Numerous individuals begin trading forex for the first time every day without having the necessary understanding. They all want to start trading forex because they believe it to be a simple technique to double profits. You might be one of them.
Unfortunately, the majority of beginners actually lose money. How come? because they merely deposit money and have no idea how the foreign exchange market operates. In fact, any business will only succeed if the perpetrator is knowledgeable about the area being worked on. The same is true in forex trading. Therefore, learning forex is a prerequisite for all beginners.
Professional traders constantly seek to increase their knowledge by reading books, going to seminars, and exchanging information with other traders. How can a trader who is just starting out expect to make money right away? Before depositing money, new traders should at the very least become familiar with the fundamentals of forex.
What fundamentals does this new trader need to understand? At the absolute least, traders need to be aware of what forex trading is, its benefits and risks, the hours the market is open, how to get started, and how to conduct market analysis.
What is Forex Trading?
The phrase “Forex Trading” literally means trading foreign exchange (forex). Forex trading, however, differs from the usual currency exchange that takes place in banks or moneychangers. Online forex trading does not include the direct transfer of foreign currency notes.
We trade pairs of currencies on the foreign exchange market. There are three different categories of currency pairs that traders need to be aware of:
The seven (7) main currencies that are coupled with the USD are included in the major currency pairs, or “Major Pairs.” Just seven main currency pairs exist: USD/JPY (US Dollar-Yen), EUR/USD (Euro-US Dollar), GBP/USD (Pound-US Dollar), AUD/USD (Australian Dollar-US Dollar), USD/CAD (Canadian Dollar-US Dollar), NZD/USD (New Zealand Dollar-US Dollar), and USD/CHF (US Dollar-Swiss Franc).
The seven principal non-USD currencies that are paired with one another are referred to as cross currency pairs (Cross Pairs). For instance, AUD/JPY (Australian Dollar-Yen), EUR/GBP (Euro-Pound), and so forth.
All non-major currencies linked with the USD or other main currencies are included in the exotic pairs. For instance, USD/IDR (US Dollar-Rupiah), USD/TRY (US Dollar-Turkish Lira), and so forth.
The largest and most liquid financial market in the world is the FX market. More than 5 trillion US dollars are traded every day. Governments, central banks, commercial banks, multinational and export-import firms, financial institutions, as well as individual traders and speculators like us, are among the market players.
There is no fixed location for the FX market; instead, it operates over-the-counter (OTC). Electronic transactions for buying and selling foreign exchange take place on the worldwide banking network. As a result, dealers and consumers do not personally interact.
With the help of a broker, we can engage in forex trading. Forex brokers link traders to the international banking system where transactions are completed. The broker gives traders the tools they need to conduct market research and place buy-sell orders. In addition, the broker offers us the leverage we need to start trading with little capital, along with a number of other top-notch features that make online transactions easy.
Describe leverage. The “lever” of our capital’s purchasing power is leverage. For instance, if the broker offers a leverage of 1:100 and we only have $100 in capital, we can trade as though we have $10,000 in money. Naturally, we will be able to trade more foreign exchange if we have larger leveraged funds.
All these amenities are not provided without charge to traders. Traders are required to pay a number of fees, including:
The spread is the distinction between the selling and buying rates. Spreads are a natural part of forex trading. Spreads may be marked up by brokers for profit.
Trading commission: The trader is required to pay this cost for each transaction (lot). Brokers have the option of offering low or large commissions.
Swap (rollover): This is the interest that develops as a result of the interbank dealings involved in currency trading. Additionally, brokers may offer unique accounts without swaps (commonly called Islamic accounts or Sharia accounts).
Deposit and Withdrawal Fees: When traders deposit or withdraw money from a trading account, brokers may charge them a small fee. If brokers believe that the income from other fee structures is sufficient, they may also make it free.
The broker will utilize a portion of the money it receives from these fees to cover the costs of other parties involved in its business, keeping the remaining sum as profit.
Advantages and Risks of Forex Trading Business
The forex market has expanded quickly thanks to developments in information technology (IT) and financial technology (fintech). Small traders like us can now access the online market with little capital thanks to technology. The popularity of the forex trading industry is also rising quickly for the following reasons:
Anyone with a laptop or mobile device and an internet connection can easily view this information.
Forex trading requires very little initial cash; you can get started with just $100 USD.
Due to the currency market’s daily trading volume of more than $5 trillion, there are countless trading chances.
Two-way trading, in which the trader can benefit whether the price is rising (buy) or falling (sell) (sell).
High liquidity makes it simple for traders to buy or sell any currency pair.
Low transaction costs due to the fact that many brokers just charge spreads or spread+commissions.
Anyone can start trading forex, regardless of their education level, occupation (worker, housewife, student, etc.).
So, given the aforementioned advantages, are you eager to begin trading forex right away? Wait a second. There are some risks that must be there in every firm nowadays.
Risks involved in the forex trading business should not be understated. People who suffer significant losses as a result of forex have received a lot of media attention. To avoid falling into the same pit, we must be mindful of these five risks:
Exchange Rate Risk: Foreign exchange rates fluctuate occasionally. If traders can correctly forecast whether the currency rate will grow or weaken, they will profit. However, the trader will incur a loss if the prognosis is incorrect.
