Forex Trading, Advantages and Disadvantages

Forex Trading, Advantages and Disadvantages

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Trading forex right now can be said as a promising income field. How not, forex trading does not require a fairly large capital. Not only that, it’s not very complicated to use. For information, it is often found that forex trading players are those who have been in the world of stock trading for a long time. Then, what exactly is the meaning of forex trading? And how does the forex trading work itself? Here Qoala will give a complete explanation.

Understanding What is Forex Trading

Meanwhile, there are many people who will say they can get rich quick if they play forex trading. However, this is not necessarily accompanied by an in-depth understanding of the meaning of forex trading itself, both in terms of characteristics, features, and risks. In the following explanation, we will discuss the basic understanding of forex trading that everyone should know. Then, what is forex trading?

Forex trading or also known as forex trading is trading currencies from different countries with the aim of making a profit. In this case, forex itself is short for Foreign Exchange or it can be called a foreign exchange exchange. An example from forex trading includes buying Euros (European primary currency), while simultaneously selling USD (American currency), it can be shortened to EUR or USD. In the minds of ordinary people, the meaning of forex trading is more about exchanging money at Money Changer, namely buying and selling foreign currencies manually which is carried out through a money changer. In fact, forex trading is actually different from manual transactions like in Money Changer.

Another term that you must know is trader. What is a trader? Trader or forex trader is a term for people who carry out forex trading who trade currencies from various countries.

It must be known, the purpose of a person to buy and sell money in Money Changer is because of the need to exchange currency for transactions in different countries, so that there is a physical exchange of money. As for forex trading, it is done online for the sole purpose of making a profit. It must also be understood, forex trading is a business activity, an investment, moreover it can also be recognized as a profession.

On an international scale, foreign exchange or foreign exchange trading is often carried out by various parties, starting from the government, central banks, multinational corporations, to certain individuals who have large amounts of assets or are big players. Currency buying and selling transactions that take place between these various parties do not take place in a market with a physical building, but in an invisible network called the “Forex Market”.

Along with the growth of technology, forex trading has been able to reach a wider scope. Through the internet, forex trading can now be carried out by anyone, anytime, and anywhere. Right now, everyone can trade forex. You can also trade forex online easily and with a capital as small as 10 dollars.

History of Forex Trading

In its history, forex trading at the end of the 90s, only the rich, large financial forums such as central banks, private banks and governments, and also large commercial corporations such as Apple or Toyota who pursue this business. They carry out forex trading usually for trading needs, paying debts, hedging (hedging), or investing. The capital required is also quite large, and not just anyone can do forex business.

After the development of the internet around the world at the end of the 90s, the forex market was finally able to be followed by almost everyone, from entrepreneurs to housewives, parents and young people. Brokers also began to structure forex so that it could be traded on a retail basis by each individual. In this way, starting from money changers, banks, to motorcycle taxi drivers who hang out can also enter the Forex market.

1. The End of the Bartering Period and the Beginning of the Exchange of Money

In the history of human civilization, it must be known that the exchange of goods between individuals began with a bartering platform. For example, a person needs a goat, after that he meets another person who sells two baskets of apples, then they agree to exchange their merchandise, then the transaction can take place. However, as time went by, bartering was admittedly not enough to meet daily needs. The primary problem stemming from the bartering platform is what if you can’t find the person whose needs and supplies are to be exchanged?

To overcome the shortage of barter, then made a means of payment or means of exchange in various forms. In this period, mankind used shells, beads, rare stones, and precious metals as mediators. However, it should be noted that each region can apply its own “currency” based on what they consider the most valuable, considered residents, and portable (Easy to carry everywhere).

Because each region in the world uses a different “currency”, traders who carry out transactions between regions or trans-island and transcontinental shipping often need a currency exchange reference that can be universally accepted. In countless locations, an agreement was determined that the use of precious metals such as Silver or Gold as a mediator.

The kingdoms that existed in that era began to print their respective “Money” by determining the amount of certain precious metals in it. In turn, the exchange is based on that measure. This was the beginning of currency exchange in antiquity.

