Understanding and How to Trade Forex For Beginners Completely

Understanding and How to Trade Forex For Beginners Completely

Trading forex today can really be regarded as a likely benefits field. How not, forex trading does not require large enough capital. In addition, it is not too complicated to use. For information, it is often found that forex trading players have been in the World of stock trading for a long time. Then, what exactly is the meaning of forex trading? And how does forex trading work itself? The following article will provide a complete explanation.

Understanding What is Forex Trading

Today, maybe many people will say they can get rich quickly 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, advantages, and risks. In the following explanation, we will discuss the basic understanding of forex trading that everyone must know. Then, what is forex trading?

Forex trading, also known as forex trading, is trading currencies from different countries intending to profit. In this case, forex itself is short for Foreign Exchange or can be called foreign exchange.

An example of forex trading would include buying Euros (the leading European currency) while simultaneously selling USD (the American currency), shortened to EUR or USD. In the minds of ordinary people, the meaning of forex trading is more on exchanging money at Money Changer, namely buying and selling foreign currencies manually, which is done through a money changer. However, forex trading is different from manual transactions like in Money Changer.

Another term you need to know is the trader. What is a trader? Trader or forex trader is a term for forex trading who trade currencies from various countries.

Please note that the purpose of someone buying and selling 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.

As for forex trading, it is done online with the sole purpose of making a profit. However, it should also be understood that forex trading is a business activity, investment. It can even be considered a profession.

On an international scale, foreign exchange or foreign exchange trading is often carried out by various parties, from the government, central banks, and multinational companies to specific individuals with significant assets or 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 has been able to reach a broader scope. Through the internet, forex trading can now be done by anyone, anytime, and anywhere. Nowadays, everyone can trade forex. You can also trade forex online quickly and with a capital as small as 10 dollars.

History of Forex Trading

In its history, forex trading in the late ’90s, only the rich, large financial institutions such as central banks, private and government banks, and large commercial companies such as Apple or Toyota did this business. They do forex trading, usually for trading purposes, paying debts, hedging (hedging), or investing. However, the capital required is also quite large, and not just anyone can do forex business.

After the development of the internet all over the World in the late 90s, the forex market was finally followed by almost all individuals, from entrepreneurs to housewives, parents and young people. Brokers also began to structure forex to be traded on a retail basis by each individual. So at this time, starting from money changers, banks, to motorcycle taxi drivers who hang out can jump in 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 is necessary to know that the exchange of goods between individuals began with a barter system. For example, someone needs a goat, and then he meets another person who sells two baskets of apples. They agree to exchange their merchandise, then a transaction can occur.

However, over time, the swap was considered insufficient to meet daily needs. The main problem with the barter system is what if you can’t find the person who needs and supplies the goods to exchange?

To overcome the shortcomings 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 intermediaries. However, it should be noted that each region can apply its own “currency” based on what they consider the most valuable, recognized by the community, and portable (easy to carry anywhere).

Because each region of the World uses a different “currency,” traders who transact between regions or cross-island and transcontinental voyages often need a currency exchange reference that is universally accepted. In many locations, it is agreed that the use of a precious metal such as Silver or Gold is an intermediary.

The kingdoms that stood at that time began to print their own “money” by determining the content of certain precious metals in it. In turn, the exchange is based on that rate. This is the beginning of currency exchange in ancient times.

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

  1. History of Modern Forex Trading

Exchanging money has been going on since time immemorial. Still, the history of modern forex trading as it is today only started after World War II. For information, there was a lot of chaos and economic crisis at the end of World War II, so the governments of the Allied countries felt they needed a system that would later be able to unite the global economy. Then the “Bretton Woods System” was formed to realize this dream.

In the Bretton Woods System, which was born in the city of Bretton Woods, the state of New Hampshire, the United States, in 1944, for the first time, there are official rules to regulate monetary relations between countries.

The United States, which held two-thirds of the World’s gold reserves, insisted that the system be based on gold and the US dollar. Finally, this system requires all countries involved to relate the value of their currency to gold and the US Dollar. However, it did not last long.

On August 15, 1971, the United States unilaterally severed its currency relationship with gold, ending the Bretton Woods system. The value of the dollar is no longer obtained from its gold reserves but only from the promises of the US government.

This action certainly makes the US Dollar a reserve currency for many countries in the World. The exchange rate between currencies was no longer determined by default but by following a simple economic system: demand and supply. A new phase was born in the history of forex trading, namely the floating exchange rate system.

