Are you a beginner in Forex trading Australia? Then you need all the information you can get in order to become the expert you have always dreamt of becoming. The information on this website is put together to enable you to get started in Forex trading on a right footing. Check below for all the basic details that can build you into a guru in Australian Forex trading with time.
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What is Forex trading?
Forex is an acronym for foreign exchange. You can also refer to it as FX. Forex trading has to do with the buying and selling of currencies. Currency trading in Forex trading Australia and elsewhere occurs in pairs. The Forex market is accessible globally. It is the largest financial market in the world today. Additionally, it is the most liquid market.
Good examples of currency pairs are:
- EUR/JPY, which represents euro against Japanese yen
- AUD/USD, which stands for Australian dollars against US dollars
- GBP/USD, which stands for Great Britain Pounds against US Dollars.
You will need to learn continually if you are to be profitable in Forex trading.
Currency pairs – How They Work in Online Forex Trading
A currency pair refers to the combination of the base and quote currencies. You can also call the quote currency the counter currency. Currency pair makes it possible for brokers to display currencies and also compare their prices against each other. You will find currency pairs presented as two currencies in abbreviated forms just like the examples we gave above.
- In EUR/JPY, the euro is the base currency and the Japanese yen is the quote or counter currency.
- In EUR/USD, the euro is the base currency while USD is the quote or counter currency
- In AUD/USD, Australian dollars is the base currency, while the US dollar is the counter currency.
What does a major currency pair mean?
The major currency pairs are the most traded in the world. You will encounter them frequently during your adventure in Forex trading Australia. They are called major currency pairs for this reason. One characteristic of the major currency pairs is that they all contain the UD Dollars (USD). This is to say that any currency pair that does not have the USD either as a base or quote currency is not a major currency pair.
Aside from the USD, some other popularly traded currencies are:
- British pound sterling
- Canadian dollars
- Swiss franc
- Japanese yen
- Australian dollar
- New Zealand dollars.
Good examples of major currency pairs are:
What are minor pairs?
As we have hinted already above, a minor currency pair does not contain the United States dollars as one of its constituents. You can also call the pairs cross-currency pairs. Or you can call them crosses. There are so many cross currencies in the Forex trading Australia, but the most traded among them are derived from the following currencies:
- Japanese yen
- British pound sterling
Examples of the minor currency pairs are:
The minor currency pairs play a very important role in Forex trading, but they are not as commonly traded as the minor ones.
FX Trading Pip
A pip is an abbreviation for percentage in points. This term is popular in the Forex market and it stands for the smallest increment move that an exchange rate can make in the Forex market. This is to say that price action or price movement is always calculated in pips.
If the initial rate of a currency pair is 1.2501 and the pair moves to 1.2511, it means that the pair has moved by 1 pip. We can get the pip value by subtracting the two values above from each other. When carrying out the subtraction, we ignore the numbers before the decimal point and only consider the numbers after the decimal point. So, subtracting 1.2501 from 1.2511 will give us 1 pip.
Lot and Securities Trading
The lot size of your trader contributes a great deal to how much profit or loss you can make per trade. Forex trading Australia occurs in specific amounts called lots. Lot is the number of units of a currency that you want to trade. There are different categories of lots and they are highlighted below:
- The standard lot size is 100,000 units of that currency in question.
- The mini lot size is 10,000 units of the currency
- The micro lot size is 1,000 units of the currency
- The nano lot size is the 100 unit of the currency
The Bid Price in Stock Market
The bid price can be defined as the price that a buyer desires to pay to purchase a currency pair. The bid price stands for demand. We can also define it as the price the buyer wants to buy the base currency from the seller in exchange for the quote currency. You can also refer to the bid price in Forex trading as the maximum exchange rate a trader wants to pay for a currency pair.
Buyers in Forex trading are always looking for a way to pay the lowest possible price and this stands for the lowest bid price.
The Ask Price in Stock Market
The ask price can be defined as the price a seller can accept for a currency pair. You can also call the ask price a selling price. Another name for the ask price is the offer price. It is also the lowest price at which the trader or dealer in Forex wants to sell the base currency as against the quote currency. The dealer usually considers the bid price of the particular currency and uses that information to determine the ask price. There will only be a finalized deal if the dealer can find a trader that is ready to pay the ask price. Dealers usually set the ask price high since they want to maximize profit.
