Forex trading is the act of speculating on the movement of currency pairs and is one of the most popular forms of online trading. Currency for exchange is always traded in pairs, representing each currency by a three-letter code. The most common currency pairs traded are EUR/USD, USD/JPY and GBP/USD. However, there are many other possible combinations. To learn more about them, use this link here.
When trading forex, traders are looking to profit from changes in the value of one currency against another. For example, if a trader believes that the US dollar will strengthen against the Japanese yen, they would place a buy order for USD/JPY. If the currency pair’s value increases, the trader will make a profit. Similarly, if the trader believed that the US dollar would weaken against the Japanese yen, they would place a sell order for USD/JPY.
Forex CFDs are a popular way to trade forex in Australia. A CFD is an agreement between two parties to exchange the difference of a financial instrument at the end of a contract.
For example, if the USD/JPY currency pair is currently trading at $100 and a trader believes it will fall to $95 by the end of the day, they would enter into a short position by selling USD/JPY. If the currency pair has fallen to $95 as predicted at the end of the day, the trader will make a profit equal to the difference between the entry and exit prices, minus any fees their broker charges. However, if the currency pair rises to $101, then the trader will make a loss.
Choose a broker
There are many different forex brokers available to Australians, so it’s important to compare your options before opening an account. Some key considerations include the following:
- The size of the broker’s spreads: This is the difference between the buy and sell price of a currency pair and is typically measured in pips. The smaller the spread, the less you will pay in transaction costs.
- Leverage: This feature allows you to trade with more money than you have in your account. While leverage can help you make more significant profits, it also increases your risk as you can lose more money than you have in your account.
- Fees: Most brokers will charge a commission on each trade and a fee for funding or withdrawing from your account.
- Customer service: It’s essential to choose a broker with good customer service so that you can get help when you need it.
Open an account and deposit funds
Once you’ve chosen a broker, you can open an account online in just a few minutes. You will usually need to provide personal information, such as your name, address and date of birth. You will also need to fund your account with a credit or debit card, bank transfer or e-wallet.
Most brokers will require a minimum deposit, which can vary depending on your account type. For example, a standard account may have a minimum deposit of $250, while a VIP account may have a minimum deposit of $10,000.
Choose your currency pairs
Once you’ve funded your account, you’re ready to start trading. The first thing you’ll need to do is choose the currency pairs you want to trade. When choosing your currency pairs, it’s essential to consider the following:
- Volatility: This measures how much a currency pair moves up and down over time.
- Liquidity refers to how easy it is to buy and sell a currency pair.
Place your order
Once you’ve chosen your currency pairs, it’s time to place your first order. Most brokers will offer market orders and limit orders.
When you place your order, you will also need to specify the following:
- The size of your trade: This is the amount of money you want to trade. Most brokers will offer mini, micro and standard accounts.
- The type of order
- The duration of your order: This is how long your order will remain open.
Monitor your position
Once your trade opens, you must monitor it to ensure it’s going in the desired direction. If your trade is going in the desired direction, you may want to consider holding it for a more extended period. However, if it’s going in the wrong direction, you may want to close your trade to limit your losses.