Hearing the word “Forex”, maybe for some people is a foreign thing to hear. Forex or Foreign Exchange has a meaning as a foreign currency transaction. Then, what is forex trading?
If you start to have a curiosity about what forex trading is, forex trading is an investment product with buying and selling foreign currencies. The activity of buying and selling foreign exchange, known as forex trading, offers attractive advantages. Maybe you think that when you exchange money to a money changer, it is a forex trading activity. However, the explanation will actually be more complex. So what is forex trading and how is it different from foreign exchange?
What is forex trading? In general, forex is a transaction to exchange the currency of the country where you live with the currency of a foreign country of your choice. While forex trading has a different meaning.
What is forex trading? The purpose of forex trading as an investment itself is to seek profit from the difference in the sales figures made.
What is forex trading and risk as an investment?
As an investment instrument, apart from offering benefits, forex trading also has its own risks. Before starting to learn about forex trading, it’s a good idea to know the risk profile offered by one of these forms of investment.
Have a high risk
Compared to other investment instruments such as mutual funds, stocks, and bonds, forex trading has the highest risk. So, what is forex trading and why is it high risk? This high risk occurs because there is a leverage system in its activities. Leverage is a system that allows you to make large amounts of forex trading transactions even though you have less capital.
When you start learning forex trading, you will usually be introduced to this leverage system. As an illustration of leverage, there will be a ratio of 1:100. This comparison indicates that, with a capital of just 1 dollar, you can carry out forex trading activities worth 100 dollars. Of course this system looks quite tempting. If you have the wrong strategy, you might lose up to 100 dollars more.
Unpredictable currency movements
Maybe you are aware, that this comparison or currency movement can be said to be very volatile. Before starting to know what forex trading is, you must have an in-depth understanding of the movement of foreign currencies.
Many factors can affect the movement of foreign currencies in the forex market. Usually the value of foreign currencies will change based on economic factors, geopolitical factors, it can even happen because of the transaction factors that are being carried out. If the number of transactions in the purchase, of course, will make the currency has an increase. On the other hand, if more people start selling their currency, there is a possibility that its value will also drop. This understanding of what forex trading is continuous with dynamic currency movements will make you confused if you don’t have enough knowledge and will cause considerable losses if you make a wrong move.
Lots of scams
The lack of face-to-face transactions will certainly present a high possibility of fraud. This fraud mode is quite diverse and will present a large loss. One of them is a fraud broker profile. If you use the services of a broker for forex trading, make sure that the broker is of good quality and This also causes forex trading to have a bad reputation as an investment instrument.
Need to be active full-time
Therefore, it will be very difficult if you make forex trading as a side activity to have additional income. You have to prepare a large enough time and mind in doing forex trading, if you are careless a little it is very possible that you will experience losses. Therefore, after knowing what forex trading is, it is highly recommended that you be fully committed to this one investment instrument.
As an alternative, you can try to start investing through mutual funds.
An investment manager is a management or professional institution that has the task of managing your investment activities or activities, one of which includes mutual funds. With the advantages of investing in mutual funds that are easy to understand with less risk than the risk and understanding with forex trading, it becomes a force to attract the attention of young investors or beginners to start investing.
After understanding what forex trading is and what mutual funds are, in short, mutual funds are suitable as investment instruments for those of you who want to start as a novice investor, you simply deposit or entrust your investment capital to the investment manager. Usually this investment manager is managed and organized by an investment manager. Related parties will later help you to choose and buy the desired mutual fund. After a successful transaction, then you only need to pay attention to the movement and development of your investment while adding funds, just like saving money. Therefore, mutual funds are suitable as investment products for beginners and those of you who do not have enough time to manage investments independently.