Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion FOREIGN EXCHANGE TRADE Foreign exchange trading (Foreign Exchange Trading) is the activity of buying and selling currencies carried out in the foreign exchange market. The goal of foreign exchange trading is to profit from differences in currency exchange rates. Foreign exchange trading is carried out by various parties, ranging from banks, multinational companies, investors, traders, to individuals. In foreign exchange trading, each currency is traded in pairs, such as EUR/USD, USD/JPY, or GBP/USD. Traders can buy or sell the currency pair, depending on their predictions about exchange rate movements. There are two types of foreign exchange trading, namely spot trading and derivative trading. 1. Spot Trading Spot trading is the buying or selling of currencies with immediate delivery (usually within two business days). Spot trading is conducted directly between the buyer and the seller, without going through a middleman or exchange. 2. Derivative Trading Derivative trading includes trading in futures, options, and contracts for difference (CfD). Derivatives trading is often carried out by investors and traders who wish to take shortterm positions in certain currency pairs. Derivative trading is carried out through exchanges or trading platforms provided by brokers. In foreign exchange trading, traders use both fundamental analysis and technical analysis to make trading decisions. Fundamental analysis involves assessing a country's economic, political, and social conditions to determine the factors that can affect currency exchange rates. Meanwhile, technical analysis involves observing price charts and technical indicators to identify trends and potential entry and exit points. Foreign exchange trading carries a high level of risk, so traders must understand the risks before starting to trade. Traders must also have a good risk management strategy and be disciplined in implementing it in order to avoid unnecessary losses. In foreign exchange trading, there are several terms that traders need to understand, including: 1. leverage Leverage is the use of borrowed capital or margin provided by a broker to increase the potential profit from trading. However, leverage can also magnify potential losses. Leverage in foreign exchange trading can be as high as 1:500 or even higher, depending on the broker's policy. 2. margins Margin is the funds that must be kept by the trader as collateral to open a trading position. The amount of margin required depends on the leverage used and the size of the trading position. 3. Pips Pips are units of change in exchange rates in foreign exchange trading. One pip is usually equal to 0.0001 or 0.01%, depending on the currency pair being traded. 4. Lots Lot is a unit of measure in foreign exchange trading. The lot size used depends on the broker's policy and the capital owned by the trader. For example, one standard lot is equivalent to 100,000 units of the currency being traded. 5. Stop Loss and Take Profit A stop loss is an order to close a trading position if the price moves against the position it opened, in order to limit losses. Take profit is an order to close a trading position if the price reaches a certain level, to secure profits. Foreign exchange trading can be done 24 hours a day, five days a week, because global foreign exchange markets are open around the world at various times. This gives traders the flexibility to execute trades according to their schedule and preferences. However, due to the highly liquid and volatile foreign exchange market, careless and ill-informed trading decisions can lead to large losses in a short period of time. Therefore, a disciplined approach and sound risk management are essential in foreign exchange trading. In addition, there are also several factors that affect the movement of currency exchange rates in the foreign exchange market, including: 1. Economic Factors A country's economic conditions, such as inflation, interest rates, economic growth, and the trade balance, can affect the country's currency exchange rate. For example, high interest rates can attract investors to buy the country's currency and increase the exchange rate. 2. Political Factors Changes in political policies, such as changes in government or international trade policies, can affect investor sentiment towards a country's currency and affect exchange rates. 3. Global Factors Global events, such as financial crises or wars, can affect currency exchange rates around the world and trigger volatility in foreign exchange markets. 4. Speculation and Market Sentiment Speculative activity and market sentiment can also affect movements in currency exchange rates. If investors are optimistic about a country's currency, they are more likely to buy that currency and increase the exchange rate. In foreign exchange trading, traders can make profits in both rising and falling markets. There are two types of positions in foreign exchange trading, namely buying positions and selling positions. If traders buy a currency pair, they will make a profit if the exchange rate goes up, and lose if the exchange rate goes down. On the other hand, if traders sell a currency pair, they will gain if the exchange rate falls, and lose if the exchange rate rises. However, keep in mind that foreign exchange trading carries a high level of risk and is not suitable for everyone. Traders should understand the risks and have a good risk management strategy in place before starting trading. Apart from that, there are also several trading strategies that can be used by traders in foreign exchange trading, including: 1. Fundamental Analysis Fundamental analysis involves assessing a country's economic, political and social conditions to predict the direction of currency exchange rate movements. In fundamental analysis, traders look to economic indicators such as interest rates, inflation, and the trade balance to make trading decisions. 2. Technical Analysis Technical analysis involves looking at currency price action charts and using patterns and technical indicators to identify the next direction of price movement. In technical analysis, traders look for certain patterns in charts such as support and resistance, trend lines, and indicators such as moving averages and Relative Strength Index (RSI). 3. News Trading News trading involves monitoring the latest economic, political and social news to make trading decisions. Traders are looking for news that can affect currency exchange rates, such as interest rate policies, trade policies, or significant global events. 4. Scalping Scalping is a trading strategy that is carried out by opening and closing trading positions in a short time, usually in seconds or minutes. The goal is to make small profits quickly by taking advantage of small price movements. 5. Hedging Hedging is a trading strategy carried out to reduce the risk of loss by opening a trading position that is opposite to a trading position that was previously opened. By hedging, a trader can limit losses if the price moves against a previously opened position. In foreign exchange trading, discipline and good risk management are very important. Traders must understand the risks and potential profits in every trading position they open and have a sound risk management strategy to limit losses. In addition, traders must also pay attention to market changes and adapt to changing market conditions.