0
0

Forex Trading Australia - The Ultimate Beginner’s Guide to Trading Forex Online

Last Updated November 13th 2020

Forex Trading Australia Guide

How to Start Trading Forex in Australia

Want to dive into forex trading in AU? Online FX trading Australia guide will cover everything you need to know to get started.

If you’re based in Australia and interested in buying and selling currencies - you’re not alone. The forex trading scene is now worth billions in Australia - and trillions globally.

Chances are, every man and his dog has heard of the foreign exchange market. Even if it’s just from exchanging Australian dollars to other currencies for holidays to far-flung places. The fact is, it is a highly significant and fluid trading market all around the world.

Living in Australia and thinking you would quite like a piece of the currency trading action? You’re not alone. Daily, global forex trading volumes surpass $6 trillion. That’s just over 9 trillion Australian dollars!

The overarching essence of forex trading is to trade currency pairs - the end goal being to speculate on the rise or fall of an exchange rate. Predict the direction of the pair’s rate correctly and you stand to make a profit - meaning you are left with more money than you began with.

Although this sounds as easy as ABC, a gung ho approach to trading in the forex market usually ends in losses. Newbies often make the mistake of assuming they will pick it up as they go along - which can be a very pricy learning curve.

With that in mind, we’ve got your back. We are going to run through everything you need to know when forex trading in Australia in this comprehensive beginner’s guide.

We are going to talk about the end-to-end process of forex trading - covering how to trade currencies, forex pair types and different trade orders. In addition to the basics, we are going to shed some light on trading strategies. Moreover - we cover key metrics to consider when searching for an online ASIC broker to execute those all-important forex trade orders.

Contents

What is Forex Trading Australia?

Section 1: The Foundations of Forex Trading Australia

Section 2: Get a Handle on Forex Pricing

Section 3: Australian Forex Trading Strategies 

Section 4: Educate Yourself on Forex Fees, Profit Margins and Leverage

Section 5: Selecting a Great Forex Trading Broker Australia

Forex Trading Australia: The Verdict

FAQs

What is Forex Trading Australia?

In a nutshell, forex trading in Australia consists of using price shifts in the foreign exchange market - with the view to make gains.

So, how is this done? As we briefly mentioned above, the objective is to buy and sell currency pairs based on whether you think the value of the pair will rise or fall. We are going to delve into this with some practical examples shortly.

As we said, this liquid forex marketplace rakes in around AU$9 trillion every day. It’s the largest financial market on the planet - much bigger than commodities, bonds and stocks. The main contributors to this figure are fund managers, financial institutions, commercial and central banks, and also hedge funds.

Then, of course, there are retail forex traders buying and selling in their droves too. By retail clients, we mean your average Fred Nerk trading using their own money - using a personal account.

With internet access, you too can begin forex trading in Australia from the comfort of your own home, or on the go. All you need to get started is a little knowledge, a good ASIC broker and a deposit method like an Australian debit card. But of course -  you must predict the asset’s price movement correctly and create the appropriate order.

There are many ways you can go about this, and heaps of helpful tools and strategies to consider. All of which we are going to talk about in detail throughout this comprehensive guide on Forex Trading Australia.

Section 1: The Foundations of Forex Trading Australia

In section 1, we are going to start with the bare bones of forex trading in Australia. This is to build both your knowledge of the market and how it works - but also confidence in your future trading endeavours.

Let’s start by elaborating on some common forex terminology you are likely to see in guides like ours - not to mention at chosen your trading platform.

Forex Pairs - Minors, Majors, and Exotics

forex currency pairs, trading forex in Australia

You will see the words ‘forex pairs’, ‘FX pairs’ and ‘currency pairs’ banded around a lot in the online forex trading space. They all mean the same thing - 2 currencies competing against each other make a forex pair.

Let’s say you wanted to trade the British pound against the Australian dollar. This pair would be illustrated as GBP/AUD. In this scenario, the British pound is the ‘base’ currency of the pair, and the Australian dollar is the ‘quote’ currency.

At the time of writing the exchange rate of GBP/AUD is 1.82, which means that for every £1 you would receive AU$1.82. The exchange rate of this, and any other pair, is motivated by supply and demand.

The price of FX pairs and other tradable assets fluctuate throughout the trading day, usually by the second. When it comes to currency pairs, the shifts in price are measured in ‘pips’ (percentage in points). This means that the difference in value can be measured in micro amounts.

It is for this reason that when you join a forex trading site in Australia, you will notice that the price of a pair will be quoted to you in 4 decimal places. The exception to this rule is the Japanese yen (JPY) - which is usually quoted in 2 decimal places.

For instance, the aforementioned price of 1.82 for GBP/AUD would be something like; 1.8223. We are going to talk about pips and what they mean in more detail in a moment.

First, we are going to talk about the 3 main currency pair categories - ‘minors’, ‘majors’, and ‘‘exotics’. The vast majority of brokers identify forex pairs in these groups, so it’s a good idea to have a good grasp of what each type contains.

Read More:

Forex Trading Pairs - Top 10 Forex Pairs To Trade

Forex Volatility - What Are The Most Volatile Currency Pairs?

