Currency Trading, 10 Best Full Explanations
Gealena – Currency Trading or foreign exchange is the exchange between one currency for the currency of another country. The forex market is one of the markets with the largest trading value in the world, beating out stocks and other financial instruments. What is a forex and how does it function.
The three largest Currency Trading in the world – NYSE, London, Tokyo – combined with all their transactions amounting to USD 300 Billion per day.
Great, right? But wait a minute.
Foreign exchange transactions record a transaction value of USD 6.6 trillion per day, according to the International Settlement Bank. The value of Currency Trading transactions is many times greater than the value of stock transactions around the world. I was also shocked after learning about this data because I did not expect the value of Currency Trading transactions in the world.
I try to review the aspects of forex trading in the USA and after that, you can decide for yourself whether forex trading is fake gambling or speculation.
Hopefully, this information can add insight and perspective to all of us.
Functions of the Foreign Exchange Market
Since time immemorial, people in this world have been trading. Exchange, according to the specialty. The USA sells plantation products. Canada sells mining products. There was an exchange in trade. In this exchange, there is an exchange of money or Currency Trading. This makes foreign exchange important.
With globalization, the distance is getting closer, due to technology and progress, trade is increasing and Currency Trading is becoming more and more important.
But, is the function of Foreign exchange only for trading?
Maybe this is what most people know. When traveling abroad, you need money in that country or at least you need to bring dollars so that when you arrive at the destination country, you will not have difficulty making all transactions. Before leaving for traveling, we can go to a money changer to exchange Dollars for foreign currency. It could also, besides carrying enough cash, we use a credit card for transactions abroad. On the credit card, transactions are recorded in foreign currency which will be converted to Dollars based on a certain exchange rate.
This is the biggest forex function, but also the most controversial. Forex function for investment. To generate return profits, by way of forex trading. Since this function is the most discussed one, I would like to discuss it more comprehensively. One thing I have learned, after reading about this Currency Trading in more detail, is that it is not as bad as people imagine so far.
Currency Trading/Foreign Exchange Rates
To find out foreign exchange rates, we look at exchange rates. A foreign exchange rate is a number that shows the exchange rate for a pair of currencies.
For example, the exchange rate is 1 USD = JPY 106,86. This means that to buy JPY 106,86 JPY you have to pay 1 USD.
The place of sale of foreign currency, be it a bank or a money changer, sets a different selling rate and buying rate, for example, as follows:
- Buy Rate 1 USD gets JPY: 106,86
- Selling rate 1 USD gets JPY: 102,86
The selling rate is the rate at which the bank sells (you buy) forex, while the buying rate is the opposite. The spread between the buying and selling rates is an advantage for banks and money changers.
Foreign Exchange Rate System
The exchange rate prevailing in the Currency Trading market is determined by the foreign exchange rate system prevailing in a country. The following are various exchange rate systems, namely:
Free Exchange Rate (Floating)
The free exchange rate system means that the exchange rate formation is a pure result (without interference) of the supply and demand of foreign exchange. The government does not interfere in determining currency exchange rates.
Because there is no interference, the exchange rate fluctuates, floating, depending on supply and demand in the forex market.
If the government wants to intervene in the exchange rate, it must do so through a market mechanism. For example, by selling foreign exchange in large quantities on the market.
Fixed Exchange Rate System
The fixed exchange rate system is the determination of the exchange rate carried out by the government.
With this stipulated by the government, when we want to exchange money in one bank with another bank, the exchange rate is the same. Then the bank also cannot change the exchange rate by itself because there is a relationship with the government.
Controlled Exchange Rate System
In this third system, the government or the bank has the power to determine the allocation value for the use of available foreign currency. So that the forex market will remain stable and there will not be much inflation.
This system is very useful in monitoring the availability of foreign exchange in trade-in export and import activities.
Is Currency Trading Legal?
Is currency trading Legal? Maybe that is our question. When going to start trading foreign currencies. Here is our short explanation to answer your question
US Local Forex Broker
Brokers in the United States of America are strictly regulated by the State. Forex regulation in the United States is regulated by two regulators, the CFTC (Commodity Futures Trading Commission) and the NFA (National Futures Association).
Pay close attention to Forex brokers before starting currency trading. If the Broker you appoint has licensed the two regulations, the Broker is LEGAL. And your money is safe from fraud, theft, and money laundering.
Foreign International Forex Broker
Foreign forex brokers are a problem because according to Forex regulation in the United States. Unlicensed brokers are not allowed to operate in the United States.
But the reality in the field of online transactions is the way most people use forex trading. Online transactions move without national borders, where people in Indonesia can easily use international brokerage services that do not have a Bappebti license.
Does a foreign forex brokerage mean that it is not regulated? is it dangerous?
In fact, many international forex brokers are subject to the regulations of countries with advanced forex markets, such as the UK, Japan, and Australia.
