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12.07.2018How to get started in forex trading

This article will begin to explain how the forex markets work and how new forex traders can get started in this diverse and exciting world.


Many Australians are making the choice to get involved in forex trading. This comes as no surprise given the possibility for returns in exchange for working hard and learning to understand the market. But when evaluating this popular mode of investment, there is more to consider than the potential advantages. There is also a risk of losses that should not be overlooked.

From working out CFDs to understanding the impact of regulation, navigating forex trading is a complex endeavour that requires a lot of patience, skill and even luck to be successful. This article will begin to explain how the forex markets work – and how new forex traders can get started in this diverse and exciting world.

What is forex?

At its simplest, foreign exchange is simply the marketplace for converting one currency into another. Many Australians will be familiar with foreign exchange in terms of holidays. When heading off for a week in Bali, for example, tourists need to swap their Australian dollars for Indonesian rupiah. But there’s much more to the forex markets than this common function. The main alternative use of forex is as an investment tool. 

Some people speculate on the behaviour of the forex markets, which basically entails predicting the outcome of a market movement. All forex market speculation investments are made in pairs, which means traders stipulate the predicted outcome of one currency’s performance against another. When a trader buys the Australian dollar and Canadian dollar pair (AUD/CAD), for example, they are essentially relying on the Australian dollar to rise in value over its Canadian counterpart. If the trader is successful, the amount of profit they receive will be in proportion to the amount of that rise.

CFDs 

Once a trader understands the fundamentals of the forex speculation market, the next step is to decide what exact trading mode to use. One possible approach is to buy the currency that the trader predicts will rise in value and hold it until the point of sale. However, the rise of the derivatives market has changed, and there are now other methods to choose from. 

A CFD, or a contract for difference, is a financial product which allows a trader to profit from market movements without having to make an asset investment. With a CFD, the trader doesn’t actually own the currency, but instead owns a version which is derived from the currency’s market performance. In addition to providing ease and simplicity, using CFDs to trade forex enables trading on a leverage basis. This allows the potential for higher returns, and conversely, higher losses.

Regulation 

The forex trading markets here in Australia are regulated by the Australian Securities and Investments Commission, or ASIC. This body issues the appropriate licenses to forex trading platforms that want to take deposits from Australian traders and use them for trading purposes. ASIC also regularly publishes lists of any platforms that aren’t adhering to the established rules. These resources are useful for traders who want to research industry providers before committing.

While all Australian forex traders benefit from this sort of oversight work, the main way in which a new trader is most likely to come across the impact of the Australian forex regulator is during the sign-up process. In order to reduce the risk of fraud, many trading platforms insist that new traders provide information to prove identity, such as proof of address.

The foreign exchange markets offer a wealth of opportunity for anyone who wishes to get involved in financial speculation. And with a well-regulated forex market on offer here in Australia, traders can invest with confidence. But for potential traders learning about this world, there is a lot to consider. Luckily, through adequate research and exploration, traders can make informed decisions regarding CFD usage, risk level and modes of trading.


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