Minor Pairs

A key characteristic of minor currency pairs is that they are made up of 2 strong currencies. Think along the lines of the Australian dollar, Canadian dollar and euro.

Because minor pairs include 2 strong currencies, you can expect a good level of liquidity - however not as much as when trading major pairs.

Another point to make is that minor pairs never include the US dollar - unlike major pairs which we are going to dive into next.

First, we have listed below the most popular minor forex pairs to trade via an ASIC broker:

  • EUR/NZD - Euro against the New Zealand dollar
  • GBP/JPY - British pound against the Japanese yen
  • AUD/CAD - Australian dollar against the Canadian dollar
  • EUR/CAD - Euro against the Canadian dollar
  • EUR/AUD - Euro against the Australian dollar
  • EUR/JPY - Euro against the Japanese yen
  • EUR/GBP - Euro against the British pound

Major Pairs

When it comes to major currency pairs, a key characteristic is that they always contain the most traded currency on the planet - the US dollar.

Consequently, you can expect lots of action in terms of trading volumes and higher liquidity when trading this FX pair category.

As we said, major forex pairs will always contain the dollar. The other currency in the pair will invariably be another strong currency like the Australian dollar, British pound, or Euro.

If you are a newbie at forex trading Australia, we recommend only trading minor and major pairs until you find your feet.

To give you an idea of what major currency pairs you might find on your chosen ASIC trading platform, please see below:

  • AUD/USD - Australian dollar against the US dollar
  • USD/CAD - US dollar against the Canadian dollar
  • USD/CHF - US dollar against the Swiss franc
  • AUD/USD - Australian dollar against the US dollar
  • NZD/USD - New Zealand dollar against the US dollar
  • GBP/USD - British pound against the US dollar
  • USD/JPY - US dollar against the Japanese yen
  • EUR/USD - Euro against the US dollar

You will no doubt find that the majority of the time, volatility levels will be on the low side. This is due to the high demand of majors in the market.

With highly reputable economies like Australia, the US, and Europe in the mix - this is hardly surprising. In fact, EUR/USD is the world most traded forex pair in the world, alongside USD/JPY, GBP/USD, USD/CAD and AUD/USD.

Exotics Pairs

As the name suggests, exotic pairs are considered to be ‘exotic’. Not every broker will offer this category of forex pair.

So what is an exotic forex pair? Well, exotic pairs are inclusive of one strong currency (like USD) and one emerging market currency. An emerging currency is defined by being a currency from a developing country or market.

Emerging currencies include the Chilean peso, Turkish lira, and Kenyan shilling, to give you an idea. As you can no doubt imagine, these currencies are not nearly as liquid. Thus trading volumes are much lower than the aforementioned forex pair types.

Furthermore, and perhaps most pertinently, the exotic pair marketplace is much more volatile. We should say that a currency from a stable economy doesn’t necessarily mean that there is a huge demand for it. 

For instance, the Singaporean dollar (SGD) and the Danish krone (DKK) both derive from strong economies. But, as the respective currencies are not in high demand globally they sit within the remit of an exotic pair group.  

You will see below a list of exotic currency pairs, all of which can be traded - depending on whether your broker has them on offer.

  • USD/DKK - US Dollar against the Danish Krone
  • CHF/RUB - Swiss Franc against the Russian Ruble
  • TRY/JPY - Turkish Lira against the Japanese Yen
  • CHF/ZAR - Swiss Franc against the Rand
  • USD/HKD - US Dollar against the Hong Kong Dollar
  • USD/CZK - US Dollar against the Czech Koruna

There is a higher risk attached to trading exotic pairs, which is why we advise avoiding them as an inexperienced forex trader. 

Of course, more volatility means a potentially higher reward - if you speculate correctly. As such, these lesser traded pairs are worth exploring once you’ve got your teeth into the basics.

FX Pips Explained

By now you should have a firm grasp of what forex trading in Australia is, and how currency pairs are categorized.

With that in mind, we are going to move swiftly on to ‘pips’. As we said pips are used universally to allow for micro shifts in a currency pair value.

  • When typing a pair such as ‘EUR/AUD’ into a search engine you will be shown a price like this: 1.62
  • This shows that for every €1 you pay, the market is prepared to pay you AU$1.62
  • However, as we said earlier - when you are quoted a price from your broker it will look more like this: 1.6283

Let’s dive right into a practical example of forex pips:

  • EUR/AUD is quoted at 1.6283
  • Minutes later, the currency pair moves to 1.6285
  • This shift illustrates 2 pips

You will sometimes see a price quoted in 5 decimal places, depending on your trading platform. This allows brokers to illustrate a much smaller and precise percentage, with regards to the fluctuation of a pair. As a result, you are also able to use a smaller stake.

Forex Trading Australia - Orders

market orders, trading forex in Australia

In this section of our Forex Trading Australia Guide, we are going to take a look at orders.

For those unaware - an order is something you submit to your broker to let them know how you wish to proceed with a trade. To clarify, this outlines what your prediction is as to whether a forex pair will rise or fall in value. And - how much would you like to stake on that particular forecast.

There are a handful of really useful orders, which we have listed below for your convenience. However, let’s start from the ground up - with buy and sell orders.

