Forex Trading Concepts
Forex Trading is a worldwide currency exchange through electronic network connection. Forex itself is an acronym that refers Foreign exchange currency market, where the implementation is done by brokerage firms and banks to exchange currency.
Trading Forex market is the largest and most liquid market of all existing financial market. With trading volume per day which reached U.S. $ 3.2 trillion, forex trading transactions is much greater than the accumulation of all the equities and futures volume in the United States (see Picture 1).
Picture 1: Daily Volume Daily Volume NYSE VS FXForex trading previously conducted exclusively by governments and banks. However, due to the rapid growth of information and convenience of the Internet network, forex trading has been widespread and can be implemented by anyone.
The rapid development and growing level of volume that makes forex trading market difficult to manipulate, even though the central bank has no ability to promote or maintain the value of their currencies in a long time.
Understanding Forex Trading
Foreign Exchange, commonly referred to as FX. In Indonesia, the term is more familiar with, an abbreviation of Foreign Exchange, which means foreign exchange rates or currencies other than dollars.
Transactions in Forex trading, exchange or trade means that a single currency with other currencies. Unlike the instruments in general, trading forex trading in certain pairs (pairs), for example Euro / US dollar (EUR / USD) or U.S. Dollar / Japanese Yen (USD / JPY). Someone who bought the euro currency, automatically also have to sell U.S. Dollars at the same time.
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Examples of forex trading:
Different currencies in almost every state, resulting in the exchange rate against each respective currency values in different countries.
Imagine, as an Indonesian citizen, you want to make a visit to the United States. To travel and meet the cost of living there, you must exchange the Rupiah to the U.S. dollar. For example, at the time you buy $ 5,000 in price Rp.11.000, -, and fund dollar you must spend to get the number of dollars is USD. 55,000,000, -.
And it turns out after you go to the United States, all of your expenses borne solely by your family who were there, so that even when returning to Indonesia even if you still hold to raise $ 5,000.
You then want to exchange currency back into dollars, which at that time the rate of 12,000, a result of your fund now amounted to Rp.60, 000,000. Due to price increases of USD, you get Rp.5, 000,000 as the money more than your original capital.
By buying the USD at a lower price (11.000) and sell at the price of 12,000, then get the benefits like the example above, you have to do a forex transaction.
In regular trading, there is little difference with the example above. Forex Trading has traders who have different objectives. Most of them are not buying the currency with exchange purposes only, but to benefit from it.
Forex trading market also has a price difference between buying and selling (bid / ask) is quite tight or small, unlike the money changers who generally have a big difference.
The currency also traded in forex trading contract has a size unit (commonly called lots), amounting to $ 100,000. While at the money changer to exchange your currency with whatever amount you want.
You take a position when forex trading transactions expect a currency value has increased or decreased compared to other currencies. If you buy the currency appreciates in value, you may want to liquidate your position by selling it on the market. So at the same time, you also buy other currencies.
The most common currencies traded in forex trading market is the U.S. Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar (see figure 2). FX market runs 24-hours a day, 5 days a week and uninterrupted access to global dealers. Forex trading market is not concentrated in one stock, unlike stocks and futures.
Picture 2: The most common currencies traded.{break}
Excellence forex trading
Trading Forex is the most liquid market in the world
Excellence is the first forex trading daily forex trading volume as has been previously disclosed $ 3.2 trillion reached in 2007, the highest in history. In addition to forex trading 20 times higher than the combined volume of the New York Stock Exchange with the NASDAQ, Forex is also the largest market worldwide, so the market is also the world's most liquid market. In the sense that the trader or investor can easily take or liquidate positions on forex trading, without significant delay. Unlike the case with the stock market. commodity futures option or another, where the issue of liquidity is still the main focus, especially after the expiry of the trade.
24-hour forex trading market
Excellence forex trading the second is the Forex market has unique characteristics that make a trader or investor can access it more easily without having to wait for the opening of a stock. There is always the center of the world's financial transactions are open, where banks, hedge funds, corporations and private investors participated (see table 1).
Forex trading participants around the world to carry out transactions of the day and night. This uniqueness can actually be used by workers or employees of nine-to-five (8 hours), because the Forex market can be accessed in the afternoon or night. While the stock market, you can only access the market with a time limit of less than 7 hours a day.
Table 1: At the opening of some markets
Forex Trading Buy or sell at any time
Excellence forex trading, the third is when the trading of stocks, short-sell only be done when the market experienced an up-tick (the rules applicable to U.S. exchanges). Sometimes these factors can cause disappointment to traders because it can only see their stock prices fall, and wait for the new tick-up to take action. In stock futures, lower and upper limits apply when the contract has traded futures reached a certain percentage of the closing price the previous day.
Forex Trading, however, allow you to sell the currency at any time without having to wait for the up-tick or a certain percentage limitations. This means that the execution of the position can be done with instant and efficient, so that market opportunities can be exploited in both bullish and bearish market.
Furthermore forex trading knows no time limit for holding the position. When you have taken the position in the market, you can maintain that position as long as you want.
