What is Forex Trading? and How is it Different From Stocks

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Forex trading is one of the most popular types of investment. You need to know the meaning of forex trading to be able to understand more.

Forex (foreign exchange) itself is the trading of foreign currencies. Like trading, the goal is to make a profit.

In simple terms, forex trading is like buying a foreign currency and then storing that currency for a certain period of time and reselling it when the value of that currency increases or the exchange rate strengthens.

However, the profits obtained are generally small if you do this way of forex investment.

To reap more profit, investors buy and sell forex online like stocks. As with any investment, of course, there are risks that come with it.

The higher the profit, the higher the risk of loss. In order to get a complete understanding, here is a review of forex trading.

Forex Trading Definition

Foreign exchange or forex can be called foreign exchange or foreign exchange. The meaning is the same, namely a trade by exchanging foreign currencies for profit.

Citing various sources, this understanding of forex trading can occur because of the need for the use of a foreign currency. For example, when you want to travel abroad, which requires you to transact in the currency of the country concerned.

The currency exchange turned out to be profitable. Profits are obtained from the difference in the value of the currency traded.

To get a bigger profit, investors must observe and analyze the condition of the money market and various factors that can affect the value of currencies in the world.

Difference between Forex and Stocks

Stocks and forex are types of liquid investments. Even so, there are some differences between the two. Summarizing various sources, here are the differences between forex and stocks.

Stocks have no ‘leverage’ option

In general, the notion of leverage is the use of borrowed funds to increase the return on investment. In forex trading, investors can use the ‘leverage’ option with a certain ratio.

Trading hours

Stock exchange trading hours are limited from morning to evening following the IDX (Indonesian Stock Exchange) trading schedule. While in forex trading, trading hours last for 24 hours.

Fundamental analysis

In its implementation, forex does not require fundamental analysis. While stocks prioritize fundamental analysis which aims to make the purchased shares have a good foundation to continue to rise.

Investment objectives

Investments are generally aimed at long-term profits. In forex, currency values tend to fluctuate, so forex is more appropriate for trading or trading rather than investing.

Meanwhile, stocks can be used as a trading and investment tool. Stocks with good performance tend to fluctuate continuously so that they can be used as trading and investment alternatives.

Traded goods

In forex, the goods traded are relatively small. The majority of forex traders only focus on the value of major currency pairs such as EUR/USD, USD/JPY, GBP/USD, USD/CAD, AUD/USD, and NZD/USD.

While stocks have a lot of merchandise or issuers. There are hundreds of issuers that can be bought and sold on the IDX. When combined with world stock exchanges, there are thousands of stocks that can be traded or invested.

The nature of the transaction

The final difference is the selling time. The nature of stock transactions can be said to be one-way. You buy an issuer at the opening of the exchange and sell it at the close of the exchange. The difference in price at closing can be a gain or a loss.

While in forex, transactions are two-way. You can buy it and then sell it in a short time, then buy it back after a while.

How to Trade Forex

How to do forex trading is not much different from stocks. Here are some things you can do to be able to transact forex.

Choose an official broker

Choose an official broker registered. You can check the list of official brokers or in WikiFX. Although you can choose a foreign broker, for security it is better to use a domestic broker that is easy to track.

Register and create an account with the broker

For beginners, usually, forex brokers will teach you how to read the graph of the movement of currency values in each country. However, before registering, ask first how much deposit you have to pay.

Carry out trading activities

After registering and creating an account, use the deposit you paid for capital to buy the currency you want.

In buying foreign currency, the currency will coexist with other currencies. For example, USD/EUR, meaning that you will buy United States Dollars in comparison to Euros, and vice versa.

That’s the meaning of forex trading, how, and the difference with stocks. Understand forex trading in more detail so as not to lose. Some experts consider forex trading more difficult and complicated than stocks.