Guide To Young Investors - How Forex Works?
Did you ever think how much money you've used for other parties, shopping and other luxury idols? If you're going to keep using this money, why not use this money to invest and get a chance to profit? Today, we will introduce the world's largest financial market, the foreign exchange market (Forex).
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What is forex?
Forex is a global marketplace that allows individuals and companies to exchange currencies to other currencies without a centralized location.
Why choose forex?
The first reason is Forex does not require much money to start investing in the Forex market.
The stock market in Malaysia requires you to buy at least one hundred shares to start investing in the stock market. One hundred shares may be too expensive for young people. Therefore, young people can choose the Forex market because the minimum requirement for a forex broker requires from you is 100 USD.
The second reason is the Forex market can enjoy profits and also suffer losses faster than stock markets and land markets.
If you invest in rational, your investment should give more profit than loss. Do not trust us? Continue reading this article to reflect on the cause behind that fact.
How Forex Market Works
In the forex market, we profit from buying currency while the value of the currency is low and selling currencies when the value of the currency is high. This can be used with other products. However, the value of the currency is relative. While the price of a time increases money, sometimes this situation is only true against some other currencies. Therefore, we can not just buy the currency whose value is rising because the value of the currency is always relative.
Currency pair
When investing in the Forex market, you convert the pair in pairs to make a direct comparison between the time value of the money mate. For example, the most commonly used currency pair is the USD / EURO currency pair.
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The first currency pair will always be forgiven as the base currency while the second currency pair will always be forgiven as quote currency.
An easy way to remember how a currency pair works is when you buy or sell a currency pair, your buying and selling deal with the first currency pair directly. When you sell currency pairs, you're selling the first currency pair (base currency) and when you're buying a currency pair, you're buying the first currency pair (base currency).
Always keep in mind that the main question to understand what the currency pair means is the second pair of currency needed to buy one currency pair first?
In fact, this answer is the value of the currency pair, which is 0.8924 in this case. In this case, 0.8924 EUR is required to change 1 USD.
Currency pairs can be inverted by the exchange rate. However, due to the popularity of the USD, the forex trading platform uses USD as the base currency. Back to our example, the EURO / USD conversion rate will be 1.12056. Most conversion platforms only offer a currency pair as it does not have any difference between the original and reversed couples.
When making a conversion on the Forex market, a broker is required to carry out the conversion. Many people are always scared of converting with dishonest brokers. Learn more about Online fraud and just make conversions with licensed and trusted brokers working in reputable companies.
Since the broker's participation in the conversion, then the price you pay also includes the commission to be given to the broker. This domain also applies to spreads. The conversion rate is very close to the purchase price of the currency. For example, the USD / EURO conversion rate is 0.8982, the purchase price of this currency pair will be displayed as an offer price and the asking price:
When looking at the offer price and asking, remember that you are in the perspective of a broker. The price of the offer is the price of your brokerage bargaining, which is the price the broker is bargaining to buy from you. The asking price is the price the broker asks for you, the broker's price to sell to you. This system utilizes brokers because by selling and buying only he has profitable 0.002 USD per unit.
On the other hand, the difference in the bid price and the asking price does not benefit us because if you buy a currency pair, you buy at a price asking and have to wait for an offer price greater than the asking price to profit. In this case, you will have to wait for a bid price to increase as much as 0.002 USD before you can profit. In short, the spread paid to brokers is more, the offer price should increase more so you can profit.
How can you gain from the forex market?
If you start investing in the forex market on First June with 10000 USD in your bank account. You predict that the USD will shrink against the Euro. If your conversion platform gives you access to the USD / EUR currency pair, what do you need to do? You just have to remember a concept that is "buy at low prices, sell at high prices." So, you have to sell USD / EUR currency pair because the price will fall in the future.
17.56 USD profit in the course of a month is not as impressive. However, it should not surprise you as we do not buy more USD when the price drops to the lowest. The second reason is that the movement of the currency is very little.