Liquidity Risk: Because of the enormous daily trading activity on the forex market, traders can typically obtain adequate buy/sell order answers right away. The market could crash at times, or there might not be enough buyers or sellers to fill an order placed by a trader. In major pairs, these issues are quite uncommon, but they frequently arise in exotic pairs.
Risk Associated With Leverage: After reading the preceding description of the leverage feature, you could think that this is a very profitable facility. Leverage, however, should only be used sparingly. Too much leverage makes it harder for traders to build up earnings and manage their own trading risks.
Transaction Risk: Forex trading is done through online platforms that are subject to technical issues like slippage, requotes, and freezes. Brokers typically make an effort to avoid these challenges, but traders should still be on the lookout for them.
Broker Risk: In forex trading, brokers play a crucial role. The trader can trade comfortably and safely if the broker is trustworthy. However, it will be quite challenging for traders to withdraw their earnings if the broker frequently acts and manipulates. Therefore, potential traders should be careful while selecting a broker.
The five hazards were in fact controllable right away. Important things for traders to remember include:
Select a forex broker with a solid reputation among traders and an official license (a regulated broker).
Use only a portion of the available funds right away for FX trading. Only use 2 to 5 percent of the account balance to initiate trades.
Recognize how to operate Metatrader or the trading software that will be applied to transactions. Don’t let a mistaken click cause you to lose money.
To learn how to trade and utilize the platform correctly, practice with a demo account of a forex trading simulation first.
Before beginning to open a position, create a trading strategy. If you are unfamiliar with how to create a trading plan, first practice using a practice account.
Trade only on significant pairs, or cross pairs. We advise you to stay away from strange pairings.
Use leverage sparingly—no more than 1:100. Avoid using leverage that is excessively high, such as 1:500, 1:1000, or higher.
Recognize that anything is possible in the market. No market study is entirely precise. George Soros, a seasoned trader, has also lost. As a result, you should always be alert and prepare for the chance of making incorrect forecasts by adding a Stop Loss (SL) to every trading position.
Once you have mastered trading on a practice account, consider learning more about money management and applying it to a real account with modest funds. If you can’t turn a profit with a tiny investment, you might also struggle to manage huge sums of money.
Use “cold money” to finance your FX trading. This cold money is extra cash that won’t be needed anytime soon. The outcomes can possibly be disastrous if you employ a property rental budget or other demands for forex trading. Forex trading takes time, so don’t expect results right away.
Forex Market Opening Hours
Ever hear it said that the forex market is open around-the-clock? This does not imply that there is a certain location where forex trading occurs constantly. In actuality, forex trading adheres to the global bank opening times, shifting from one time zone to the next.
The currency market opens and closes in the following sequence according to time zones, based on West Indonesia Time (WIB):
Australian banks are open from 5 a.m. until 2 p.m.
In Asia, including Tokyo, Hong Kong, and other cities, banks open at 7am and close at 4pm.
European banks (in London, Frankfurt, etc.) open at noon and close at midnight.
American (New York) banks are open from 8 p.m. until 5 a.m.
The three forex trading sessions of the Asian (Australia and Asia), London (Europe), and New York (U.S.) time zones are frequently separated into the four time zones (America).
For a variety of reasons, many forex traders in Indonesia choose to transact between the London and New York sessions:
The busiest times for forex trading are in London and New York, thus there are a lot of trading opportunities.
The London and New York sessions see the fastest fluctuations in foreign exchange prices, thus trading positions will experience profit or loss sooner.
The employee’s workday in Indonesia came to an end as the London and New York sessions were beginning.
Beyond these explanations, we truly have the option to trade at any time within the currency market’s operating hours, which are from 5 a.m. on Monday to 5 a.m. on Saturday (WIB).
How to Start Trading Forex
Learning about FX should come before trading. After becoming an expert trader on a practice account, follow these ten (10) simple steps to transition to a live account:
Select a reputable forex broker with legal authorizations and a solid reputation.
Go to the broker’s website and click the option for account opening or registration.
Fill out the online account registration form provided by the broker.
You will receive an email with your username and password to access your personal section on the broker’s website after submitting the form.
On the broker’s website, click “login” to access your private area. You can carry on the data verification procedure in this section.
Send the broker the verification documents that they have asked. A copy of your e-KTP, passport, driver’s license, a copy of your bank passbook or electricity bill with your name and residence, and any other documents required by applicable laws are among these documents.
Your registration documentation and application will be examined by the broker. The broker will send you an email with a notification of approval if all of them comply with the standards. Depending on the protocol followed by the relevant broker, the evaluation period can take anywhere from a few minutes to a few days.
You can use the provided link to open an account in the personal area and download the Metatrader trading platform. Following the broker’s approval of your account opening, you will also receive an email with your access Metatrader login and password.
You cannot begin trading right away after downloading Metatrader. Capital must initially be deposited into the account. To learn how to deposit money, go to the personal area’s “Funding” or “Deposit” menu.
You can begin trading foreign exchange on Metatrader after the necessary funds have been deposited into the account.
Starting a forex trading account can be done entirely online. The amount of time needed ranges from a few minutes to a maximum of two days. Please get in touch with CS Broker via live chat or phone if there are issues or if you don’t receive a broker notification email for more than a week. All of your inquiries will be guided and answered by CS Broker.