After that, currency buying and selling transactions are mainly carried out by banks, while other parties such as the government and companies need to contact banks as intermediaries. Companies that need it can contact the bank by telephone, then the bank records at what price a currency is bought or sold. This creates the interbank market as an over-the-counter network where currencies are exchanged and exchange rates change dynamically.

  1. The Era of Online Forex Trading

The development of the global economy between the 80s and 90s led the World to a new development in forex trading history. People could participate in the World, which large banks and international companies previously dominated.

Transactions through banking intermediaries no longer have to be initiated by telephone contact but simply with instructions via the internet. A trading platform was created that allows anyone to see the “price” (currency exchange rate) and trade currencies in real-time.

The development of this technology is a crucial point in the history of forex trading because it pushed the trading volume in the forex market so far to become the largest financial market in the World, with daily liquidity reaching USD 5.3 trillion in 2013. At this time, too, you can find out which currency only those heavily traded and seek to profit from the strengthening or weakening of the currency exchange rate.

Then how when you, as “ordinary people,” can benefit from this currency exchange? Now there are many “forex brokers” who serve currency trading for the community on a small scale. In contrast to the interbank market, which has a standard trading size (100,000 US Dollars per unit), such forex brokers provide public facilities for forex trading even 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 profit from it, as long as you know how to play forex trading.

How Forex Trading Works

Forex trading is the simultaneous buying of one currency and selling of another. The currency pairs are then traded simultaneously. 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 the base currency equals 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. But, conversely, if you want to sell 1 euro you have, you will get 1.23700 USD.

Forex trading is a foreign currency transaction that is increasingly being chosen as a way to invest. This forex trading involves specific currency pairs chosen and traded according to certain conditions to achieve maximum results.

Forex Trading Laws According to Islam

For those of you who want to learn to start trading forex, of course, there will be questions that arise regarding its halalness. Is forex trading haram? Then, is forex trading a form of gambling?

According to Islam itself, currency trading or forex trading occurs because of the need from the global market to meet the needs of various countries.

This is following a book Masail Fiqhiyah written by a fiqh expert named Prof. Drs. Masjfuk Zuhdi states that if trading forex or foreign exchange is allowed in Islamic law.

Forex trading is considered lawful because the traded products have a straightforward form and value, namely foreign currencies. Forex trading is also different from usury and is purely a buying and selling transaction because forex trades currencies instead of lending money, expecting more return.

MUI has also permitted SPOT-type forex trading. SPOT purchases and sales of financial instruments, commodities, and other assets are made with cash and direct payments. This market is often called the cash market because trades are directly exchanged for assets.

Advantages of Forex Trading

Please note that every business or investment certainly has its advantages and risks, depending on what type of investment will be made. For example, forex trading is an investment that has been quite busy in recent years. Because this investment can make investors decadent or even bankrupt. And, of course, you need to know that forex trading is a high-return investment, 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 very flexible. Transactions in forex trading can be done through applications provided by online forex brokers.

The availability of internet access almost everywhere will also make it easier for traders to make transactions. For the rest, you only need to prepare the following things, such as:

  1. Hardware such as your computer, laptop, tablet, or even your smartphone.
  2. Downloading and installing the application provided by the trading broker
  3. Availability of adequate internet network
  4. Not only flexible about the place, but forex trading is also flexible in terms of time. The forex market can be accessed 24 hours a day. In addition, the market is closed only on Saturdays and Sundays.

In another sense, you can adjust the schedule for your trading. For example, you can trade in the morning if at that time is when you can concentrate more. Or you can also trade at night if in the morning you have the main job.

  1. Benefit from Exchange Rate Differences

The name of investing, definitely want Profit. Well, the “salary” or income of a forex trader for those of you who plan to trade forex is Profit in the form of the difference between the exchange rate when you buy and the exchange rate that is currently happening. The trick is you buy dollars when the value is still low and resell it at a higher price or buy at a high price and resell it at a higher price.

In general, there are three possibilities for dollar movement, namely up or an uptrend, fixed or sideways and down or downtrend. If it is going up, then big profits will be obtained. But if it goes down, then the value of the currency will tend to decrease as well.

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

  1. Forex Trading is Liquid

For information that not all shares are liquid. This means that not a few stock investors find it challenging to buy and sell shares quickly.

