Forex Trading 2020 Guide

Foreign exchange trading begins with selecting a forex broker which for Australian forex traders needs to be ASIC regulated or for FCA in the UK with the trading account determining the forex trading platform used such as MT4, risk management tools, financial services offered and currency trading education.

By Justin Grossbard / Updated: Tuesday, February 18th, 2020

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How To Trade Forex Effectively

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While most individuals understand that forex trading strategies are critical when navigating markets they often overlook the importance of a forex trading platform. These fx platforms have different functionality, latency and charting that are critical to trading on margin. The forex broker selected will set the trading platform options available, financial market and features.

Before trading there are three critical elements to consider:

  1. Selecting a forex broker
  2. Choosing a trading platform
  3. Adopting solid currency trading strategy

Currency Trading FAQs

Australian’s can legally trade forex through an ASIC regulated forex broker with the Australian regulator which have their own legal restrictions. ASIC has limitations on initial credit card deposits to a maximum of $1,000 when opening an FX account.

The Australian Tax Office focuses on any traders profits and/or losses after expenses on currency trading, shares or even cryptocurrencies. Trading in Australia receives no tax exemptions and should be self-accessed.

There are no limits on the number of forex trades that can be done hourly or daily. The only limit to trading is the total size of the trades at any one time which must meet the margin call amount set by the forex broker.

IC Markets as an example forex broker has a margin call amount of 0.2%. An example of trade that is denominated in USD purchases a standard AUD/USD lot at an exchange rate of 0.7999. Using the calculation (100,000/500 * 0.7999) there is a margin requirement of $159.98 for the trade.

Once a broker reaches the margin requirement they will be exited from their positions (normally automatically) to avoid a negative balance. In extreme turbulence, slippage can occur leading to losses exceeding the deposit which should be understood by traders.

Leverage allows online trading at a multiple of their deposit (up to 500:1 with some forex brokers). Each pip of movement for the EUR/USD will result in a profit/loss of $10 for a standard lot. A mini lot, on the other hand, will result in a pip movement of $1 profit/loss. When trading other currencies the “pip value” can be lower or higher. For example, the AUD/USD on the 02/01/2019 is 1.43 Australian dollars.

A scenario a strategy allows a loss of up to 5 pips with an attempted profit of 10 points for a $10,000 account.
With the risk of 5 pips a trade size of 6.9 mini lots. This is $34.50 of risk for each individual trade.

A successful exchange rate trading strategy will see a broker winning at least half the time. Making 10 trades daily over the month (20 days) would result in 200 trades.

If 50% were successful = 100 * $10 * 6.9 mini lots = $6,900
If 50% were unsuccessful = 100 * 5 * 6.9 mini lots = ($4,980)

The total net profit in this example would be over a month $1,920.

What hasn’t been factored in above are online trading costs through the forex broker which vary by account. Keeping these costs down can there be critical to a traders bottom-line.

An fx trading robot is most commonly created as part of the expert advisors package of the MetaTrader 4 trading platform. It adopts a forex strategy into automated trades at rapid speeds.

To create a trading robot you need to:

  • Create or adopt a trading strategy
  • Integrate trading signals to the strategy
  • Ensure the forex robot executes the trades
  • Adopt trading features such as trailing stops and time-based conditions

Leverage is the variable that increases risk when fx trading. Trading with the maximum leverage available 500:1 means that a movement of just 0.2% will lead to a total loss of a trade or the amount doubling. Choosing the right leverage profile should match the traders experience level and risk appetite.

Another risk for fx trading is sudden movements in forex markets (exchange rate) from market evens such as rate decisions. Sudden movements may lead to stop-loss orders been exceeded (called slippage) leading to losses exceeding safeguards. To help manage this risk some forex brokers offer:

  • DealCancellation (only EasyMarkets offers this)
  • Guaranteed Stops
  • Minimum Balance Protection

Foreign exchange brokers offer different base currencies when trading currency. The most popular base currency for Australian forex traders are:

  • Australian Dollar
  • British Pound
  • Euro
  • US Dollar

Once a base currency is selected it can’t be changed for most fx brokers so it’s an important choice to make. Normally the base currency is the local currency of a forex trader. So Australian currency traders for example, will normally select the Aussie dollar as their base currency.

In Summary

Before you open an account and commence CFD trading, choosing the right currency broker is the foundation when trading Australian securities including currency.

Beginner forex traders should be looking for modest leverage, risk management features and strong customer support. EasyMarkets meets these criteria and also offers fixed spreads making trading fees transparent.

Intermediate forex traders should be looking for higher leverage, a solid trading platform and low spreads and commissions. AxiTrader is such a forex broker offering the most popular MetaTrader 4 platform plus added charting and trading features, low ECN spreads and leverage of 400:1

Expert forex traders should focus on the execution speed of the broker, platform and spreads. Pepperstone Pty Ltd is such as forex broker offering 500:1 leverage, ECN trading including low spreads and fees and ‘Edge Technology’ offering up to 12x improvement in execution speed and 10x latency reduction.

