Forex trading is the process of trading currencies of countries in the world with the aim of making a profit. Forex itself is an abbreviation of Foreign Exchange. For example, buying Euros and simultaneously selling US Dollars (called the EUR/USD trading pair).
Although it seems that forex trading in Indonesia began to bloom in the era of the 2000s, however, the origins of it appeared many years before that. The futures market was not well known in the 1990s, but people were already familiar with stock trading activities. In 1991, Indonesians became more familiar with forex trading after the Jakarta Futures Exchange was established in August 1999. With Law no. 31 1997 which was amended by Law no. 10 2011 regarding commodity trading, local brokers in Indonesia are also growing rapidly.
Ordinary people think that forex trading is an activity that is able to make money and achieve wealth. Is that right? StockOK will discuss it in this article.
2. Opening a Forex Account
Forex trading is a lucrative business but it must be handled carefully and carefully. This is because account users are required to deposit a certain amount of funds as an initial deposit before carrying out real trading activities. You certainly don’t want your funds to be lost by irresponsible brokers, right?
So, the first thing you should do as a way of trading forex is to choose a trusted broker. The characteristics of a safe and trusted broker are recognized legality, responsiveness, and various testimonials related to service, quality, and facilities from its users. Here, we will explain why we recommend 3 trusted brokers , namely Avatrade, Capital.com, and Etoro.
3. How Forex Trading Works
Forex Trading , which stands for Trading Foreign Exchange, is the activity of transferring one currency to another between the seller and the buyer at a pre-agreed price. Most of these activities are aimed at making a profit. So, we can think of forex trading as a kind of business and investment activity, even some people make forex trading a profession that they take seriously.
3.1 A Brief Explanation of How Forex Trading Works
The way forex trading works is quite simple. The following is a brief illustration of how to trade forex . At one time you buy US dollars worth $ 200 with a price per dollar of Rp. 14,500. This means that the cost you incur is IDR 2,900,000. Then, two weeks later the dollar strengthened so that the price per dollar became Rp. 15,000. If you sell the $200 dollar, then you make a profit of IDR 100,000, or IDR 500 per dollar.
3.2 Important Terms in Forex Trading
For those of you who are just learning forex trading for the first time , you may be a little confused by the terms in forex trading . However, there are actually only a few basic terms that you must know. Here are some of them.
A pip or point is the smallest change that occurs in a currency pair. For example, the USD/JPY pair has a 1 pip value of 0.01. Meanwhile, 1 pip for the EUR/USD pair is 0.0001.
3.2.2 Exchange Rate
Is the value of a currency when compared to the value of other currencies. For example EUR/USD is worth 1.3200. This means that 1 euro is equivalent to 1.3200 US dollars.
The leverage feature allows you to trade at a higher value than your actual capital. For example 1:100 leverage means that with a capital of only USD 1,000, you can trade up to 100 times that, which is $100,000.
Margin is the deposit required to maintain or open a trading position. Margin is divided into two types, namely Free Margin and Used Margin. Used Margin is the deposited funds used to maintain trading positions. While free trading is a deposit used to open a trading position.
Spread is the difference between the ask and bid prices of a currency pair. For example, the EUR/USD pair in the 1.3200/05 position means that the spread is around 5 pips, which is between 1.3200 to 1.3205.
3.2.6 Stop/Cut Loss
Is a feature that is used to stop losses that occur.
4. Choose Your Forex Trading Strategy
To achieve consistent profits, a trader is required to have a trading strategy. According to Rayner Teo, there are 4 types of the best trading strategies used by world-class traders. Here is the explanation.
4.1 Trading Positions
This strategy uses a long-term trading system from a period of several weeks to several months. Usually, traders who use this strategy consider forex trading as an investment. They also generally use trend following to determine their decision (ie trading by following the direction of trend movement).
4.2 Swing Trading
This Swing Trading strategy generally takes 1 Day to 1 Week. Open buy and open sell positions are usually placed at price reversal points, namely buy at support points, sell at resistance points, Trade Bounces, and Trade Pullbacks. The indicator that is often used in this trading system is the Moving Average (MA) indicator.
4.3 Intraday (Day Trading)
This strategy is done by opening positions and closing positions on the same day. Entry and exit positions made on the same day cause profit and loss to be known on the same day. The timeframe that is often used in this trading system is 1 Hour or 4 Hour. This technique is generally chosen by traders who have the characteristics of being easy to move on and looking for new opportunities the next day.
This strategy is used by traders who want to make profits very quickly. For novice traders, this strategy is not recommended because it will be very emotionally draining. Scalpers are required to have calm and high concentration to determine open positions.
So, which is the best forex strategy? All of this will greatly depend on the purpose of trading you are doing, the time you can spend trading, as well as your goals and personality.