Buy Orders / Sell Orders

You will quickly realise when trading forex in Australia that a lot of orders are optional but still highly useful. With the exception of buy orders and sell orders, which are imperative.

Put simply, these orders indicate to your forex broker which way you believe the market will go.

There are 2 possible scenarios with buy and sell orders:

  • If you think the forex pair is going to experience a rise in value - place a buy order with your broker
  • Should you have a feeling the price of a pair will fall - you place a sell order with your broker

Here is an example of how the actual trade might look:

  • Let’s envisage you are already trading EUR/USD
  • You originally bought the pair at 1.1872 through a buy order
  • The pair’s value has since grown to 1.1905
  • You close your position by creating a sell order
  • You made a profit by selling the pair for more than you paid

Orders must consist of a buy order and a sell order at some point. For instance, if you entered a trade by placing a sell order believing the price will fall - you would need to exit that trade by using a buy order.

Market Orders / Limit Orders

The previously mentioned buy and sell orders tell your ASIC broker which way you think the pair’s price will go.

Market orders and limit orders indicate at what point you would like to enter a trade. Let us explain further with a simple clarification of each.

Find first an explanation of limit orders:

  • A limit order tells your broker what specific price you want to enter your position at. 
  • For instance, you might have been quoted 1.1872 on EUR/USD but not want to enter at more than 1.1750. With that in mind, your limit order should be 1.1750.
  • This limit order will stay open until EUR/USD falls to 1.1750.
  • The moment  EUR/USD hits that specific price is when your broker executes your order. 

Now a brief clarification on market orders:

  • A market order tells your broker that you want to enter the EUR/USD position at the current - or next available price.
  • Your broker will execute this order immediately. 
  • Due to the nature of forex trading in Australia, you may find the price has shifted by a pip or two. This is unavoidable in this market.

The vast majority of experienced forex traders use limit orders frequently. This is largely because they are so price-specific - meaning traders are safe in the knowledge that they are going to enter the trade at a desirable price.

Stop-Loss Orders / Take-Profit Orders

Take-profit and stop-loss orders are not obligatory like their buy and sell counterparts. With that said, we do think they are an invaluable part of risk management - which should be incorporated into your every day trading strategy moving forward.

Put simply, stop-loss orders put a cork in your trade before you lose more than an amount specified by you.

For instance:

  • Let’s say you are trading the US dollar against the New Zealand dollar
  • You enter the USD/NZD trade at 1.4520
  • You make a decision that under no circumstances are you willing to lose more than 1.2% of your stake
  • This is when you utilize a stop-loss order with your broker
  • If or when the pair’s value falls by 1.2% your broker will execute your trade - ensuring you do not make a loss of more than 1.2%

Take-profits work in exactly the same way as the example above. On this time, the purpose is to lock in your profits by setting a target. For example, you might want to close your position automatically when it hits 5% in gains. 

A take-profit order will achieve this goal and thus - ensure that you do not need to be sat at your device for hours and hours waiting for your target to be met!

Spreads

When researching forex trading in Australia, spreads are something you will see a lot of. In fact, not just in the case of currency pairs, but all tradable assets. 

Therefore, the spread will always feature when you are trading currencies via your ASIC broker. 

What exactly is spread? Well, When placing an order you will invariably be shown two prices - the buy price of a currency pair, and the sell price. The difference in value between the two is what’s known as the ‘spread’.

A currency pair’s spread is generally illustrated in pips, which we covered earlier. But, you might find that some brokers show the spread in the form of a percentage.

You will see below another example of how the spread works:

  • EUR/AUD buy price 1.6204 / sell price 1.6206
  • As you can see, the spread of this pair is 2 pips

The spread can be viewed as an indirect fee, which is payable to your trading platform. If your spread is 2 pips, for instance, you are beginning your trade 2 pips in the red. 

This means that in order to make any gains on the position you must first make 2 pips to ‘break-even’. Anything above that 2 pips is actual profit on your forex trade.

We mentioned earlier that the best ASIC brokers quote currency pairs using five decimal places instead of four. This allows for a much smaller spread - which is often less than 1 pip. For example, you might get a spread of just 0.6 pips on major pairs like EUR/USD. 

Please see below an example of a 5 decimal quote:

  • GBP/USD buy price 1.32406 / sell price 1.32400
  • The spread on this pair is 0.6 pips

Before you can make a real profit on this particular trade you need to make gains of over 0.6 pips.

Have you considered trading Forex?

Australian Forex Market Hours

When it comes to Australian forex market hours - you can trade 24 hours a day, 5 days a week via most ASIC brokers.

Based on Australian Eastern Standard Time (AEST), the trading markets open at 7 am, merging with multiple global forex markets until Friday afternoon in the USA.

Sessions overlap, and markets are interlinked. Take a look at the forex market hours using AEST, and referencing opening hours from Monday to Friday :

  • Sydney operates from 7 am Monday morning
  • The Tokyo markets open at 9 am
  • Whilst that is still open the London exchange starts at 5 pm.
  • Meanwhile, New York markets open at 10 pm and close at 7 am
  • At this point both Sydney and New Zealand foreign exchange markets reopen

As you can see, there is a lot of scope for accessing the global forex markets. The vast majority of FX trading happens at a time when the European, American and UK markets open.