Since when did this currency exchange take place? According to Byzantine records (C. 4th century BC) show that the kingdom monopolized the exchange of money. Then Papyrus records also show that currency exchange was carried out in ancient Egypt. Other regions from Australia, Indonesia, China, India, to Europe have their own records. Being, this is not something that suddenly appeared in modern times.

2. History of Modern Forex Trading

The exchange of money has been happening since ancient times, but the history of modern forex trading as it is today actually only started after World War II. For information, there was a myriad of chaos and economic crises at the end of World War II, so that the Allied governments felt they needed a platform that would later be able to unify the world economy. Then the “Bretton Woods Platform” was formed to realize that dream.

In the Bretton Woods Platform, which was born in the city of Bretton Woods, the state of New Hampshire, United States of America in 1944, for the first time there are formal regulations to regulate monetary interactions between countries. The United States, which at that time held two-thirds of the world’s gold reserves, insisted that the platform be based on gold and the US dollar. Furthermore, the platform requires all countries involved to link the value of their currencies to gold and the US Dollar. However, this did not last long.

On August 15, 1971, the United States unilaterally severed the interaction of its currency with gold, in order to automatically terminate the Bretton Woods platform. The value of the dollar is no longer obtained from gold reserves, but only from the promises of the US government. This action certainly resulted in the US Dollar becoming a reserve currency for countless countries in the World. At the same time, exchange rates between currencies are no longer determined by standard, but by following a simple economic platform, namely demand (demand) and supply (supply). A new phase was born in the history of forex trading, namely the floating exchange rate system.

After that, the main currency buying and selling transactions are carried out by banks, while other parties such as the government and corporates must contact the bank as a mediator. Corporates who need it can contact the bank via telephone, then the bank records at what price a currency is bought or sold. Originating from this, the interbank market was created as a decentralized network (Over-The-Counter) where currencies were exchanged and currency exchange rates changed in a progressive manner.

3. The Era of Online Forex Trading

The growth of the world economy between the 80s and 90s after that led the world to a new growth in the history of forex trading in which people could participate in a world that was previously dominated by large banks and international corporations. Transactions through banking mediators no longer need to be initiated by telephone contact, but only with instructions via the internet. Moreover, a trading system was created that allows anyone to see “Prices” (currency exchange rates) and trade currencies in real-time.

The growth of this technology is a crucial point in the history of forex trading, because it has pushed trading volume in the forex market so far to become the largest financial market in the world with daily liquidity reaching USD5.3 trillion in 2013. In this era too, you can realize any currency that is not traded and is also trying to make a profit from the strengthening or weakening of currency exchange rates.

Then how when you as “Ordinary People” can make a profit from this currency exchange? Now there are many “forex brokers” who serve currency trading for residents on a small scale. In contrast to the interbank market which has a standard trading size (100,000 US Dollars per unit), this kind of forex broker provides people with facilities for forex trading, especially with capital as small as a few tens or hundreds of dollars. Even more sophisticated in today’s mobile era, forex trading can be done via laptop, tablet, android, or iphone. As long as there is an electricity and internet connection, you can “jump into the forex market” and make a profit from it, as long as you are aware of how to play forex trading.

How Forex Trading Works

Forex trading in principle is the simultaneous buying of one currency and selling of another. The currency pairs are then traded in line. For example, Eur/Usd = 1.23700.

The currency on the left (in this case the Euro) is the base currency, and the currency on the other side is called the 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).

That way, you have to pay 1.23700 USD if you want to buy 1 Euro. On the other hand, if you want to sell 1 euro you have, you will earn 1.23700 USD.

Forex trading is a foreign currency transaction which is increasingly being chosen as a way to carry out investments. This forex trading involves certain customized currency pairs that are selected and can be traded according to certain situations to achieve maximum results.