If you have a lot of free time or are a full time trader, then scalping and Intraday strategies are perfect for you. However, if you only have a little time to trade forex, then swing trading and position trading strategies are for you. On the other hand, if you are a person who is emotionally easily influenced by price movements and a beginner in forex trading, then it is not recommended to use a scalping strategy. Why? Beginner traders will certainly find it difficult to determine price movements if they use a low timeframe, for example from 5 minutes to 15 minutes.
5. How to Open a Position in Forex Trading
The moments when opening a position are the most important moments in Forex trading . Mistakes in opening positions often end in losses. The following are the 4 main steps in opening a position using the Metatrader application.
5.1 Choose a Currency Pair
In choosing a currency pair to trade, it is very important to pay attention to the existing spreads. You can check it using a trading application like Metatrader. The spread factor makes the buy and sell prices at each broker different from the market price of the pair. Spreads will vary and are highly dependent on price changes. The spread determines the trading costs that must be incurred. The bigger the spread, the bigger the trading costs, which will affect the amount of profit that will be achieved.
5.2 Open Price Chart and Define Timeframe
To open a chart for a specific pair, click on the currency pair and then drag and drop it on the chart screen. For example, in this example you choose the EUR/USD pair. After the EUR/USD price chart appears in your Metatrader, right-click and select the desired “Timeframe”. For example in the following image:
5.3 Perform Market Analysis
Analysis techniques in forex trading are very diverse. You can use technical and fundamental analysis. Technical analysis generally uses indicators that are already available on the metatrader platform. While fundamental analysis is generally carried out based on emerging news.
If you use technical analysis and want to open the Bollinger Bands indicator in Metatrader, you can click “insert” on the toolbar and select “Indicators”, then “trend” and “Bollinger Bands”. For more details, you can see the image below:
5.4 Do Open Position
After you can predict which direction the price will move, you can immediately open a position by clicking “New Order”. Please see the following image.
After clicking “New Order”, you will be faced with two choices, namely Market Order and Pending Order.
If you are a novice trader or a person who is just learning forex trading , it is highly recommended that you choose Market Order (Instant Execution). This type of open position allows you to directly execute the process of an open position.
Forex trading is the process of trading currencies of countries in the world with the aim of making a profit. The first thing you have to do as a way of trading forex is to choose a trusted broker. The characteristics of a safe and trusted broker are recognized legality, responsiveness, and have various testimonials related to service, quality, and facilities from its users. ShareOK highly recommends that you open an account with 3 trusted brokers, namely Avatrade, Capital.com, and Etoro.
AvaTrade has successfully secured licenses from various leading regulatory bodies in Europe, Asia, Africa, etc. AvaTrade is regulated by ASIC Australia, Central Bank of Ireland and JFSA Japan. The license from the Central Bank of Ireland follows the official standard of the European Union, namely MiFID or Markets in Financial Instruments Directive. This standard is known to be strict and must be followed by countries in Europe, so that the security of customer funds is guaranteed.
Capital.com is regulated by the European Security and Markets Authority (ESMA). In addition, Capital.com is regulated by CySEC and FCA. These conditions allow Capital.com to protect clients’ money up to 200:1 leverage, depending on the type of account used.
Founded in 2007 and regulated by CySEC, FCA UK and ASIC Australia, eToro has clear credibility. The auspices of the big banks also make eToro transactions tightly controlled. This is what allows traders to feel safe and transparent trading conditions. The copytrading system on eToro also allows novice traders to copy trading activities from professional traders who already have high flying hours.
To achieve consistent profits, a trader is required to have a trading strategy. There are 4 main types of trading strategies, namely position trading, swing trading, intraday, and scalping. So, which is the best forex strategy? All of this will greatly depend on the purpose of trading you are doing, the time you can spend trading, as well as your goals and personal characteristics.
7. Frequently Asked Questions
Here are three frequently asked questions by Forex traders. Generally, these questions are often asked by novice traders or people who are just learning forex trading .
What Are The Most Appropriate Indicators To Use For Forex Trading?
There is no single indicator that is considered the best in forex trading. The main purpose of creating indicators is for identification and prediction. This indicator will depend on market conditions, trader characteristics, and the strategy used.
How Many Pips Can You Earn in a Day or a Week?
Determining profit targets based on pips is absolutely unacceptable. The forex market is highly volatile and inconsistent. Even by using the most precise strategy, you can lose money if market conditions are very unfavorable.
Which Timeframe Should Be Used In Forex Trading?
The timeframe used will depend on the strategy you are using and the time available for you to trade. The scalping method generally uses a timeframe of 5 minutes to 15 minutes. For day traders generally use the 1 Hour to Daily timeframe. While swing traders generally use Daily to weekly Timeframes.