During the summer these hours are 12 am until 4 am (AEST). In the winter months, these busy times are between 10 pm and 2 am (AEST).

Whilst you can trade 24 hours a day and 7 days a week, we recommend sticking to Monday to Friday.

By sticking to these days, you stand a better chance at reaping the benefits of high trading volumes and liquidity - meaning the market will be less volatile. Consequently, you will likely have the added advantage of super-tight spreads from your ASIC broker.

Section 2: Get a Handle on Forex Pricing

By this point in our Forex Trading Australia Guide, you should have a clear understanding of what the industry entails. Not only that, but we have thoroughly explained the finer details of trading this asset - such as pips, currency pairs, spreads and even forex market trading hours.

Whilst you’re probably feeling like you’ve learned a lot - there is still more to think about. If you have any hope at all of being successful whilst trading forex in Australia - you should think about how you are going to speculate on the market to begin with.

In other words, seasoned forex traders don’t just throw caution to the wind and guess - there is money involved. You should educate yourself on the various tools, indicators and technical analysis available to you.

Furthermore, you need to be able to conduct your own research, adding fundamental analysis to your forex trading strategy. Let’s start by explaining the fundamental analysis process and how this can greatly enhance your decision-making skills.

Fundamental Analysis

Fundamental analysis involves assessing political, social and economical aspects of the news. The reason this is such a helpful form of analysis for traders is that these are the various forces which can affect the current or future price of currencies.

It goes without saying that this information is going to help you in predicting the value of a currency pair rising or falling - in the short-term at least. Fundamental analysis is almost as important as technical analysis, however, this type of research is a lot simpler.

Essentially, financial markets are interconnected and the value of currencies is affected by various events. To give you an idea of what might alter the value of a forex pair you are trading - think along the lines of macroeconomic reports, geopolitical affairs, changes in monetary policy, and other such global news.

To give you a real-life example; 

  • In 2015 news of a possible Brexit referendum travelled faster than a cut snake - although at this time the British pound wasn’t greatly affected by the news.
  • However, everything changed in June 2016 when the result of the Brexit referendum was announced - with 51.9% of the UK voting to leave the EU.
  • In the case of GBP/USD - this result led to a decrease in value of this specific pair of over 11%, within a matter of days.

Let us explain why. 

All of this uncertainty caused investors to start dropping like flies, ridding themselves of the British pound - which in turn caused GBP-denominated pairs to lose value. This kind of steep price drop on a ‘major’ pair like this is extraordinary in the forex trading space.

As you can see, all sorts of events can lead to a steep rise or fall in the value of a currency pair. Other events to look out for include; 

  • central bank 
  • interest rates 
  • inflation 
  • government bond yields 
  • war 
  • political unrest 
  • export/import levels
  • GDP growth

If this all sounds a little bit overwhelming, not to worry. There are a plethora of online platforms you can subscribe to, in order to receive live news alerts relevant to the asset you are trading.

Some Australia forex trading firms even offer clients the option of mobile push notifications. This will inform you of increased volatility levels and the current state in general of a specific currency pair.

That’s fundamental analysis in a nutshell. 

As such, you are now aware of how various news and events could potentially affect the value of a forex pair you are trading. As you can imagine, this knowledge can help you in deciding which direction the price of a forex pair might go.

Technical Analysis

Now we are going to talk about technical analysis. Whilst this can take a lot longer to master, it is a crucial factor when it comes to predicting the short-term price shifts of a forex pair.

The technical analysis process comes in the shape of price levels of past and present, technical indicators, and charts which reveal trends in either direction.

Having the ability to even understand the most basic charts is invaluable when it comes to day trading. As you will be closing your FX trades within minutes, or hours at a time. Even in the case of swing traders who may keep a position open for days or weeks - this analysis is very revealing.

Without doing your homework, chances are you are going to look at your first historical price chart with hopeful eyes - and not have the foggiest idea what it means. Some of this knowledge will come naturally as you go along. 

Using demo accounts for example is a great way of learning the ropes when it comes to evaluating price charts. One of the many benefits of using technical analysis is having access to technical indicators. 

There are heaps of indicators which reveal the historical price trends of a pair. This can in turn help you decipher when a pair may be due to change direction. Indicators are also useful for showing whether an asset is in the overbought, or oversold camp, and even support and resistance levels.

Please see below for the 3 most used technical indicators for people trading forex in Australia.

Relative Strength Index (RSI)

rsi indicator, trading forex in Australia

The Relative Strength Index (RSI) will illustrate to you if a pair is moving into overbought or oversold territory. When an asset is considered ‘overbought’, this points towards a downward trend in the near future.

The reason is that the forex pair cannot continue in one direction for too long without a ‘market correction’ being actioned. The same is true for a pair that is ‘oversold’, albeit, resverse. 

Let’s take a look at two quick examples of a pair in overbought, and underbought territory:

Example 1: Overbought

  • The RSI illustrates a number above 70 on EUR/AUD
  • This indicates that EUR/AUD is overbought
  • In this case, you would create a sell order to try and catch the reversal before it happens

Example 2: Underbought

  • The RSI shows a number below 30 on EUR/AUD
  • This shows you that the pair is ‘oversold’
  • With this in mind, you place a buy order to try and catch the reversal before it happens

As you can see, the RSI is a really helpful indicator. However, to get the maximum out of indicators you are going to need to use more than one. This brings us smoothly onto the moving average’ indicator.