Excess of selling price / purchase of a tight forex trading (Bid / Ask Spread)
Advantages of the fourth forex trading is due to high liquidity in the market, the spread or difference between bid and offer price becomes smaller. EUR / USD can be traded to the difference is only 3 pips (points).
In forex trading, spreads are lower to make the transaction to achieve the level of BEP (break even point) faster. If you buy EUR / USD at price 1.4000, with a spread of 3 pips (assuming no commission), then at 1.4003 price you have reached break-even point. So due to this factor, Forex trading is generally cheaper than equity instruments or futures.
High Leverage
Excellence is the fifth forex trading Forex market offers the highest leverage all existing financial instruments. The use of leverage in forex trading you can trade the asset with a value far greater than the amount of capital that you deposited.
Forex Trading generally has a 100:1 leverage, meaning you can trade currency worth $ 500,000 by using only a capital of $ 5,000. The use of leverage also makes investors are able to maximize the potential gains with existing capital, because the benefits will always be multiplied by the value of the contract instead of a paid in capital.
On the other hand, for opportunities to produce maximum profits in forex trading, the potential losses are increasing too. So an investor needs to consider the level of penerimaanya towards risk, and the use of leverage will depend on these points.
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Understanding the forex trading quotes
Exchange rate or currency of a country are always traded in pairs with another country's currency. The couple is known as the pair, while the value or price quotes pair is called forex trading.
Quotation forex trading is made up of simple components, and read it is not too complicated, you just need to remember 3 points below:
The currency of the earliest (far left) is the base currency of the next currency (the right) is the currency pair is always the base currency is worth 1 (one), and the price displayed is the price of a currency pair towards the base currency.
When you see the price of the currency increases, then it always means that the base currency has strengthened against the partner. Conversely when the price pairs are impaired, then on its own base currency is weakening rather than her partner is experiencing.
For example, forex trading, if the quotation like this: EUR / USD = 1.3000, the Euro is the base and USD the pair. This means that forex trading is worth one Euro and USD is worth 1.3000, or in other words that to buy 1 Euro, you must exchange your U.S. dollars 03.01. Now, assume that forex trading price has increased to a level of 1.3100, the euro means forex trading and has valuable experience 1:31 strengthening against the U.S. dollar.
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Base currency
Base currency in forex trading is the currency used as the basis of exchange is the main currency. Because the United States is central to the world economy, its currency was generally used as a base exchange. For example, USD / JPY, USD / CHF, USD / CAD and others.
Sometimes forex trading, because it is common for market participants to use the USD as base trading forex, some currencies do not need to write her a complete pair like GBP = 9.000, because its rate is already significantly against the U.S. dollar.
In other words, trading forex currency USD by default is the base currency, or benchmarks for the exchange of other currencies.
However, forex trading there are four exceptions where USD is not positioned as the base. For example on EUR / USD earlier, where the single currency forex trading euro plays as a basis. The two other examples are the British Pound (GBP) Australian Dollar (AUD) and New Zealand Dollar (NZD).
These four currencies are usually located in the first place (worth one dollar to the U.S.) and forex trading kuotasinya-shaped;
GBP / USD = 1.4500, quotation this means £ 1 = U.S. $ 1.4500 EUR / USD = 1.2900, quotation means € 1 = U.S. $ 1.2900 AUD / USD = 0.6500, quotation means that AU $ 1 = U.S. $ 0.6500 NZD / USD = 0.5000, This quotation means that NZ $ 1 = U.S. $ 0.5000
As already discussed earlier, the price increase on the third forex trading currency means that the base currency has strengthened and the U.S. dollar has decreased.
Forex trading base on cross (Cross currencies)
Currency of all countries in the world are also trafficked to other currencies, other than the U.S. Dollar. When quoted prices are not compared against the U.S. dollar, the currency trading is called the cross. An example is the EUR / JPY, GBP / CHF and AUD / CHF.
The position of forex trading base irregular, should not create confusion. Because in general, most major currencies will be placed in the first place or serve as the base. When forex trading major currency is not used as the basis, then that still need to remember is how to read the quotation, as already discussed in earlier talks quotation.
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Points and pips
Prices are usually traded currency with a value of decimal, 2 to four digits behind the comma. Every last one changes the value behind the comma, for example, from 1.2900 to 1.2901, is called a pip (percentage in point). Points are the more popular name known world instead of pips in forex trading.
Japanese currency, Yen, are examples of currencies traded by the use of 2 decimal places after the decimal point. Change the last digit after the decimal point remains to be said points.
For example, let's say USD / JPY, trading at 92.00 price, if there is an increase reaching 92.10, the USD / JPY rose 10 points to be said.
Bid, Ask and Spread
As with other markets that have demand and supply, currency forex trading price also has two elements, the bid and ask. (See Figure 3).
Bid is the price you get to sell the base currency, and ranks first, while the ask is the price you get to buy the base currency was ranked second as shown in the picture
For example, in the picture below, EUR / USD = 1.3890/1.3893, referring to the bid price and ask price 1.3890 1.3893. If you want to buy EUR / USD then you will get it in harga1.3893 (You will pay $ 1.3893 to € 1) and if you want to sell then you will get a price of 1.3890 (you pay € 1 to get $ 1.3890).