Advantages of Forex Trading

It should be noted that every business or investment certainly has its own advantages and risks, depending on the type of investment that will be carried out. Forex trading is an investment that has been quite crowded in recent years. Because this investment can make investors rich or even bankrupt. And of course it must be known that forex trading is an investment that is high return, high risk. The following will explain the advantages of investing in forex trading.

1. Forex Trading Transactions Tend To Be Flexible

Indeed, forex trading can be done anywhere because it is too flexible. Transactions in forex trading can be done through applications provided by online forex brokers.

With the availability of internet access in almost all regions, of course, it will also make it easier for traders to carry out transactions. The rest, you just have to prepare the following things, such as:

Hardware such as a computer, laptop, tablet, or even your smartphone. Downloading and installing applications provided by trading brokers Availability of adequate internet network

Not only flexible in terms of area, forex trading is also flexible in terms of timing. The forex market can be accessed 24 hours a day. Not only that, the market is closed only on Saturdays and Sundays.

In another sense, you can adjust the schedule for your own trading. You can trade in the morning, if during that time you can concentrate more. Or you can also trade at night, if in the morning you have a primary job.

2. Benefit from Exchange Rate Differences

The name of investing, of course you want profit. Well, “salary” or forex trader income for those of you who plan to carry out forex trading is profit in the form of the difference from the exchange rate when you buy and the exchange rate that is currently taking place. The trick is you buy dollars when the value is still low and sell it again at a higher price or buy at a high price and resell it at a higher price.

In general, there are three possible occurrences of a dollar convoy, namely up or uptrend, fixed or sideways and down or downtrend. If it is rising, then big profits will be obtained. But if it goes down, then the value of the currency will tend to decrease as well.

Before triggering a dollar investment, you should first know the purpose of this investment. Also make sure that before starting forex trading, you have provided an emergency fund that can be used for something that happens suddenly and suddenly.

3. Forex Trading is Liquid

As news that not all shares are liquid. This means that many stock investors find it difficult to buy and sell shares quickly.

This fact is a testament to illiquid stocks, usually occurring in fried stocks and also stocks that are not included in the Lq45 index. Stocks that are suspended even more so have the effect of holding investors’ money, who knows how long the suspension will be opened.
While trading forex, you don’t have to worry because the forex market has very high liquidity. The high number of transactions proves that there are almost always people buying and selling in every second.

Traders are also able to make profits quickly according to the chosen forex trading tactics without risk if their money is stuck or if they can’t spend money the implications of a quiet market.

Due to high liquidity, the forex market does not recognize such a thing as a “stock dealer” or a person with big money who can manipulate stocks with low liquidity. These “Bandar” figures must have their respective backgrounds and goals in carrying out buying and selling actions that may change the emotions of retail investors.

4. Results of Forex Trading Profits Can Be Felt Immediately

Another profit that can be obtained by traders is that they can withdraw profits from price increases that come from the difference between the purchase price and the selling price on the buy order. When you run a sale, profit will be obtained from the difference between the selling price and the purchase or closing price.

5. No Additional Fee

It should be noted that transaction fees in the online forex market do not actually exist, they are only subject to more than one fee, the amount of which varies greatly. An example is the cost of withdrawing funds from a forex account.

6. Forex Trading Has a Margin System

The last advantage is that there is trading using a margin platform, which can result in the buying power of investors being higher than the capital they have.

If this is the case, of course, the profit earned is two-way when the market goes up and the price goes down. Of course, this may not apply to other investment models such as stocks.

Forex Trading Disadvantages

After realizing the advantages of Forex Trading, you should also be aware of the risks. Of course, you must also be prepared to accept all the consequences. That way, the rules taken have passed through careful thought. The following will explain the losses or risks that occur from forex trading itself.

1. There is Government Intervention from the Currency

It must be known that every investment has its drawbacks, including foreign exchange. One of them is that there is interference from the government of origin whose currency is being traded in the foreign exchange market.

The intervention in question is the existence of hegemony from the central bank from that country by increasing interest rates, releasing bonds from the government as well as buying foreign currency on a large scale.