Moving Average Indicator (MA)

A moving average indicator is a type of technical analysis tool that is used by millions of forex traders. The indicator provides traders with valuable currency pair information - whilst cutting out the ‘clatter’ of arbitrary and extreme short-term price shifts.

  • A current upward trend is usually indicated by the price action being above the moving average on the chart.
  • As you probably guessed, if the price action is stationed below the moving average - this is suggestive of the pair being in the midst of a downward trend.

The vast majority of traders concentrate on the 50, 100 and 200-day moving average charts. Again, a moving average and RSI aren’t going to provide you with all of the information you need to make an informed decision on your trade.

Fibonacci Retracement Levels

fibonacci retracement levels, trading forex in Australia

This brings us nicely onto Fibonacci retracement levels. This particular type of indicator is useful for drawing between two noteworthy price points - a low and a high. Fibonacci retracement will then generate levels in between those 2 price points.

Put simply, these indicators help us to gain a better understanding of support and resistance levels. Specifically - the ‘support’ level acts as a safety net - in order to stop a forex pair from descending any further. 

And on the other side, there is the ‘resistance’ level - preventing a price from skyrocketing.

These levels are crucial in predicting the short term highs and lows of a currency pair. Although we should point out that FX pairs can break through the aforementioned levels. This acts as a reset button, the pair will then begin a new trend - whether that be up or down.

Ready to dive into the forex market?

Section 3: Australian Forex Trading Strategies 

We think that managing your expectations, as well as your bankroll, can really help you to concentrate on your trading goals. Then there’s the tried and tested strategy of carefully balancing your risk and reward on each position you take.

To help start you off on the right foot when engaging in forex trading in Australia, we have thoughtfully put together a list of key metrics. Call them factors to contemplate when you are thinking up your own forex trading strategy.

Risk / Reward Ratio

Managing a risk/reward ratio is essentially a combination of managing your capital - and your risk of loss. This is particularly useful when day trading. Start by deciding how much you are willing or able to lose from a trade, and then - how much you want to profit from the trade.

As such, this risk vs reward ratio calculates the gap between your entry position and the stop-loss/take-profit orders.

Most Australian forex traders, especially inexperienced ones, utilize a 1:3 risk vs reward ratio. Put simply, this shows that you are comfortable with risking 1% or your trading balance - and want to make gains of 3%.

This is when the aforementioned stop-loss and take-profit orders come into play.

Let’s give you an example of these orders again using the Canadian dollar against the Australian dollar:

  • You are trading CAD/AUD
  • You place a buy order worth AU$1,000
  • In terms of losses - you are not willing to lose more than 1% of your stake
  • For this reason, you place an AU$990 stop-loss order with your broker
  • The price of CAD/AUD falls
  • You broker executes your order at AU$990 - preventing you from losing more than 1%

Now, let’s revisit take-profit orders, continuing with the aforementioned 1:3 risk/reward ratio:

  • Using the same trade on CAD/AUD
  • The buy order is worth AU$1,000
  • Your goal is to make a profit of no less than 3%
  • With that in mind, you place an AU$1,030 take-profit order
  • When the order hits AU$1,030 - your broker locks in your gains by closing the trade

Crucially, the above illustrates once again that by placing both a stop-loss and take-profit order, the trade will be closed automatically. This is irrespective of whether the trade is profitable or results in a loss. 

Day Trading / Swing Trading

To bring your attention back to ‘day trading’ and ‘swing trading’, which granted, we have touched on a few times. Nevertheless, in the name of clarity, we are going to explain both in a little more detail.

In the case of day trading, positions are generally closed before the end of the trading day. The time frame on these positions is usually in the region of minutes, or hours, if that.

Forex traders who partake in day trading are looking to make modest gains, regularly. One way in which investors do this is by entering and exiting multiple positions in one single day - to profit from small price movements in a pair. 

All of these small gains add up if you play your cards right - or rather, time the markets correctly.

If you fancy trading forex in Australia for longer than one day at a time - then swing trading might be more your cup of tea. 

Let us explain further.

Unlike in the case of day trading - swing traders often leave forex positions open for days, or weeks at a time.

For this reason, swing trading can be considered much easier than day trading. Simply because you are not as pressed for time when deciding which order to place. 

If you think about it logically, decisions on which way the price of a pair will go will usually be based on your research. In addition to trend information gathered from technical indicators etc.

To summarize the essence of swing trading - it allows you to keep your position open for more than one day at a time. Thus, giving you more time to do your homework on the market sentiment of the pair and allowing you to ‘stay’ with trends for as long as you feel necessary. 

Read More:

Devising A Profitable Forex Trading Strategy

Forex Scalping: 5 Simple And Profitable Strategies

Automated Forex Research and Trading

Now that we have explained the complexities of fundamental and technical analysis - you may well be scratching your head. 

Fortunately, there are ways in which you can trade currencies in a semi or fully-passive nature. This cuts out the need to spend months or years learning how to understand technical analysis.

