Forex Trading: Understanding, Risks, and Tips on How It Works

Apart from the growing development of fintech, forex trading is the most popular form of investment with high liquidity, which makes it quite profitable. Moreover, this tool can be used online with small capital. No wonder many investors have a hard time learning how to use it.

In this article, Dailysocial will explain how to trade forex and what strategies and programs you can use. Immediately check the text below! 

What is forex trading?

Forex trading is currency trading to various destination countries for tourism and business purposes to make a profit. In practice, the currency traded is not specified, so it is highly dependent on supply and demand.

Some people think that forex trading works by exchanging money at money changers, even though these transactions are carried out online and the goal is to make a profit and not just receive money. On a large scale, people even use this method as an investment and a profession.

An example of forex trading is when you buy GBP (British currency) but at the same time sell USD (American currency) when the value is high. As additional information, it should be noted that this activity is carried out not only by individuals, but also by countries, multinational companies, central banks, etc. on the network called "Forex Market".

The law of forex trading is legal and officially recognized, because the form, process, amount, time, etc. of the goods traded are safe. This is stated in the DSN MUI Fatwa No. 28/DSN-MUI/III/2002 concerning buying and selling currency or Al-Sharfi. 

Forex Trading Risks

As an investment vehicle, forex trading comes with its own set of risks and benefits. Before you learn to trade forex, you must find out about the risk profile of each of these forms of investment. 

1. Big risk

Compared to other investment vehicles such as mutual funds, stocks and bonds, forex trading has the highest level of risk. So what is forex trading and why is the risk so high? This high risk is due to the fact that a leveraged system is used. Leverage is a system that allows you to trade large amounts of foreign exchange with less capital.

When you first learn to trade forex, you are usually introduced to this leverage system. As an example of leverage, the ratio is 1: 100 This comparison shows that with only $ 1 capital you can trade forex $ 100. Of course, this system looks quite attractive. However, you must know that the profit you make can only be achieved by setting up this leverage system with the right ratio. If you choose the wrong strategy, you can lose up to $100 more. 

2. Unpredictable currency movements

You may know that the comparison or movement of this currency can be described as very volatile. Before knowing what forex trading is, you must have a deep understanding of how foreign currencies move.

Many factors can affect currency movements in the forex market. In general, foreign currency values ​​fluctuate due to economic and geopolitical factors and can even occur as a result of transactions that occur. If there are many transactions during the purchase, then the exchange rate will definitely increase. On the other hand, if lots of people start selling their currency, it's likely that its value will also go down. This forex trading insight comes with dynamic currency movements that will confuse you if you don't have enough information and suffer huge losses if you make a wrong move. 

3. Lots of scams

Forex trading is usually done online via the internet. The lack of personal transactions certainly presents a large risk of fraud. This method of fraud is very flexible and causes big losses. One of them is a fraudulent broker profile. When using a broker's services for forex trading, make sure the broker is qualified and has good credentials. If not, your winnings will be deducted. This also causes forex trading to have a bad reputation as an investment vehicle.

4. Must be active full-time

To avoid losses from fraudulent brokers, when you start forex trading, you must carefully monitor the movement of your investments. Therefore, it is very difficult to generate additional income if you trade forex as a side business. You need to devote a lot of time and brain to forex trading. If you are a little careless, you may suffer a loss. So, once you know what forex trading is, it is highly recommended that you focus your full attention on this investment vehicle. 

Tips for Doing Forex Trading

One method that is often used by investors is to use a forex trading robot that uses algorithms to analyze the market. However, in reality, this tool is not yet legal under Indonesian law, so it is vulnerable to fraud or falsification of information.

To avoid this, you must know how to make this investment properly. So going forward, forex trading habits and strategies are as follows. 

1. Try out the investment tools first

Generally, forex investors are individuals with years of investment experience. They use this tool in addition to stocks, bonds etc. to increase their profits. Therefore, it is highly recommended to try dollar savings or mutual funds that have a similar function first.

2. Learn how to trade forex

After gaining experience with other instruments, don't forget to learn Indonesian forex trading using the information provided by the OJK or asking experienced mentors.

3. Setting up funds

The most important preparation for forex trading is setting aside funds as capital for buying and selling forex trading. Start with small denominations, only around $1 to $1, then add to that as you improve your gaming experience.

4. Find the right broker

If you are in that country, you should choose a forex broker from Indonesia for administrative reasons. Also pay attention to legality and make sure the company is registered with the Futures Trading Regulatory Agency (Bappebti).

You can also save costs by choosing a forex broker with low commissions and advisory rates.

5. Set up working devices and networks

Forex trading is an investment made online 24 hours a day, from Monday to Friday. Therefore, to keep up with market fluctuations, prepare a capable device and network, so you don't miss the opportunity to earn or even lose money due to processing delays.

6. Disciplined and thorough

One of the tips for success in forex trading is discipline and thoroughness. Follow the instructions and do a good analysis to know when to sell and buy a currency and study in detail how it works. 

That's our discussion for those of you who want to learn about forex trading. Make sure you choose a method and know how to play it properly to get the most out of it. Hope it is useful!