you sell USD (the currency of the United States of America), which EUR / USD is the abbreviation.

Forex trading is a money exchange activity carried out in Money Changer, which is buying and selling foreign currencies which are manually (we have to go to the place to exchange the money).

But the fact is, forex trading different from trading manual money exchange transactions like in Money Changer.

The purpose of a person to buy and sell money in Money Changer is because of the need to exchange currency for transactions in various countries so that there is real physical money exchange.

Whereas in forex trading I do it online to make a profit.

We should understand that forex trading is a business activity, investment, and even a profession.

On an international scale, forex trading carries out by various parties, ranging from governments, central banks, multinational companies, and certain individuals who have large assets.

Currency trading transactions between various parties do not occur in the market with physical buildings, but in an invisible network called 'forex market'.

Along with the development of technology, nowadays forex trading reaches a wider scope.

Through the internet network, now forex trading can do by anyone, anytime, and anywhere.

Now everyone can trade forex. You and I can also trade forex online easily and with a capital as small as 5 USD.

The principle of online forex trading is simple, namely to enjoy the difference between the purchase price and the selling price by making purchase transactions when prices are low and selling transactions when prices are high.

For example, suppose you buy US dollars as much as 100 USD when the exchange rate of Rupiah (IDR) to Dollars is at IDR 14,250

So, the amount of Rupiah we spent to get 100 USD was IDR 1,425,000

A week later, the US Dollar grew stronger until the exchange rate became IDR 14,300 per USD

So, now if you sell 100 USD that you bought last week, you will get IDR 1,430,000, and you made a profit of IDR 5,000

Yes, you can get these benefits. Stated, the purpose of forex trading is to get such profits that result from fluctuations in currency exchange rates.

It can achieve this because the conditions and prices in the forex market move dynamically, can change by quickly responding to economic, political, war, disaster, and other news.

Even for regions with advanced and strong economies such as the United States, Britain, Europe, and Japan sometimes there is sensitive information, so that currency prices can move up and down significantly. This is what traders see as an opportunity to make a profit.

I do online forex trading to get these benefits through Brokers. The capital needed is very affordable, we can start with only 5 USD, or even free to use a bonus without a deposit which usually provided by brokers who are conducting promotions.

There is a slight difference between forex trading through online brokers and forex transactions used by most people at the bank or money changer.

In online forex trading which intermediary by Broker usually facilitated by a contract and margin system, whereas I do not know manual trading. The following are some points related to online trading with a margin system:

1. Transaction direction

Also called a two-way opportunity, so you can still look for profit opportunities when the market goes up or down. There are two types of transactions, namely: sell and buy.
long or short order forex
Buy or Sell transaction

BUY usually called LONG, while SELL commonly called SHORT.

If the price goes up, then made a BUY transaction to make a profit. Conversely, if prices go down, we can still enjoy taking SELL transactions and can make a profit.

2. Object of trade

Here, the object of trade is still the same. Is that? Yes, it's currency.

But here you are trading a contract based on the value of that currency. Maybe a little confusing. But, no need to confused, there will be a further explanation about this.

But put, consider doing certain currency transactions as if you are buying shares in a certain country.

The movement of the value of the country's currency is an indirect description of market sentiment towards the country's economy.

There are several currencies called main currencies or "Major". It is a developed country currency and widely traded on the world forex market.

Internationally, a currency symbol comprises three letters. The first two letters represent the identity of the country of origin of the currency, usually the initials of the country. While the third letter is the initial name of the currency.

For example, the USD currency. The first two letters (US) are the initials of the name of the United States of America (US) and Dollar (D). Another example is JPY, JP (Japan) while Y (Yen).

3. Trading time

Forex trading time lasts for 24 a 5, which is 24 hours a day for 5 days a week.

This happens because the world financial markets take turns in one day. The following is a world forex trade time table:
world forex trade session table
Trade session forex

Meanwhile, if you do a manual foreign exchange transaction, you must wait for a money exchange on weekdays.