Here’s how:

Australian Forex Robots

Forex robots - sometimes called ‘EAs’ (expert advisors) or ‘automated trading bots’ are created using algorithmic software. Tasked with carrying out trades on your behalf using predefined parameters and algorithms.

To clear the mist, forex robots were created to trade automatically - meaning traders can take a back seat. The EA is programmed to operate 24/7 and doesn’t need to learn to read various charts, or even sleep.

You needn't worry about technical analysis either - you're forex bot will be continuously scanning the relevant markets looking for trading prospects.

If passive trading sounds like something you might like to use in your own trading strategy, we do recommend that you proceed with caution. Forex robots are not free. There is a one-off payment for this software - which can range between AU$30 and go into hundreds and thousands of dollars.

Consequently, wherever there is money involved, unfortunately, you will come across an ocean of shifty companies vying for you to hand over your financial details.

Therefore, you won’t be surprised to learn that there are thousands of forex robot providers on the internet. Each one making bold claims of unforetold riches - just from putting your feet up and using their EA software.

Crucially, 9 times out of 10, these claims are totally unfounded! Taking that into account, we recommend conducting some research before signing up - especially before handing over any payment details.

That said, not all forex robot providers are shady. Just do enough research so that you are signing up with your eyes wide open. Bad news travels fast, so if a company has a history of disappointing Australian traders then it won’t take you long to find out.

On a positive note - let’s say you do find a well-respected company who can provide you with a forex bot. You will need to sign up and pay for your EA software. Next, you need to download that software (usually via an email link). You can then upload the forex bot file onto MetaTrader4 (MT4).

For those unaware, MT4 is a crowd-pleaser amongst forex traders in Australia. In essence, this is a third-party trading suite acts as a ‘middle man’ (or platform) between you and your online brokerage. MT4 is also home to hundreds of tools, charts, and helpful features.

Forex Trading Signals

As we said, forex robots are automatic - buying, selling and timing trades so that you don’t have to do a thing.

Trading signals are not quite as passive. Forex trading signals are more like ‘trading tips’ in the form of real-time notifications. In other words, signals inform you of a potential trading opportunity.

When signing up for forex trading signals, either a forex pro or algorithmic software will perform analysis on your chosen asset - so that you don’t have to. Scanning the markets for potentially profitable trading opportunities along the way. 

  • The standard forex trading signal will include whether you should buy or sell the currency pair 
  • A limit order price
  • And finally, a recommended stop-loss and take-profit price.

When you receive these signals (or suggestions) - it is completely your decision whether or not you choose to action the suggested order with your broker. 

As we said with automated robots - do your homework, make sure you are not enticed by bogus claims. Generally speaking, if it seems to be too good to be true - it probably is.

Copy Trading Feature

copy trading, forex trading in Australia

Copy Trading is quite a modern-day phenomenon for the online forex trading world. This feature provides traders with a passive form of income. Irrelevant to whether you are brand new to the forex scene, or just don’t have the kind of time devotion currency trading needs - Copy Trading is getting more and more popular with Australians. 

What exactly is Copy Trading? Well, as the name suggests, Copy Trading allows you to ‘copy; a seasoned currency trader, like-for-like - regardless of your own skill level.

Not all platforms can offer this innovative feature, but one of the go-to brokers for Copy Trading is eToro. The ASIC-regulated platform enables clients to copy a “pro forex trader” for a minimum of $200 (that’s around AU$270).

To assist you in deciding which investor most suits your own forex trading goals, you will have access to historical trading data. You could start by seeing which assets they focus on.

On top of that, you can view their risk rating, what kind of strategies they utilize - and the investors average monthly return. These so-called ‘copied traders’ usually have a multitude of people copying them.

Here’s how it generally works:

  • Select a vetted Copy Trader to ‘copy’ from thousands of pro investors
  • Invest $200 or more
  • Each trade they are involved with will be reflected in your trading portfolio
  • If that person invests 0.8% of their portfolio in EUR/USD, 0.8% of your own portfolio will be invested in the same pair

A great way to diversify your portfolio, and avoid overexposure to one market is to invest in more than one asset class. This can be easily done via the Copy Trader feature. In fact, you can copy up to 100 investors at once. 

Let's say you have US$1,500 in your account - if you wanted to you could afford to copy seven different Copy Trader pros!

Section 4: Educate Yourself on Forex Fees, Profit Margins and Leverage

By now you probably have a good idea about what your own forex trading goals might be, and what strategies and software may or may not work for you.

With that in mind, let’s talk about forex fees, profit margins and leverage. We have covered what fees you might be liable for, depending on your broker - and also some tips on managing your trading funds.

Forex Commissions and Fees to Expect

Although it might sound a bit blunt, a brokerage firm is a business, not a charity. Therefore it’s completely understandable that you are going to have to pay the broker some fees - for providing you with access to the Australian forex markets.

The first fee that springs to mind is commission. This is usually charged as a percentage and will be variable depending on the value of your order. The trading commission is charged both when entering and exiting a position.

Let us give you an example:

  • Your trading platform stipulates a commission fee of 0.4%
  • You place a buy order worth AU$300
  • Your broker charges you AU$1.20
  • Hours later you place a sell order to close the position - as it is now owrth worth AU$420
  • The broker takes 0.4% again - which is AU$1.68
  • This trade cost you AU$2.88

Nobody wants to pay commission to trade forex in Australia. Fortunately, ASIC broker eToro allows you to trade forex in a 100% commission-free manner. The trading platform will instead rake in some money from the previously discussed spread.