Pip Spread Forex
Subtracting the bid and ask prices from each other will give you the spread. To refresh our memories, the bid price is the price a buyer is willing to pay for the base currency in a pair, while the ask price is the price the seller is willing to accept for that currency. In Forex trading Australia, the spread decreases as the liquidity increases, especially on EUR/USD.
Let us take AUD/USD for example. If the bid price on the base currency is 110.00 and the ask price is 111.02, then the spread can be obtained by subtracting the two prices from each other. The spreads differ from one currency pair to another. The spread is usually lower in currency pairs that are traded more frequently. On the other hand, the spread is usually wider in pairs that are less actively traded.
What is an uptick?
An uptick is a new price quote that is higher than the previous quote. You can define it as the increase in the price of an asset or currency pairs since the last transaction. An uptick can come up when the price of a currency pair increases as against the last trade or tick. You can also refer to an uptick as a plus tick.
The uptick rule came up originally in 1938 and it remained in place until 2007. It indicates that a short sale was only possible on an uptick. A new alternative rule came up in 2010 about uptick. This new rule orders short-sellers to trade only on an uptick provided the security reduces in price by up to 10% within a day.
What is a downtick?
A downtick is the new price quote that is lower than the previous quote. A downtick occurs in Forex trading when the price of a currency pair goes down as against the last trade. A tick can be the measure of price movement upward or downward. In the case of a downtick, it is the measure downward of a price of the price of a security. An uptick is a transaction marked by a rise in price and this differentiates it from a downtick. The minimum size of a tick in Forex trading above $1 is $0.01. There is no short-selling of more than 10% in downtick.
Slippage in Forex trading Australia occurs when the trader is unable to enter the market at the price he desires but ends up entering at a further price. This is usually due to very high volatility in the market. This can negatively affect the trading plan and can also culminate in a loss.
Slippage stands for the difference between the actual fill price and the expected fill price. Slippage can be categorized into two:
- Positive slippage: It occurs if the actual fill price is far better than the value of the expected fill price.
- Negative slippage: It occurs if the expected fill price is better than the actual fill price.
Studies show that negative slippage occurs mostly in highly volatile markets. This is usually the situation during economic events or news releases. So, that trading news needs to bear this in mind and tread cautiously.
Long Position Forex
In Forex trading a long position means a buy position. Buying a currency pair is synonymous with buying the base currency of the pair. If you go long on EUR/USD, then we can say that you are buying EUR. At the same time, you are selling USD. Traders go long when they speculate that the price value of that particular asset will increase or when they forecast that there will be a bullish movement in the market.
Some other definitions of a long position are:
- A call option
- Buying position
You will be in profit if the price actually moves according to your prescription.
Short Position Forex
In Forex trading Australia, a short position occurs when you open a sell trade on a Forex pair. When you open a sell trade, it automatically means that you are selling the base currency and buying the quote currency. If you sell the AUD/USD, for example, it means that you are selling the AUD and buying the USD. A trader that enters a short position expects that the price of the currency pair will reduce or go down in the future. When determining if the value of the asset will go down, a trader will have to bear the following in mind:
- The current trend if the currency pair
- The size of the pair
- The peculiar characteristics of the currency pair
- The fundamentals that can affect the currency pair around that period
Bearish and Bullish Markets – Price Movements
Bullish means that the value of that asset will rise. If the trader concludes that the asset will be bullish, he will favor a long position. You can open a buy position if you think that the value of the asset will go up. However, you need to carry out adequate analysis to determine if the future value of the asset will be bullish or not. Some of the important analyses that can help you to make up your mind about the possible bullish movement of the market in Australia Forex trading are:
- Technical analysis
- Fundamental analysis
Examples of things to consider in technical analysis are:
- The current trend of the asset
- the prevailing candlestick formations
- signals from technical indicators a
Bearish movement is the downward movement of the currency pair. This is the case when the outlook of the trader on the asset is negative. This indicates that the price of that asset will fall. A trader goes bullish if he feels that a currency pair will weaken.