Usually, banks in the UK do not serve foreign exchange transactions above 3 pm or 4 pm GMT time.

4. Leverage and Contract Size

Online forex brokers apply leverage to trade forex.

With this leverage, relatively small funds can make transactions with much larger contract values.

Maybe leverage will be easier if we are analogous to when we would lift a car.

When doing it manually we will have trouble when lifting the car, but with the help of using a jack, you only need a little energy to lift a car that weighs hundreds of kilograms.

Well, the leverage of how it works is roughly like the car jack.

Examples of real applications of forex leverage are:

At brokers who apply 100: 1 leverage, then you only need 1,000 USD to make a transaction worth 100,000 USD.

Now, the amount of 1,000 USD called a margin, while the transaction value of 100,000 USD called the Contract Size.

The capital you need is only 1%.

Meanwhile, if you are conducting conventional foreign exchange transactions, to trade 100,000 USD then you must provide capital worth 100,000 USD.

The capital you need is 100%.

This is the advantage with leverage, but like a double-edged sword, this leverage can be one of the main things that can make us lose trading because of being tempted by big profits.

5. Bid / Ask prices

In forex trading, it trades currency pairs based on Bid and Asks prices.

The BID price is the benchmark for you if you want to make a SELL transaction, while the ASK price is the opposite, it is the benchmark for you to make a BUY transaction.

An example of the BID price is 1.30050, while the ASK price is 1.30065. So if you want to make a BUY transaction, then your transaction will carry out at the price of 1.30065.

Conversely, if you want to make a SELL transaction, your transaction will carry out at the price of 1,30050.

You can also see that ASK prices are always higher than BID. The difference between ASK and BID is what it commonly refers to as "spread".

BID is also often referred to as Buy, so traders use this price if they want to buy from you.

Conversely, ASK has another name as Sell, so traders always use this price when they will sell to you.

So, based on the example above, if you will buy EUR from a trader then the price is 1.30065 per USD.

Conversely, if you want to sell EUR to traders, the price is 1.30050 per USD.

6. Currency Pair

We mentioned earlier that we trade the currency in currency pairs.

Before proceeding further, we will study the currency pair itself. Judging by type, it divides a currency pair into two:

Major Currency Pairs are currency pairs that involve major currencies and traded against the USD. Included in the major currency pairs are:

  • EUR / USD
  • GBP / USD
  • AUD / USD
  • NZD / USD
  • USD / JPY
  • USD / CHF
  • USD / CAD

Cross Currency Pairs or Cross Rates, are currency pairs that do not involve the USD. For example:

  • EUR / GBP
  • EUR / CHF
  • GBP / JPY

The first currency we call the base currency, while the second currency we call the counter currency.

When you make a Buy transaction, you are buying a base currency and; you are selling an opponent's currency.

Conversely, when you make a Sell transaction, what you do is sell the base currency and buy the opponent's currency.

This is one reason you can sell before the price drops.

For example, when you sell EUR / USD, the more EUR / USD prices go down, the more profit you will get.

7. How to transact

Technology is increasingly sophisticated, now everything is online.

Want to pay electricity bills, send money to friends or family, or even shop, you need not leave home anymore.

All you need to do is turn on your computer, connect to the internet, then transactions occur, and forex trading.

To do foreign exchange transactions, all you need is a computer connected to the internet.

There are even several brokers that provide mobile trading facilities for their customers and are available on Android or iOS.

With this facility, you can make transactions directly through your PDA or smartphone.

Compare the practicality if you have to come to the bank or money changer to make transactions.

Apart from the various advantages, forex trading likened to a double-edged sword.

Forex trading can make us rich, but it can also erode our capital instantly.

It doesn't matter whether you consider forex as one type of investment or as normal trading, it's clear that the risk of forex trading is high.

The biggest risk comes from the price movement itself, if you can analyze market conditions and make transaction arrangements correctly, then profits got.

But what if your analysis is wrong? To overcome the emergence of unwanted losses, it involves everyone in the world of forex must understand so they will become successful traders.

Good luck!

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