Even some international brokers have multiple licenses. Not only from one country but several countries.
If using an international broker, make sure that your broker is licensed by the foreign currency authority of a particular country. One of the authorities known to have strict and strict rules is the UK’s FCA UK.
Check on the foreign exchange brokerage site about the permits they have and cross-check with the agency that issued the license to make sure.
For example, FCA UK has a broker license checking service on their website. You can check a broker on the service.
Read more info: Is Currency Trading Legal?
Is Currency Trading Profitable?
Advantages & Benefits
What are the benefits of forex trading?
Very Liquid Market
Many parties – countries, corporations, investors – conduct forex transactions every day, which makes the market very liquid, which in turn is profitable for players because they can easily buy and sell.
A liquid market is important because:
- Making transactions can be done efficiently. The price formed is the best price for buyers and sellers.
- Allows buyers and sellers to trade at any time without worrying that the sale or purchase will not be executed.
Great Potential Profits
Maybe this is too provocative, but if you want to earn fast, want to get rich quickly, playing in the currency trading forex market is one of them.
The reason is;
- Leverage, you can trade large amounts with minimum capital. Later I will explain more clearly what it is and how Leverage works.
- The high volatility in the forex market makes the opportunity to make a big profit. High-Risk High Return.
Can Sell and Buy
Unlike in stocks, which can only buy first and then sell, in the forex market, you can buy and sell at the same time. You don’t have to have foreign currency to be able to sell in currency trading forex.
By being able to buy and sell, you can follow wherever the market is going. When the market increases you sell, conversely when the market decreases you sell.
That means the opportunity for profit becomes wider.
Due to leverage, the capital to be able to play forex is small and affordable, but it has to buy power for large investments.
One example, at a forex broker that I met, investors only need $ 25 in capital to make $ 1000 worth of forex transactions. Small capital, large investment capability, meaning that the opportunity for profit is also large.
The small amount of capital makes trading access open to many people. Plus the convenience offered by online trading facilities to make forex transactions from anywhere and anytime.
How to Currency Trading?
For many people, foreign exchange is when we go to the money changer, exchange money, take home dollars or euros. It is considered a foreign exchange transaction.
There are items that can be brought home.
However, Currency Trading/forex trading is different, there is no item or money that you take home with you.
We step back for a moment, what is the purpose of trading – buy at a low price and sell at a high price (buy low, sell high) or sell at a high price, buy at a low price (sell high, buy low).
Forex trading has the same goal.
The exchange rate of a currency pair changes all the time. You can see in the bank that the YEN exchange rate against the USD can change very quickly.
Now the currency exchange rate becomes the object of forex trading. Buy when the exchange rate trend strengthens and sell when the trend is opposite.
Open Buy and Open Sell
Example of the most popular currency pair, EUR / USD
In an Open Buy position, you expect the Euro to strengthen against the USD.
In the example above, you buy at 1.1215 then the EUR / USD strengthens to 1.1216 (it takes more USD to buy 1 Euro). If the EUR / USD exchange rate strengthens, you realize a profit by closing the position and making a Close Buy.
In an Open Sell position, you expect the value of the Euro to weaken against the USD or the USD to strengthen.
With the example above, suppose you buy at 1.1215 then the EUR / USD exchange rate weakens to 1.1211, which means you need less USD to buy 1 Euro. If the Eur / USD exchange rate weakens, you make a profit by closing the position and making a Close Sell.
Forex Trading Reference PIPs
The price movement in foreign exchange forex is called PIP. This is an important reference that must be understood by forex traders and an important component to calculate how much profit or loss from currency trading.
PIP refers to the decimal 4 decimal places in the exchange rate. So if the Eur / USD price buys 1.1215, then the PIP is 1215.
If the Eur / USD rate drops to 1.1214 (from 1.1215) it means it has moved 1 pip, while if it drops to 1.1115 it means it has dropped 100 pips.
The difference of 4 digits behind the comma to determine how much PIP.
To determine the profit or loss from forex trading, the PIP value depends on the type of lot size we take, which is divided as follows:
|Micro Lot||1,000||1 cent|
For example, if you play on a standard lot and buy 1 lot of EUR / USD at 1.1215, then the EUR / USD strengthens by 100 pips to 1.1315 and sells, so the profit is:
Profit of 1 lot x $ 10 (value per PIP) x 100 (change in price in PIP) = $ 1,000.
For more details, you buy 1 standard lot at 1.1215 means buying Euro 100,000 gets the US $ 112,150. Then, the Eur strengthens to 1.1315 so that the current US $ value you have will be the US $ 113,150 where the difference of $ 1000 is your profit.
It is important to note that to play in a standard lot your minimum trade value must be $ 100,000 because this is the value of 1 lot in the standard lot.
