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How to Start Forex Trading in Australia?

  

The Foreign Exchange market – commonly referred to as the Forex (FX) market – is by far the most liquid market in the world, with an average daily trading volume of over $6 trillion. It is a decentralized market that allows the buying and selling of different currencies over the counter. That is, via the interbank market instead of on a centralized exchange such as the NYSE or LSE.

Forex is a unique market that presents various opportunities for traders to take advantage of, but how do you trade it? And what do you need to know before getting started? This article will let you learn more about how to start forex trading in Australia.

What Makes Forex Unique?

• Traders are attracted to the opportunities that the FX market presents for a variety of reasons, such as:

• High levels of liquidity due to the size of the market

• Minimal transaction costs

• Ability to trade 24 hours a day, 5 and-a-half days of the week

• A diverse range of different currencies pairs to trade

• Ability to profit from both the appreciation and depreciation of currencies

• Leveraged trading: using a small amount of capital, or margin, to take a significantly larger position in the market -> can magnify both profits and losses 

What makes forex unique

How Do You Trade Forex?     

Opening your Forex Trading Account

In order to gain access to the forex market, you need to open a forex trading account. You can open your live trading account in less than five minutes with Vantage to start trading.

Vantage also provides a free demo account, which will allow you to practice various trading strategies and techniques without having to deploy your own capital.

Depositing Funds into your Trading Account

Before you begin actively trading on your live account you will need to deposit funds to trade with. The various methods you can fund your account with Vantage are listed below:

Depositing funds into your trading account

To learn more click here

Understanding Leverage

Leverage is a useful financial tool used by FX traders to increase overall market exposure beyond their initial investment. For example, a trader with 30:1 leverage can enter a position with a notional value or trade size 30 times more than the margin required to fund the trade. This means that for a trader to enter a position for $10,000 worth of a particular currency, they would only need $333 in margin to maintain the position.

Although this seems like an ideal scenario it is essential to remember that leverage can magnify not only potential gains, but potential losses as well. 

Choosing an FX Pair

The first step to trading Forex is to select a currency pair to trade. Since you are buying one currency and simultaneously selling the other currency, that is exchanging one currency for another, currencies are always traded in pairs.

For example, if you believe that the Euro is going to strengthen against the US Dollar, you would take a long (buy) position in the EUR/USD exchange rate. Conversely, if you believed that the Euro is going to weaken against the US Dollar, you would take a short (sell) position in the EUR/USD exchange rate.

Choosing an FX pair to start forex trading

Understanding what influences that currency pair

Once a trader has chosen a currency pair to focus on, they must identify and understand the key fundamental drivers influencing the exchange rate. Major economic data releases such as GDP, inflation and labor market data drive market gyrations and are monitored by traders to determine the strengths and weaknesses of the economies behind each individual currency. Central bank monetary policy decisions also heavily impact currency pairs and tend to induce significant volatility before, during and after each major announcement.

economic calendar

Interpreting Bid-Offer Spreads and Quotes

Now that you have determined the currency pair you are going to trade, and the exchange rate’s fundamental drivers, it’s time to pick your position and place your trade. Let’s take an example.

You’ve chosen to trade the AUD/USD exchange rate and believe that the Australian Dollar is going to strengthen against its US counterpart ahead of an upcoming Reserve Bank of Australia rate decision. So, you enter a buy position and take the asking price of 0.7450. You’ll notice the bid (sell) price is slightly lower than the ask at 0.7449. This difference is known as the spread and is the amount that dealers or brokers charge to place the trade.

Monitoring Trade and Risk Management

Now that you’ve placed your trade it is important to monitor upcoming data releases that may influence the exchange rate and also ensure you have set a stop loss that will exit the trade automatically if price ends up reversing lower. The stop loss level should be at a point that invalidates the reason you got into the trade in the first place and minimizes your potential loss on a trade.

Generally, a risk-reward ratio of greater than 3:1 should be implemented on every trade to give an investor the optimal chance at being profitable over the longer-term. Once again using the AUD/USD exchange rate as an example, if you were to initiate a buy position at 0.7450 with a stop loss at 0.7400, you should be looking to take profit at 0.7600 at a minimum.

Monitoring Trade and Risk Management