Overnight Interest Fees 

Overnight interest fees are otherwise called ‘overnight financing fees’ or ‘swap-fees’ - depending on your broker. 

An overnight financing fee is like interest which is attached to trades left open for longer than a single trading day. Taking into account that a forex ‘lot’ size is generally 100,000 units of the base currency of the pair - not many traders will have AU$100,000 handy.

It is for this reason that many Australian forex traders utilise leverage. Leverage is comparable to credit from your broker - that credit can boost your stake by as much as 500 times. We are going to explain leverage with a practical example shortly.

Ideally, you should be checking the terms and conditions, as well as the fee table of every single broker you consider. As well as available forex pairs, fees could end up being a deciding factor for you.

Calculating Profits and Losses Based on Percentage

If you want to calculate your profits and losses - as you should - then you are better off doing so in percentages.

Let’s have a look at how you might work out your profits and losses using percentages yourself:

Example 1: Going long - You think the price of EUR/AUD will rise

  • You place a buy order of AU$500 on EUR/AUD
  • You have been quoted 1.6742
  • An hour or two later the pair is 3% higher at 1.7244
  • Pleased with your profit - you place a sell order 
  • From your initial stake of AU$500, you made a profit of AU$15
  • Here is your profit calculation on this trade: AU$500 x 3%= AU$15

Example 2: Going short - You think the price of GBP/USD will fall

  • You stake AU$300 on a GBP/USD sell order
  • At present, the value of the pair is 1.3210
  • 2 days later the pair is quoted at 1.2681
  • This shows a 4% decrease in value
  • Pleased with your profit - you place a buy order
  • From your AU$300 stake, you made a profit of AU$12
  • Here is your profit calculation on this trade: AU$300 x 4% = AU$12

Gains of 3% and 4% are great, but you wouldn’t be able to forge a regular income with stakes of this size. This is where leverage comes in.

Enhance Trading Capital With Leverage

We have briefly mentioned leverage, so you have an idea of what it is. Think of it as a temporary loan from the trading platform of your choice.

As we said, some brokers will offer you as much as 1:500 leverage, meaning AU$100 becomes AU$50,000.

The flip side of using this much leverage is - whilst it means you are able to trade with a much bigger amount than you physically have, any losses will be exaggerated too. This can be disastrous for any forex trader - but especially newbies.

In full recognition of this, ASIC recently announced that it will be deploying new leverage limits for retail Australian trader. This will stand at 1:30 on majors, and 1:20 on minors and exotics. 

As such, let’s say you applied a more modest leverage ratio of 1:30. This means that from a stake of AU$500, your new order size would be AU$15,000.

Here is an example of leverage - sticking with the same EUR/AUD scenario example for consistency:

  • Imagine you used 1:30 leverage on your earlier EUR/AUD trade
  • Your stake AU$500 is now AU$15,000
  • You make a profit of 3% on your EUR/AUD position
  • Instead of an AU$15 profit - leverage boosted your gains to AU$450

As we have warned, should the trade not go in your favour this would mean you are AU$450 in the red. This is precisely the reason we strongly recommend utilizing stop-loss orders on every single trade. Crucially, this is a good way to gain control over your potential losses.

Ready to trade forex?

Section 5: Selecting a Great Forex Trading Broker Australia

In order to gain access to the global currency markets and start trading forex in Australia -  you need a good broker.

We have listed a handful of important elements to consider, for when the time comes to go on the search for a good trading platform.

Is the Broker ASIC Approved?

Whilst there is nothing to stop you from signing up with an unregulated broker, we do not advise it. Forex trading comes with a certain amount of risk as it is - without adding to that risk by potentially handing your money over to a shady broker.

The only way to truly know that a trading platform is legit is by selecting one holding a licence from a respected regulatory body. In Australia, this role is reserved for ASIC - who was brought to existence in order to make the financial markets a much safer place.

Enforcing strict rules and regulation, such as ‘client fund segregation’ for one, means that the online brokerage is legally required to keep your trading funds in a separate tier-one bank account to that of the firm’s own money.

Some of the most well known regulatory bodies in the world as listed below. If you see a logo from one of these commissions then you are in safe hands.

  • ASIC - Australian Securities and Investments Commission
  • FCA  - Financial Conduct Authority UK
  • CySEC  - Cyprus Securities and Exchange Commission
  • FDF - Swiss Federal Department of Finance

In the case of ASIC, trading platforms are not permitted to provide a financial service of any kind without first having AU$1 million in the company account. This is just one of the ways in which the highly respected commission sorts the wheat from the chaff.

Brokers must also adhere to rules on KYC (know your customer). This is the process of obtaining photo ID etc to confirm your identity. This is largely to prevent financial crime such as money laundering, fraud, and terrorist financing. 

Are the Fees Competitive?

As we mentioned, fees come in all shapes and sizes, and will vary from broker to broker. Whilst some are commission-free, others charge a variable or fixed fee on each trade - chargeable when entering and exiting a trade.