Meanwhile, Mini Lot and Micro Lot require smaller minimum money, $ 10 /thousand and $ 1 /thousand, but the PIP changes in these two types of lot sizes provide lower profit and loss, namely $ 1 and 1 cent.
So, the calculation of profit and loss in currency trading forex depends on the change in PIP and Lot Size selected.
Type of Currency Trading
According to the Finsmes page, crypto trading is one way for an investor to profit from cryptocurrency.
Like many other opportunities available online, this type of trading emerged after the advent of blockchain and the market for cryptocurrencies.
As the name implies, traders will trade their cryptocurrency assets.
In fact, this type of online trading is almost the same as trading stocks or commodities. However, the biggest difference between crypto trading and other types of trading is that crypto trading has a high level of volatility.
Currency trading forex
Forex trading is the process of trading the currencies of countries in the world with the aim of making a profit. Forex itself stands for Foreign Exchange. For example, buying Euros and simultaneously selling US Dollars (this is called the EUR / USD trading pair).
Types of Currency Trading Pairs
Pair – Currency Pair
In forex, the price that is the benchmark is the exchange rate for a pair of currencies. The term is ‘pair’.
There must be a currency exchange rate pair that is the reference for trading. There are 47 currency pairs in various countries around the world for currency trading.
I’ll take the most popular currency pair, EUR / USD, for example.
In the EUR / USD pair, the base pair is Euro with a value always 1, while the quoted-pair, namely USD, varies according to price movements in the market.
At the end of June 2020, the positions for the EUR / USD buy and sell prices are:
- Buy: 1.1215
- Sell: 1.1212
A “buy” price indicates the price to buy 1 Euro is 1.1215 USD, while a “Sell” price indicates the price to sell 1 Euro is 1.1212 USD.
Maybe with this currency pair, you are still confused,
- which currency we expect to strengthen if we buy
- which we expect to weaken if we sell.
The benchmark is the base currency, which is the first position of the pair against its counter currency. So, when buying EUR / USD, we expect the base currency to increase in value, on the other hand, if we sell, we expect the Eur to weaken. Conversely, if you think that the USD will strengthen against EUR, then the position you are taking is selling EUR / USD.
App for Currency Trading
The Metatrader4 (MT4) App currency trading platform is a pioneer of modern online forex trading software for desktops created in the MQL4 programming language by the MetaQuotes developer. This is the first trading platform available to individual traders (retail), including the capability to serve pending orders, more than 50 technical indicators, and can be installed with robots (expert advisors).
Along with technological developments, MetaQuotes is also developing a web-based MT4 platform and mobile application. MT4 has been recognized as the most user-friendly platform today. However, MT4 also has its own drawbacks. Its pioneer status has made it the most popular platform, but the program is more rigid and outdated. Many traders report frequent lags or freezes on MT4. To answer this problem, MetaQuotes developed the Metatrader 5 (MT5) platform.
MT5 App currency trading is the “younger brother” of MT4 but has a different programming language. The programming language is MQL5, not MQL4. As a result, even though the features are similar to MT4, the robot and EA for MT4 cannot be run on MT5. This has made many old MT4 users reluctant to switch to the software, web-based, or mobile application types.
Apart from these drawbacks, MT5 actually contains much more advanced technology than MT4. Operations are faster and smoother, with more complete charts and technical indicators. MT5 for ECN accounts also has a Depth of Market (DoM) feature where traders can watch the volume of bids and offers that occur in the market in real-time.
The cTrader App currency trading platform was developed by Spotware developers with the C # (C Sharp) programming language. This platform is available in various types, both in the form of software for laptops / PCs, web, and mobile applications. But cTrader bot can only be operated on a web-based platform and software, same as the Metatrader robot.
The main difference between cTrader and Metatrader lies in the Automate, Copy Trading, and Advanced Protection features. The cTrader Automate feature allows anyone to create their own trading robot on the cTrader platform, even if they have no coding knowledge at all. CTrader’s Copy Trading feature allows beginners to copy transactions of professional traders for a certain commission fee. Meanwhile, the Advanced Protection feature allows users to manage money management in the style of professional traders with just a few clicks.
In addition, the cTrader platform already utilizes cloud storage-based technology. All bots created and installed on cTrader will be stored in the cloud. Traders don’t have to bother reinstalling the robot again when changing PCs, because the robot is already stored in the user’s cTrader account data and can be accessed from anywhere. This is very different from the robots on the Metatrader platform which always require reinstallation on a new PC.
NinjaTrader App currency trading was developed by the NinjaTrader Group developer based in the United States. This trading platform is more popular among futures traders than forex traders. The functionality is more or less the same as MetaTrader and cTrader, including real-time trade execution along with charts and technical indicators to support trading analysis, backtesting, and the use of robots.