2. Up and Down Forex Very Fast

Another risk is the impact of fluctuations in foreign exchange rates. As it is already known that the rupiah currency can be very weak so it can be risky to buy dollars because of course the price is expensive.
Waiting for the Indonesian currency to strengthen can also take a while, so that it can have an impact on forex trading in Indonesia and risk experiencing losses.

Thus, after understanding the advantages and disadvantages of forex trading investment, then you must wisely choose the type of investment that is tailored to the capabilities and needs of funds, both for short-term and long-term investments.

Forex Trading Risk Management

Risk management is the most vital thing in forex trading. As it is already known that forex trading has a fairly high risk. But when you can control that risk (potential loss), then, this online business is very profitable compared to other online businesses.

Unfortunately, very few traders understand the importance of risk management, especially for novice traders. Usually, after creating an account and depositing, these novice traders tend to be impatient and immediately press the BUY or SELL button without carrying out any analysis first, even carrying out risk management. Here are more than one risk management that must be understood for novice traders, including:

1. Use “Cold Money” when Trading Forex

If you are a novice trader then the law must use cold money. Due to the use of cold money because you will not always be able to withdraw money or withdraw the money you are using for trading. Therefore, if you force trading in the wrong place, you will actually lose. Simply put, if you sell goods when the price is down, while you buy it when the price goes up, you will certainly lose. So, it is highly recommended to use cold money.

For info, cold money is money that is not used for sudden or urgent needs. This means that it is not money needed for daily needs, insurance, emergency funds, children’s education funds, installment funds and so on. It is also highly recommended that you use borrowed money for trading because the money is not cold money either. Being all the money used for trading is meant for trading, not for other needs.

2. Set Stop Loss So You Don’t Lose Too Much

A stop loss order or stop loss is an order placed to close an open transaction with the aim of limiting the risk of loss. For example, you are connected to a forex transaction BUY 1 lot Aud/USD at a price of 0.81400.

To limit the risk in your trading, of course you need a tactic where you will place a stop loss at the price of 0.81000. That is, if the price after that drops to 0.81000, then your transaction will close at 0.81000 with a loss of $400.
In forex trading, you must legally limit the risk. The key is to minimize the possible stop loss “sucked” by the price convoy. This is the technique of placing the stop loss itself.

Place your stop loss a few pips above key resistance (if your position is short) or below key support (if your position is long).

Technically, there is a method that teaches placing approximately 100-200 pips (For 5 decimal quotes). There are a myriad of methods for determining key resistance and support, you just have to learn them.

3. Create a Good Trading Plan

For a forex trader, a Trading Plan is really needed to get continuous trading results. One of the success factors in forex trading is discipline. Through a Trading Plan that is made legally and objectively, a trader can certainly practice discipline according to the rules that have been set in the plan.

Not only that, a trader is responsible for himself by making a Trading Plan. If the trading results are not as expected or the direction of the market price convoy is antagonistic to the prediction, the trader can immediately take the best steps on the trading account without hesitation and panic.

4. Take Profit to Take Profit

Traders must understand how to correctly determine Take Profit, so that later it will not only follow emotions. Here are more than one method that must be studied in determining how to close a position so as to obtain optimal profit, including:

Determine take profit on trending market conditions
Determine take profit on market conditions ranging (sideways)
Using the risk/reward ratio

Forex Trading Learning Tips for Beginners

The purpose of forex trading itself is none other than estimating the direction of price changes, so that you can get a profit from the difference between buying and selling values. However, studying forex trading is not as easy as one might think. This is evident from most people who are new to forex studies. They will quickly go bankrupt. Because of this, how do you start trading forex for beginners? There is more than one forex trading study tips that can be mastered in a short amount of time.

1. Understand Common Terms Used for Forex Trading

Before making any investment, you must understand the various terms used in the trading process. There is more than one generic term to know, namely:

A pip is the change in value between two currencies, referring to 4 decimal places behind the comma in the exchange rate. If EUR/USD is at 1.1205 and then moves to 1.1206, the difference of 0.0001 is 1 pip.
The base currency is the value of the base currency or the first currency in a currency pair. It is written to the left of the sign, for example Eur/(the opposite).