All traders should review the risk warning related to trading with leverage and understand the risks.

What Is Forex Trading?forex trading australia platform

Foreign exchange trading (termed forex trading) allows a currency to be bought and sold through Australian forex brokers. The five main components to consider when currency trading are:

  • The forex broker to trade through impacting spreads
  • The forex trading platform used (such as MT4)
  • The leverage levels which impact risk
  • The use of risk management tools like guaranteed stop loss
  • Currency trading such as fundamental vs technical analysis

Forex trading platforms such as MetaTrader 4 allow foreign currencies including the USD to traded by Australian traders. FX trading requires leverage due to the small movements in exchange rates with spreads and commissions the fees charged by brokers.

FAQ’s About Currency Trading

1) What is currency trading?

Currency trading in Australia is speculating on the value of a currency pairings such as the Australian dollar (AUD) compared to the US Dollar (USD). Currencies fluctuate 24 hours a day during weekdays (not the weekend) providing a wide range of hours to make trades.

As the percentage change of any currency-pairing is often very small, leverage (also known as margin trading) means currency trading brokers will lend traders a multiple of their deposit to amplify the profit or losses from relatively small currency fluctuations. View our what is guide.

2) Can you manage risk when trading currency?

Choosing the right Australian forex broker is critical when it comes to risk management. There are tools only some brokers offer through their platform software such as ‘guaranteed stops’ which allows you to determine the most your willing to lose on any trade. There are also brokers like Pepperstone that guarantee no negative deposit which means once your deposit is exhausted your positions are closed automatically. Without these features, currency trading can expose traders to high-risk levels and you can lose more than your deposit so pick the broker and strategies to suit you. Also, look into completing a Australia Forex trading course to enhance your skills and ability to trade in any environment understanding the key signals in the market.

One critical way to reduce your risk and avoid frauds is to ensure the provider has an Australian Financial Services Licence (AFSL). All Brokers on this site have an AFSL regulated which means that funds are segregated in a bank account to protect traders.

3) What skills do you need for currency trading?

Generally, good currency traders will understand forex, market conditions of individual countries and factors that will impact value such as rate announcements. Like any skill, doing your research and learning from past trades are some critical tips. Finally, the ability to learn trading forex in Australia and understand the forex platform you use include making fast trades and understanding charting can also provide you with an edge over other traders.

Overall, having time, skills and the ability to accept risk are critical components for any currency or even stock trader. Select a provider that fits your trading style such as those found in the table above. It is also recommended to commence with some free forex trading Australia in the form of a demo account to test your strategies and confidence. Some other reputable brokers that just missed out on being featured above due to slightly inferior features include IC Markets, City IndexOandaForex Capital Trading (ForexCT), FxPro and IG Markets. Some of these brokers also offer commodities trading and tools and features such as online trading courses.

4) How to Trade Forex

Trading foreign exchange markets requires a forex trading platform offered through retail forex brokers. These forex brokers differ by the platform, fees and features they offer as identified in the table at the top of the page. Once a forex broker is selected, the platform they offer usually included a trade forex demo account. This simulates the market and while not all features are present, it gives forex traders an understanding of:

  • How leverage increases exposure to the market
  • How to utilise features such a stop-loss orders
  • Forex strategies effectiveness in a simulated environment
  • The platforms suitability for your trading style

Most demo accounts don’t have fees associated with them, so it’s an ideal risk-free way to ‘try before you buy’.

5) How Much Can I Make Trading Forex?

Currency pairings have very small movements most days compared to other financial products such as shares. The big difference is leverage (which can be up to 500:1). This amplifies these movements. For example, a currency movement of just 0.1% when trading at 500:1 will lead to a profit or loss of 50% the amount traded. Obviously, with high leverage, a trader can make a multiple of their initial deposit or lose it within a short period. Again, it’s critical to understand the risks prior to trading forex in Australia.

6) Is Forex Trading Safe?

With all investment and trades, there are no guarantees of profits and risks exist. Key risks when trading forex including:

  • Forex brokers scams
  • Excessive slippage
  • Losses multiplied by the leverage

To control these risk it’s advisable to find a forex broker that suits your trading requirements. Firstly, make sure the forex broker is Australian regulated with a strong track record. Secondly, make sure the leverage offers (or accepted) matches your risk appetite. For new traders, the higher levels of 400:1 or above are not recommended. Finally, look for the tools that can manage your risks such as guaranteed stop-loss orders and minimum balance protection. EasyMarkets provides these features which is why it’s recommended to new forex traders that have a lower risk appetite.

What Is The Difference Between Forex And CFDs

CFD trading comprises of contracts across a wide range of markets from commodities, indices to energy, unlike forex which is solely currency trading. Trading CFDs allows varying incremental contract values across a variety of currency types, unlike forex which is set at currency pairing. This means having a base currency to another currency is set forex lot sizes.

Another variance is that forex is often driven by macro events including politics, employment changes and world events. CFD trading is more micro factors such as a business sector trend or the supply and demand of a commodity.

View Reviews Of The Best Forex Brokers

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