With this in mind, you should always check out the fees on the trading platform you are considering - before fully committing yourself only to realise the fees are extortionate.

You should be looking into spreads, overnight financing fees, and trading commissions. In addition to the aforementioned fees, we should mention that some brokers charge an ‘inactivity fee’. This fee is chargeable when there has been zero trading account activity, for a pre-specified length of time.

For instance, inactivity fees are usually charged after a whole year without actively trading. The fee can be AU$10 or even AU$30 per month - after 12 months of not touching your account.

Other platforms charge after a few months of inactivity. Always check those terms and conditions.

Which Forex Pairs are Supported?

After reading our ultimate beginners guide to forex trading in Australia, you might fancy trading a specific pair. If that is the case you should always make sure that the broker you are interested in can offer you this market.

As we explained earlier, each broker is different - so don’t expect that every pair will automatically be available for you to trade. Nevertheless, we find that the lion's share of trading platforms offer most major and minor pairs.

If it is exotics you want to trade, then you will most definitely need to search for a broker who offers this particular category of forex pair. After all, emerging currencies like the South African rand are not available at every online brokerage.

What are the Deposit and Withdrawal Options?

Whilst this sounds fairly obvious, in order to start trading forex Australia, you are going to need to transfer some real money into your trading account.

With this in mind you,  if you happen to have a specific payment method you need to use - you should check that the ASIC broker accepts it.

Aside from that, you will usually find that trading platforms accept a variety of payment options. Some platforms these days also support e-wallets such as Skrill and PayPal.

It’s worth noting that although bank transfers are widely used, and considered very safe - that deposit can take up to 3 business days to reach your account. This would obviously delay your trading endeavours. 

Additional Considerations

As well as everything we have detailed throughout this guide, there are a few other things to ask yourself when electing to find a suitable broker.

  • Is this platform easy to navigate/user-friendly?
  • Are there any technical analysis tools available?
  • Does the trading platform offer educational material?
  • Is the broker MT4 compatible?
  • Does the brokerage company have a mobile app?
  • Can I access a Copy Trader feature?
  • Will I have access to a free demo account?

eToro – Best Forex Trading Platform in the UK

Sign up for eToro and start trading forex or copying top traders at no extra charge. There are no management fees or other hidden costs involved.

etoro broker

Forex Trading Australia: The Verdict

By this point in our detailed guide, you should not only have a good understanding of how forex trading in Australia works - but also how to start trading currencies yourself.

We have talked about every important aspect of trading the most liquid market on the planet - inclusive of forex pair categories, leverage, pips and strategies. Not only that but we’ve also given you some helpful pointers when it comes to what to look out for when searching for an Australia forex trading broker.

You are no doubt eager to get started with your currency trading adventures. Let us just reiterate that one of the first things you should ask for in a trading platform - is that it is fully regulated by ASIC, or similar.

This regulation is going to provide you with a safety net. Not only is the broker under strict regulation - but, your funds are kept separate from the company’s own capital. A chunk of your trading funds is also protected by the ASIC compensation scheme, in case the broker becomes bankrupt.

Forex Trading Australia - FAQs

What is forex trading Australia?

Forex trading involves trading two currencies against each other. For instance, the euro against the Australian dollar ‘pair’ would be shown as EUR/AUD. The EUR is the ‘base currency’, and AUD is the ‘counter currency’. If the quoted price on this pair is 1.6152, you must try to correctly speculate the rise or fall in value.

How can I trade forex in Australia?

It is very easy to trade forex in Australia. Sign up to a broker offering a variety of currency markets. Deposit the minimum amount required and choose a pair. Next, predict the rise or fall in value. Finally, place an order for your broker to execute.

Is there a way to tell if a broker is genuine?

Yes. The easiest way to check a broker’s legitimacy is to check it is licenced by a reputable regulatory body, such as ASIC. Not having a licence doesn’t necessarily mean you are dealing with a shady broker. However, you wouldn’t have the same protection such as client fund segregation. Also, ASIC approved brokers must have AU$1 million in the bank to even offer you a financial service.

What is the most stable tradable currency pair?

One of the most stable currency pairs to trade is EUR/USD. Major forex pairs, in general, tend to offer tight spreads and liquidity. Majors also include; GBP/USD, NZD/USD and USD/JPY

Is forex suitable for newbies trading Australia?

Forex is very much suitable for newbies, however, we would recommend trying out a demo account before risking your own trading account funds. Failing that, try trading small amounts on major currency pairs for high liquidity

Top Brokers in
    All Regulated Brokers

    more from Forex Trading Articles...

    How Forex Trading in the US Works Forex trading in the USA has never been more popular. In fact, the foreign currency markets rake in over 6 and a...
    Forex Trading in the USA - Legal status Is Forex trading in the USA legal? Not sure what the legal status is for Forex trading within the US? Or...
    Forex Trading UK Guide How to Begin Trading Forex in the UK Want to dive into forex trading in the UK? FX trading UK guide will cover everything...
    We all want to get rich from forex trading. Read on to find out what you can do to try and make that possible. While millions of people around the...
    Wondering if forex is worth investing in? We reveal the answer Is It Really Worth Becoming a Forex Trader? “Is it really worth becoming a...