Pair currency is the exchange rate of a currency pair in forex, for example Euro/USD. Lot is the number of currency units bought or sold, divided into mini, micro, and nano sizes.

Buy is a position to buy. Usually buy is done if the price is expected to rise.
Sell ​​is done if the price is expected to fall. You sell at a high price, then buy back when the price is low. The difference will be to your advantage.

Leverage is a loan given by a broker to help traders so they can trade in high volumes.

2. Understand How Forex Trading Works

The currency being traded is in the form of a pair (pair), for example, Eur/Usd. For example Eur/Usd = 1.1215.

The currency on the left (Euro) is the base currency, while the currency on the other side is called the quote currency. The above notation proves 1 euro = 1.1215 Usd.

The following is an example of its application in trading. It is known, the position of the buy price and the selling price of Eur/USD are:

Buy: 1.1215
Sell: 1.1212

The ‘Buy’ price shows the price to buy 1 Euro is 1.1215 Usd, while the ‘Sell’ price shows the price to sell 1 Euro is 1.1212 Usd.

When trading, your benchmark is the base currency or the first position of the pair in the opposite currency. Being temporarily buying EUR/USD, we expect the base currency Euro to increase in value, and vice versa. If your prediction is that the USD will strengthen against the Euro, then the best position to take is to sell.

3. Choose the Right Forex Trading Broker

Forex trading takes place between two parties, namely you as a trader and a broker, without a central exchange authority. The role of brokers is very significant. Brokers are liaisons between market participants and the international forex market. Brokers also provide facilities so that people can transact online.

Make sure that the broker has the permits and regulations that are understood. For local Forex brokers in Indonesia, their existence is regulated by CoFTRA. Suitable for International Forex brokers, its existence is regulated by more than one country. The most famous example is FCA UK originating from England.

4. Use Leverage If Trading with Small Capital

With leverage or leverage, you can carry out large amounts of transactions with minimal capital. Leverage is a loan from a forex broker that is given to traders.

Not only leverage, there is also the term margin, which is collateral money that is held right by the broker when you make a trade. To be able to carry out this transaction, of course, the funds owned need to exceed the collateral funds. The types of leverage are:

1:1 = The guarantee is the same as the contract value or 100%

1:50 = Guarantee of 2% of the contract value
1:100 = Guarantee of 1% of the contract value
1:200 = The guarantee is 0.5% of the contract value
1:400 = The guarantee is 0.25% of the contract value
1:500 = The guarantee is 0.20% of the contract value

5. Understand Forex Trading Risk Management

In order to survive long in the world of Forex trading, you also need to study risk management. First, use cold money or money that is ready to be ‘lost’. Finally, don’t use money for daily needs. Because Forex trading is quite risky so you must be prepared if you experience losses. Not only that, you also have to set a Stop Loss. Because your position will be automatically closed if the loss has reached a certain predetermined amount. In contrast to Stop Loss, there is Take Profit.

With Take Profit, if the position is profitable, the system will automatically close the position. Without Take Profit, you can be tempted to not realize the profit even though the target has been achieved because you expect more profit. And you can secure the profit that has been achieved so that it is not ‘eaten’ by the risk of loss or loss from falling prices which could be take place.

6. Beware of Forex under the guise of a Trading Robot

For forex traders, one way to track profits in buying and selling foreign exchange transactions (Foreign exchange/forex) is to automatically use a robot (forex trading robot). Autopilot forex trading adds automation, such as tracking trading opportunities (Open trade), buying opportunities (Open buy), to selling opportunities (Open sell). Thus, traders only have to instruct the robot so that they no longer have to observe and analyze the forex market consistently on their own in making buying and selling transactions.