This phenomenon is a testament to illiquid stocks, usually in fried stocks and stocks not included in the LQ45 index. Stocks that are suspended even make investors’ money hold up. Who knows how long the suspension will be opened.

When trading forex, you don’t have to worry because the forex market has very high liquidity. However, the high number of transactions proves that almost always, people buy and sell every second.

Traders can also get profits quickly according to the chosen forex trading strategy without worrying if their money is stuck or worrying if they can’t spend money because the market is quiet.

Due to high liquidity, the forex market does not recognize such a thing as a “stock dealer” or a person with big money who may manipulate stocks with low liquidity. However, these “Broker” figures certainly have their respective backgrounds and goals in carrying out buying and selling actions that might affect retail investors’ emotions.

  1. Results of Forex Trading Profits Can Be Felt Immediately

Another advantage traders can obtain is taking advantage of price increases that come from the difference between the purchase price and the selling price on the buy order. Meanwhile, when making a sale, the Profit will be obtained from the difference between the selling price and the purchase or closing price.

  1. No Additional Fee

It should be noted that there are actually no transaction fees in the online forex market, only that there are several fees that vary in number. An example is the cost of withdrawing funds from a forex account.

  1. Forex Trading Has a Margin System

The last advantage is that there is trading using a margin system, which can make the purchasing power of investors higher than the capital they have.

If it’s like this, of course, the profits obtained are both ways when the market goes up and the price goes down. But, of course, this may not apply to other types of investments such as stocks.

Forex Trading Disadvantages

After understanding the advantages of Forex Trading, you also need to understand the risks. Of course, you also have to be ready to accept all the consequences. That way, the decisions taken have been 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 should be noted that every investment has its drawbacks, including foreign exchange. One of them is the government’s intervention of origin, whose currency is being traded in the foreign exchange market.

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

  1. Up and Down Forex Very Fast

Another risk is the influence of fluctuations in foreign exchange rates, as is well known. For example, suppose the rupiah currency can become very weak. In that case, it can be risky to buy dollars because the price is high.

Waiting for the Indonesian currency to strengthen can take time, putting forex trading in Indonesia at risk of experiencing losses.

Thus, after knowing the advantages and disadvantages of forex trading investment, you must wisely choose the type of investment that suits your abilities and your funding needs, both for short-term and long-term investments.

Forex Trading Risk Management

Risk management is the most essential thing in forex trading. It is well known that forex trading has a reasonably high risk. But when you can control that risk (potential loss), this online business is very profitable compared to other online businesses.

Forex Trading Risk Management

Unfortunately, very few traders are aware of the importance of risk management, especially 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 analyzing first, let alone risk management. Here is some risk management that needs to be understood for novice traders, including:

  1. Use “Cold Money” when Trading Forex

If you are a novice trader, it is mandatory to use cold money. Because the use of cold money is because you will not always be able to withdraw money or withdraw the money you are using for trading; therefore, if you force a trade at the wrong time, you will lose.

Simply put, if you sell goods when the price is down, while you buy it when the price goes up, you will lose. So, it is highly recommended to use cold money.

For information, cold money is money that is not used for sudden or urgent needs. This means that money is not needed for daily needs, insurance, emergency funds, children’s education funds, instalment funds, etc.

It is also highly recommended that you use borrowed money for trading because it is not demanding money. So all the money used for trading is intended for trading, not for other purposes.

  1. 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 to limit the risk of loss. For example, you open a forex transaction, BUY 1 lot of AUD/USD for 0.81400.

To limit the risk in your trading, of course, you need a strategy where you will place a stop loss at 0.81000. That is, if the price then drops to 0.81000, your transaction will close at 0.81000 with a loss of $400.

In forex trading, you are legally obligated to limit risk. The key is to minimize the possibility of the stop loss being “snagged” by price movements. This is a stop-loss placement technique itself.

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

Technically, some methods teach placing around 100-200 pips (for 5 decimal quotes). However, there are many methods of determining key resistance and support, and you just need to learn them.

  1. Create a Good Trading Plan

For a forex trader, a Trading Plan is necessary to obtain consistent trading results. One of the success factors in forex trading is discipline. Through a Trading Plan that is made correctly and objectively, a trader can undoubtedly practice discipline according to the rules that have been set in the plan.

