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The foreign exchange market (Forex market) is popular among traders and investors, a global market in place for exchanging currencies. The currency market is enormous and generally operates with high liquidity and sufficient volatility. Trading in FX also occurs 24 hours a day, five days a week.
Currencies trade against one another to form exchange rate pairs, or more commonly referred to as currency pairs.
The Australian dollar is ranked 50th in terms of population and positioned 25th in regards to exports. As a result, the AUD is one of the most widely traded currencies on the planet.
The Forex Market
Forex, as already briefly noted, is the largest financial market globally, attracting traders from all walks of life to participate in its trading activities. Approximately 6.6 trillion US dollars’ worth of foreign exchange transactions take place daily, according to recent estimates. Even if the stock trading volumes in London, Tokyo, and New York were combined and totalled, it would be unable to compete with the currency market.
With considerable funds pouring through the FX system each day, it’s no surprise that many individuals want to get in on the action. However, you must understand how Forex works before beginning to trade. One of the biggest mistakes Forex and CFD retail investors make is not possessing a well-thought-out Forex trading strategy. This applies across all financial markets, including stocks, CFDs and also cryptocurrencies (crypto).
Five Things You Need to Know
- Forex trading is legal in Australia. A strict regulatory framework exists that governs Forex trading in Australia: Australian Securities & Investment Commission (ASIC), which represents the main financial markets regulator in Australia. Australia’s regulatory climate is market-friendly, encouraging more legal Forex brokers to investigate Australia as an option. Different regulators operate in other countries such as the FCA (financial conduct authority) In the United Kingdom.
- Each of the major currencies in the world are controlled (or at least strongly influenced) by the central bank of the issuing country. In the case of Australia, it is the Reserve Bank of Australia (RBA) which tends to keep its interest rates relatively high in comparison to other developed countries.
- Is foreign exchange trading taxed in Australia? Australia recognises foreign exchange trading as a legal source of revenue. As such, profits generated are taxable. It is the responsibility of the trader to know the tax liabilities involved.
- The equipment needed to trade Forex. Most traders in Australia, and around the world, prefer the MetaTrader 4 (MT4) trading platform because it offers everything needed in one location. Technical analysis tools, technical indicators, and a wide range of additional features help deliver a formidable platform. Traders can apply even the most sophisticated trading strategies with MT4. You are encouraged to select the account type and leverage that are most appropriate for your circumstances. It is also important to consider your objectives for foreign currency trading and your skill level, in addition to selecting the type of account that meets your requirements.
- Trading times. According to Australian Eastern Standard Time (AEST), Sydney opens at 7:00 a.m. and closes at 4:00 p.m. Tokyo (Japan) opens at 9:00 a.m. and shuts its doors at 3:00 p.m., whereas London opens at 8 a.m. and finishes at 4.30 p.m., and New York opens at 10:00 p.m. and closes at 7:00 a.m. Note that the aforementioned times are local
A Few More Things to Consider
- Choice of currency pairs. Several Forex pairs are available to trade during the Sydney session, the most common of which are AUD/NZD (Australian dollar/New Zealand dollar), USD/CHF (the United States dollar/Swiss Franc) AUD/JPY (Australian dollar/Japanese Yen), GBP/USD (British pound/US. dollar) EUR/USD (Euro/United States dollar) and USD/JPY (US. dollar/Japanese Yen).
- What is the average duration of study for successful currency trading? Typically, it takes between 2-5 years. The technical aspects are relatively straightforward, depending on the time allocated. However, the risk management and psychological aspects can prove troubling for many new traders. It is recommended to start with a practice account (demo account) before investing real money.
- Margin trading in foreign currencies has a high-risk level and is not appropriate for all traders. Leverage can work against as well as for the investor.
- Depending on how serious you are about Forex, it is ultimately your choice regarding how much time and capital to invest, but be aware there are always risks involved. Manage risks appropriately and never invest money you can’t afford to lose.
- Forex trading requires patience, education, perseverance, and discipline. Yet, as long as you have a well-defined trading strategy, a robust-thinking model, and a risk-management strategy in place, you have laid the groundwork for profitable foreign currency transactions.