Picture 3: Understanding Bid, Ask and SpreadFigure 3 also illustrates how the concept of quotation occurs in forex trading. Where the bid is always lower than the ask price. The difference between bid and ask prices in forex trading is called the spread, and the number is generally 3 pips spread.{break}
Rollover forex trading
Rollover forex trading is the cost incurred when positions are left overnight, and the calculation of cost plus rollover forex trading etc. performed on the New York market close. Forex positions held for one night or more will make you receive or pay some amount of forex rollover rates are calculated based on interest rate differentials currency countries concerned. Specifically rollover forex, you will receive interest if the currency you are buying an interest rate higher than their partner currencies, and vice versa you will pay if the currency rates are lower than their partners
Example rollover forex trading is: Assume the interest rate NZD is at 3% per annum and the interest rate of 0.5% USD per year.
Suppose you purchase 100,000 NZD / USD at price 0.6000Anda means has bought a currency that has higher interest rates and at the same time had sold the currency interest rates lower. rollover forex trading in this case will receive the excess interest of 2.5% per annum, calculated and inserted directly into your account every day. 2.5% / 360 days x 100,000 (1 lot) NZ $ 6.94 • U.S. $ 4.16 (assuming the closing price of 0.6000) Trade obtain such interest is better known as the carry trade. Say you sell NZD / USD at 0.6000 price rollover forex trading then you will pay interest if the position is left overnight by means of calculation and amount equal to the example above.{break}Understanding the P / L & leverage
The calculation of profit loss forex trading transactions are also not too complicated, even when this has been done automatically by the forex trading platform available. You can immediately see that order is executed the forex trading positions. But as knowledge of profit loss, it helps you understand how to calculate profit forex trading loss was incurred.
If the price of EUR / USD now is 1.2900/03 (Meaning you can buy the Euro at 1.2903 and the selling price of Euro diharga 1.2900).
Assume your forex trading has to consider that the Euro will strengthen against the U.S. dollar. Based on these expectations, you buy Euros (simultaneously selling the U.S. Dollar) and wait for prices have strengthened.
The next day, as expected, the Euro has strengthened against the U.S. Dollar. You managed to close a position (sell the euro) at the price of 1.3000, then;
= 1.3000 (sale price) minus 1.2903 (purchase price) x $ 100,000 (contract per lot) = $ (0.0097) x 100 000 Total profit = $ 970
Well now, let's say like the illustration above forex trading, the Euro was not moving as your expectations and the price fell from 1.2900 to 1.2850. So;
= 1.2850 (selling price) -1.2900 (purchase price) = $ (-0.005) x 100 000 Total loss you = $ 500.
Leverage and Margin
Transactions on forex trading using leverage and margin systems. Imagine you do a transaction that does not require the full involvement of capital. Because forex trading capital needed only a fraction of the real value of the assets concerned.
The use of forex trading capital on a scale smaller than its real value is called leverage.
Trading forex usually use a scale of 1 vs. 100. This means you can make currency transactions are one unit (lot) is equal to U.S. $ 100.000, - just by using a capital of U.S. $ 1,000 only.
Capital U.S. $ 1,000 you deposited is known as margin.
For example, you deposit funds $ 1000 (amounting to € 790) and buy EUR / USD worth € 787 at the price of 1.2700 and then successfully sell it at price 1.2800
Without margin
Your forex trading forex trading profit amounted to: $ (1.2800 - 1.2700) x $ 787 $ 7.90. So the Return on Investment (ROI) you in this trade is $ 10 / $ 1000 x 100 (%) = 0.79%
With a margin
By using a margin of 1% (or leverage 100), capital funds $ 1,000, you can buy with $ 100,000 worth of assets. If using the previous example, then the result will be: (1.2800 - 1.2700) x $ 100,000 1,000.
Return on Investment (ROI) you: $ 1,000 / $ 1,000 x 100 (%) = 100%{break}
Mata uang yang diperdagangkan
Jenis mata uang yang terdapat di pasar terbagi dalam tiga kategori:
USD - Currency exchange is important, because 85% of trade is dominated by the USD. EUR - The currency exchange rates for major European Union countries. GBP - British Currency Exchange. JPY - Japanese currency exchange rates, usually used to carry trade, because it has the lowest interest rates. CHF - Swiss State Currency Exchange, sometimes called the most secure (safe haven currency). CAD - Canadian currency exchange rates, usually associated with commodity currencies and have close links with the price of gold and oil. AUD - Australian Currency Exchange, also known as commodity exchange due to high correlation with the gold price.
Currency Exchange The most commonly traded is the world's major currency exchange rates or major currencies. This happens because the country with great economic capitalization tend to have a moving exchange rate more stable and liquid compared to exchange other currencies.
Review
- Foreign Exchange, commonly referred to as FX. In Indonesia, the term is more familiar with, an abbreviation of Foreign Exchange, which means foreign exchange.
- Forex Trading or transactions in Forex, means to exchange or trade one currency with another currency.
- Forex trading market is highly liquid and can be traded for 24 hours every working day.
General Rules:
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