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Understanding What Forex Trading Is and Its Disadvantages as an Investment

JENTIKA.IDHearing the word "Forex", maybe for some people it is a strange thing to hear. It is natural if you feel strange, because this term is indeed more closely associated with people who are already quite experienced in the world of investment. Forex or Foreign Exchange has the meaning of a foreign currency transaction. In Indonesia itself, forex is better known as foreign exchange or foreign currency. So, what is forex trading ? 

If you are starting to be curious about what forex trading is, forex trading is an investment product with the activity of buying and selling foreign currencies. The activity of buying and selling foreign currencies known as forex trading offers attractive profits. Maybe you think that when you exchange money to a money changer, it is a forex trading activity. However, the explanation is actually more complex. So what is forex trading and how is it different from exchanging foreign currencies?

What is forex trading? In general, forex is a transaction exchanging the currency of the country where you live with the currency of a foreign country of your choice. Apart from that, forex needs are usually personal or private, one of which is as a means of payment in other countries that will be visited. So, if you exchange money at a money changer, this activity can be called foreign exchange. Meanwhile, forex trading has a different meaning. 

What is forex trading? Forex trading is an activity of buying and selling foreign currency which is usually done online. The aim of forex trading as an investment is to seek profits from the difference in sales figures made. Usually those who carry out forex trading activities are known as traders. 

What is forex trading and the risks as an investment?

As an investment instrument , apart from offering profits, forex trading also has its own risks. Before starting to learn about what forex trading is, it's a good idea for you to know the risk profile offered by this form of investment.

  1. Has 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 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 ratio indicates that, with a capital of only 1 dollar, you can do forex trading activities worth 100 dollars. Of course, this system looks quite tempting. However, you need to know that the profits you get can only be achieved if you set this leverage system with the right ratio. If you have the wrong strategy, you could lose up to 100 dollars or more.

  2. Currency movements are difficult to predict

    Maybe you are aware that the comparison or movement of these currencies can be said to be very volatile. Before starting to know what forex trading is, you must have a deep understanding of foreign currency movements. 

    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, and can even occur due to transaction factors that are being carried out. If there are many transactions in purchases, of course it will make the currency increase. Conversely, if many people start selling the currency they have, there is a possibility that its value will also decrease. Understanding what forex trading is continuous with the dynamic movement of this currency will confuse you if you do not have sufficient knowledge and will cause significant losses if you take the wrong steps.

  3. Lots of fraud

    What is forex trading and how to run it? This forex trading is usually run online via the internet. The lack of face-to-face transactions will certainly present a great possibility of fraud. This fraud mode is quite diverse and will present great losses. One of them is the profile of a fraudulent broker. If you use a broker's services for forex trading, make sure that the broker is indeed qualified and has good references. Otherwise, the profits you earn could be taken away. This is also what causes forex trading to have a bad reputation as an investment instrument.

  4. Need to be active full-time

    In order to avoid losses due to fraudulent brokers, when you start trading forex, it is better for you to actively monitor the movement of your investment. Therefore, it will be very difficult if you make forex trading a side activity to have additional income. You must prepare a lot of time and mind in doing forex trading, if you are a little careless, it is very possible that you will experience losses. Therefore, after knowing what forex trading is, it is highly recommended that you fully commit to this one investment instrument.

Also Read: Stock Trading: Understand the Definition and Risks

After knowing what forex trading is and the risks, maybe you can choose investment products that offer security and less risk, but are tailored to the risk profile of your financial goals. As an alternative, you can try to start investing through mutual funds. 

Mutual funds are one of the investment instruments in the form of a collection of funds managed as investment capital that can be converted or changed into various types of products, such as stocks, bonds, and other financial and investment products. The collection of funds will later be managed by an investment manager. 

An investment manager is a professional management or institution that has the task of managing the investment activities or activities that you do, one of which includes mutual funds. With the advantages of investing in mutual funds that are easy to understand with a lower risk than the risk and understanding of forex trading, it is a force to attract the attention of young or novice investors to start investing. However, the choice of investment instruments is returned to you according to the risk. 

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 beginner investors, you simply deposit or entrust your investment capital to the investment manager.

 Usually this investment manager is managed and organized by the investment manager. The related party will later help you to choose and buy the desired mutual fund. After successfully making a transaction, then you only need to pay attention to the movement and development of your investment while adding funds, like saving. Therefore, mutual funds are suitable as investment products for beginners and those of you who do not have enough time to manage investments independently.

Committed to helping customers invest, CIMB Niaga acts as a Mutual Fund securities sales agent that distributes 69 Mutual Fund products. This mutual fund product offers convenience for investors in making investments. The level of comfort and security as well as various time periods and risk options can be an attractive choice for prospective young investors who want to prepare for the future by investing. You can invest with capital that can be adjusted to your needs or conditions. Manage mutual fund investments with CIMB Niaga and enjoy the benefits here .

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