In addition, a trader has taken responsibility for himself by making a Trading Plan. For example, suppose the trading results are not as expected or the direction of the market price movement is against the prediction. In that case, the trader can immediately take the best steps on the trading account without hesitation and panic.

  1. Take Profit to Take Profit

Traders need to know how to determine to Take Profit correctly so that later they don’t just follow emotions. Here are some methods that need to be studied in determining how to close a position to achieve 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 to estimate the direction of price changes, so you can profit from the difference between buying and selling values. However, learning forex trading is not as easy as imagined. This is evident from most people who are just learning forex. They will quickly go bankrupt. Therefore, how to start forex trading for beginners? There are several tips to learn forex trading that can be mastered in a short time.

  1. Understand Common Terms Used for Forex Trading

Before making any investment, you need to understand the various terms used in the trading process. Some general terms to know are:

  • A pip is a change in value between two currencies, referring to 4 decimal places behind the comma in the exchange rate. For example, 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.
  • A lot is the number of currency units bought or sold, divided into mini, micro and nano sizes.
  • Buy is a position to buy. Usually, a 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 a trader trade in high volumes.
  • Spread the difference between the buy and sell prices, usually for a broker.
  1. Understand How Forex Trading Works

The currency being traded is in 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 other is called the quote currency. The notation above shows 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 the 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 against the opposing currency. So when buying EUR/USD, we expect the base currency Euro to increase in value, and vice versa. So if you predict that the USD will strengthen against the Euro, then the best position to take is to sell.

  1. Choose the Right Forex Trading Broker

Forex trading occurs between two parties, namely you as a trader and broker, without a central exchange authority. The role of the broker is 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 clear permits and regulations. For example, for local Forex brokers in Indonesia, their existence is regulated by CoFTRA. As for International Forex brokers, their existence is regulated by several countries. The most famous example is the FCA UK of England.

  1. Use Leverage If Trading with Small Capital

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

In addition to leverage, there is also the term margin, which is a security deposit temporarily held by the broker when you trade. To carry out this transaction, of course, the funds owned must exceed the guarantee fund. 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
  1. Understand Forex Trading Risk Management

To survive long in the World of Forex trading, you also need to learn risk management. First, use cold money or money ready to be ‘lost.’ Furthermore, never use the money for daily needs because Forex trading is quite risky, so you must be prepared if you experience losses. In addition, 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 platform will automatically close the position. Without Take Profit, you can be provoked to not realize the Profit even though the target has been achieved because you expect more profits. And you can secure the Profit that has been achieved so as not to be ‘eaten’ by the risk of loss or loss from price declines that could occur.

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

For forex traders, one way to find Profit in buying and selling foreign exchange transactions (foreign exchange/forex) is automatically using a robot (forex trading robot). Autopilot forex trading provides automation, such as looking for trading opportunities (open trade), buying opportunities (open buy), to selling opportunities (open sell). Thus, traders only need to instruct the robot so that they no longer need to continuously observe and analyze the forex market in making buying and selling transactions.

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

Online Forex Trading App

As is known, besides being able to start with small capital, forex trading also has high liquidity so that investors can make purchases anytime and anywhere, including through applications. Moreover, many best forex trading platforms, applications, or services can make it easier.

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. MetaTrader 4

Besides Agrodana Future News, you can use Meta Trader 4. Although MetaQuotes Software Corp developed this application, this application is quite popular among traders. In addition to trading, this forex application makes it easy for you to connect with hundreds of forex brokers.

Launching the official website, Meta Trader 4, makes it easy for traders to carry out technical analysis and a flexible trading system. Apart from that, this app even helps you to get real-time quotes.

  1. Trade Optimizer

If 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 that will later help you analyze risks to post-trading.

You certainly already understand the losses and risks experienced when playing forex trading. But, of course, there are essential things that need to be underlined. Is there insurance that can be a guarantee when playing forex trading? Because forex trading has a reasonably high loss.

Unfortunately, until now, it is still rare to find insurance engaged in this field. However, you don’t need to worry. You can control your finances by buying and using other best insurance products so that when playing forex trading, you can set aside cold money to trade forex.

In addition, you also need to consider the amount of premium each month that you have to 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, how to trade forex when the loss occurs, there must be an emergency fund for other needs, such as funds for treatment and so on. So, it would be nice if you also participate in insurance that suits your needs.

See also  Tips for Starting a Beauty Salon Business for Beginners