The drawback is that NinjaTrader operates under the notoriously strict principles of United States legislation. Only traders and brokers from certain countries can use it. The options for tradable assets are also limited, not including new assets such as cryptocurrencies. Its features are also less user-friendly, making it more suitable for experienced traders.
Proprietary Trading Platform
This term refers to a trading platform that is not made by a special developer company, but by the broker itself. Each forex broker can choose to buy a platform license from a developer or develop its own currency trading platform.
So, which one is the best among the various brands of this trading platform? There are no standard provisions regarding this matter. Beginners are better off starting trading with the most user-friendly MetaTrader. But basically, you are free to choose whichever platform suits your trading style.
The platform that a trader likes may not be suitable for other traders because the trading style of each person is different. It’s a good idea to try trading on a demo account first to ensure compatibility with the platform. Only then open a real account with a trusted broker of your choice. Trying out the demo account is free and doesn’t require a deposit of capital at all.
More detailed read: 5 App for Currency Trading, Best for Trading Forex 2021
Currency Trading days/time
Forex trading runs Monday to Friday, with Forex Trading Hours as follows:
- New York stock forex trades between 13:00 – 22:00 GMT
- London exchange forex trading between 08:00 – 17:00 GMT
- Tokyo exchange forex trading between 00:00 – 09:00 GMT
- Sydney forex exchange trades between 22:00 – 07:00 GMT
Currency Trading Strategies
8 Forex currency trading Strategies That Work
Forex currency trading needs to bring together a variety of factors to formulate a trading strategy that suits you. There are many different strategies that can be followed, but understanding and being comfortable with the strategy is important. Every trader has unique goals and resources, which must be taken into account when choosing a suitable strategy.
Trading with Price Action
Currency trading with price action techniques involves studying historical prices to formulate a technical trading strategy. Price action can be used as a stand-alone technique or in conjunction with indicators. Fundamental factors are rarely used; however, often economic events are included as a contributing factor. There are several other strategies that fall into the price action group as outlined above.
Range Trading Strategy
Range trading includes identifying support and resistance points where a trader will place a trade position around these key levels. This strategy works well without significant volatility and no visible trend. Technical analysis is the main tool used with this strategy.
Trend Trading Strategy
The trend trading strategy is a simple forex trading strategy used by many traders of all experience levels. Trending trading tries to generate positive profits by taking advantage of market direction momentum.
Position Based Trading
Position trading is a long-term strategy that focuses primarily on fundamental factors, however technical methods can be used such as the Elliott Wave Theory. Smaller market minor fluctuations should not be considered in this strategy as they do not affect the broader picture of the market. This strategy can be used in all types of markets from stocks to forex currency trading.
Daily Trading Strategy
Day trading is a strategy designed to trade financial instruments on the same trading day. That is, all positions are closed before the market closes. This can be a single trade or several trades throughout the day.
Forex Scalping Strategy
Scalping in forex currency trading is a general term used to describe the process of taking small profits at regular intervals. This is achieved by opening and closing several positions throughout the day. This can be done manually or via an algorithm that uses predefined guidelines for when / where to enter and exit positions. The most liquid currency pairs are preferred because of their generally tighter spreads, making short-term strategies look more suitable.
Trading With a Swing Strategy
Swing trading is a speculative strategy in which traders want to take advantage of distance ranges as well as market trends. By selecting the “top” and “bottom” traders can enter the appropriate long and short positions.
Carry Trade Strategy
Carry trading includes borrowing one currency at a lower rate, followed by investing in another currency with a higher rate of return. This will ultimately result in a positive carry trade. This strategy is mainly used in the forex currency trading market.
Software for Currency Trading
Forex Trading Robot (EA)
Forex Trading Robot (EA) is a tool that can trade forex automatically.
Autotrading Robot or often referred to as “Expert Advisor” (EA), is an electronic tool that works alone to find open trade opportunities, either open sell or buy in the forex market.
Forex currency trading Robot (EA) here is not physical. But software for forex trading automatically. Without you making a Buy / Sell order, the robot will do the work for you.
Forex Signals Trading
Not sure about the results of your own analysis? Forex signal is the solution. But, is it true that this forex currency trading signal service can help you make a profit? Find all the answers here before you decide to subscribe.
It is true that forex signals can be one of the right solutions for those of you who are still in doubt and not too confident to make transactions in the forex market based on the results of your own analysis. In addition, forex signals are also a separate solution for traders who don’t have much time to analyze prices and monitor their every move.
Not infrequently traders who need a “second opinion” decide to subscribe to this trading signal service. The signal is a service in forex trading that aims to provide various profit opportunities found in a particular currency pair.
This forex currency trading signal is generally in the form of information related to when you have to open a buy or sell position, and when you have to close that position. Signal service providers will usually send this information through various media such as email, WhatsApp, to special applications based on Android or iOS.
I hope this article will be an inspiration and learning material before you decide to take part in investing in currency trading.