Before you conclude that the currency pair will go bearish, you also need to carry out adequate analysis, which can either be technical or fundamental. Some traders combine both technical and fundamental analysis to make trading decisions; it all depends on what works best for you.
Margin Trading in Australia
In Forex trading Australia, a margin stands for the collateral you will require to open and also maintain a trading position. Your broker will ask you to deposit money into your margin account before you can start trading Forex. The margin varies from one broker to another. It all depends on the percentage needed to buy the broker to enable you to trade a position with leverage.
Bear in mind that margin is never a transaction cost. It is rather a security deposit to be held by the broker during the moment that your trading position is open. You will be able to increase your exposure if you trade Forex on margin.
Leverage is a concept in Forex trading that allows the trader to open a large trading position with a very small amount of money. With the aid of leverage, you can easily control a large amount of money with a very little amount of money in your trading account. The only money you will contribute to such a trade is your meager account balance and the broker will borrow you the rest.
Since the use of leverage makes it possible for the trader to open a large position, it means that leverage can enable the trader to make more profit from Forex trading. Bear in mind, however, that leverage is a two-edged sword. This means that it can bring you a huge profit or a huge loss. So, you must use leverage in Forex trading Australia with utmost care.
The highest leverage possible in Australia is 500:1. There will, however, be changes to this by March 29th, 2021.
Important Things look for when choosing a forex trading Website in Australia
You should consider the following point when searching for a reliable Forex broker in Australia:
- Check for regulation: A regulated broker is a reliable broker. Such a broker will not steal your fund or do anything detrimental to your trading experience. It is better to register with a broker regulated by the Australian Securities and Investment Commission (ASIC). This will allow you to trade Forex securely.
- Ease of deposit and withdrawal: You should also find out how easy it is to deposit or withdraw your funds from a Forex broker before you register there. The available deposit and withdrawal methods vary from one broker to another. The withdrawal or deposit should not take more than just a few seconds or minutes of your time at all.
- Quality of customer service: You should never register on that trading platform if the customer service is of poor quality. Check if it is easy to connect with the customer care agents or not. Some brokers even offer live chat to enable their customers to communicate quickly and easily.
Can I make quick money from Forex trading?
You should not go into Forex trading with this kind of mindset. If you do, you will lose your account very fast. Australian Forex trading should never be seen as a get-rich-quick scheme. You will have to be patient if you are to make a regular profit from Forex trading. Some experienced traders declare that Forex trading is 90% waiting and 10% trading. This should tell you that you need a lot of patience to be able to trade Forex profitably.
There is also no 100%-correct Forex trading strategy. This means that you just cannot do without losses in Forex trading. If you come with the mindset of making millions of dollars under 24 hours from Forex trading, such inevitable losses can wipe out your entire trading account.
Forex Trading Australia FAQs
What is the regulatory agency in Australia?
The name of the regulatory agency in Forex trading Australia is the Australian Securities and Investment Commission (ASIC).
How can I find a good broker in Australia?
You will need to read reviews about the brokers and make your choice based on what the reviews say.
Does ASIC regulation make a Forex broker reliable?
Yes, it does. ASIC regulation of a broker in Australia means that nothing will go wrong with your funds.
Is it safe to accept the bonuses provided by brokers?
Before you accept the bonuses offered by a broker for Forex trading Australia, first read the terms and conditions that surround the bonuses offered by the brokers.
What is the minimum deposit I will need to start trading Forex?
The answer depends on the particular broker you register with. Some brokers can demand a minimum of AUD 1000 and there are brokers that will accept about AUD 50 or even a lower amount as a minimum deposit.
Do I need to test my strategy on a demo account before I go into live trading?
If you want to trade Forex using your own strategy, demo trading is a must for you. It will enable you to determine the reliability of your strategy and also help you to modify the strategy for better performance.
Which is better between technical analysis and fundamental analysis?
The two of them have their advantages and disadvantages. Your choice depends on the type of trader that you are. Some traders even combine the two strategies.
How long do I need for knowledge acquisition before you can start trading Forex?
It depends on how fast you can assimilate all you need to know about Forex trading Australia and the effectiveness of your strategy. Some experts think it is right to demo-trade for a couple of months before you go into live trading.