However, you must be aware of this type of fraudulent investment mode behind all the facilities offered. The reason is, the existence of an unlicensed website domain is likely to be dangerous. Moreover, in 2021, the Ministry of Trade through the Commodity Futures Trading Supervisory Agency (Bappebti) together with the Ministry of Communication and Information (Kominfo) has blocked 249 website domains in the field of commodity futures trading (Pbk) that do not have permits.

Online Forex Trading App

As is well known, not only can you start with small capital, forex trading also has high liquidity so that investors can make purchases anytime and anywhere, including through the application. In fact, there are now many of the best forex trading systems, applications or services that can make it easier for you.

Well, how to trade forex for beginners with the application? Then, what are the applications that are suitable for forex trading and guaranteed security? Here’s a summary.

1. Agrodana Future News

The first application you can use is a trusted forex trading application called Agrodana Future News for busy trading. This application is also under the auspices of PT Agrodana Futures. Through Agrodana Future News, you can monitor trading data every day.

On the other hand, this one forex trading application also presents a simple display so that it is easily accessible by traders. Currently, there are more than 5,000 people using Agrodana Future News on the Play Store.

2. MetaTrader 4

Not only Agrodana Future News, you can use Meta Trader 4. This application was developed by Metaquotes Software Corp, this application is quite popular among traders. How not, not only do trading, this forex application also makes it easy for you to open with hundreds of forex brokers.

Launching the official website, Meta Trader 4 makes it easy for traders to carry out technical analysis along with a flexible trading platform. Not only that, this application also helps you to get real-time price quotes.

3. HSB Trader

This application is also very suitable for beginners to play forex trading. HSB Trader makes it easy for users to monitor market convoys from time to time.

The most significant thing is that HSB has high integrity and full legality from the Commodity Futures Trading Supervisory Agency (CoFTRA) of the Ministry of Trade of the Republic of Indonesia. That way, you don’t have to worry about using this application.

4. MIFX Mobile

Another app that you should try for busy forex trading is MIFX Mobile. This application offers a variety of advantages. One of them is its user-friendly interface to support traders in making profits easily.

Not only that, MIFX Mobile also makes it easy for users to withdraw and deposit trading funds. The most meaningful thing is that this application is registered with CoFTRA under the auspices of PT Monex Investindo Futures.

So, you don’t have to worry about fake investments. If you are interested in using it, you can download this application on the Play Store and join 50,000 other people.

5. Trade Optimizer

Unless you are interested in using a paid application, you can try Trade Optimizer. With this paid application, you can get a variety of luxurious features, such as the 14 calculators feature which will later help you in analyzing risks until post-trading.

6. NetDania Stock & Forex Trader

This application is considered suitable for beginners. Because, Netdania will help you to monitor currency convoys in real-time. Moreover, this application is quite popular among forex traders. Not only that, this application also provides actual news related to forex so that traders can follow it.

7. MotionTrade

Motiontrade is an online stock trading application owned by PT MNC Sekuritas and is one of the best reputable corporate securities in Indonesia. Inside this application there is also a Tradingview Chart feature that can be accessed to watch charts and trends from various issuers. How to use the Tradingview Chart feature is that you only have to type in the stock code of your favorite issuer, then you will be able to view the chart and trend of the stock code

You must have understood about the losses and risks experienced when playing forex trading. Of course, there are significant things that must be underlined, namely, is there insurance that can be used as collateral while playing forex trading? Because, forex trading has a fairly high loss. Unfortunately, until now, there are still sporadic insurance companies engaged in this field. But, you don’t have to worry. You can control your finances by buying and using other best insurance products, so that while playing forex trading, you can set aside cold money to run forex trading.

Not only that, you also have to consider the amount of insurance coverage fees each month that you must spend when you are active in the world of forex trading. Because as is known, forex trading has the possibility that a trader will experience losses. Of course, when the loss occurs, there must be an emergency fund for other purposes, such as funds for treatment and so on. So, it would be better if you also participate in insurance that is tailored to your needs.

To be clear about what insurance is tailored to your needs and finances, you can see it on the Qoala App or read other news related to insurance and finance

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