What Is Forex Trading: Definition, Market and Forex Basics

Many people say you can get rich quick if you trade forex. However, the tempting temptation does not have to be accompanied by an understanding of what forex trading is, both its characteristics, its advantages, and its risks. In this review, we will discuss a number of basic foreign exchange trades that everyone should know.

What is Trade Forex ?

Forex trading is trading currencies from different countries with the aim of making a profit. In this case, forex stands for Foreign Exchange. An example of forex trading is buying Euros (major European currencies), while simultaneously selling USD (American currency), can be abbreviated as EUR / USD

In the shadow of ordinary people, the idea of forex trading is money exchange activities in Money Changer, which buy and sell foreign currency manually through a money changer. In fact, forex trading is different from manual transactions such as in Money Changer.

In general, a person's goal to buy and sell money at Money Changer is because of the need to exchange currencies for transactions in various countries, so that there is a physical exchange of money. While forex trading is done online with the aim of gaining profits. It needs to be understood, forex trading is a business activity, investment, and even profession.

On an international scale, foreign exchange trading is carried out by various parties, ranging from the government, central banks, multinational companies, to certain individuals who have large assets. Currency trading transactions among 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, anywhere. Now, everyone can trade forex. You and I can also trade forex online easily and with capital as small as 10 Dollars.

Illustration of Understanding Forex Trading

The principle of online forex trading is quite simple, which is to get a profit from the difference between the purchase price and the selling price by making a purchase transaction when the price is low and the transaction is selling when the price is high. For example, we buy US $ as much as $ 100 when the exchange rate of the Rupiah against the Dollar is at a value of Rp13,250. The rupiah we spend to get the $ 100 becomes Rp1,325,000.
A week later, the US Dollar strengthened until the exchange rate became Rp13,300. If we sell the $ 100, it will make a profit of IDR 50,000, because other people who want to buy the $ 100 must now spend IDR 1,300,000 in Rupiah.

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

Forex Market

The forex market is different from traditional markets. Because here are traded currencies, the market (where traders / market players make buying and selling) is not a particular building, and every market actor can play a dual role as a seller and buyer. Who are the forex market players? very diverse: it can be multinational banks, central banks, large companies, government of any country, financial institutions, speculators, etc.