Forex Trading Down Under – What You Need to Know

The forex market is one of the biggest and most liquid entities of its type anywhere in the world, with a total daily trading volume of $6.6 trillion. Incredibly, the market’s total value is estimated at a staggering $1.934 quadrillion, while this is the only financial market that’s accessible 24 hours a day.

The Australian Dollar (AUD) is one of the eight major currencies traded in the forex market. These assets comprise the world’s seven major currency pairs (which pit entities like the AUD against the US Dollar), with these pairings accounting for 68% of all daily trades.

If you want to trade forex in Australia, however, you should note that the rules and guidelines vary from one jurisdiction to another. So, what do you need to know about forex trading down under, and how can you get started?

What Are the Key Considerations When Trading FX in Australia?

Let’s start by looking at the key considerations pertaining to trading forex in Australia, including some of the main questions that you’re likely to have as an interested investor.

• #1. Is Forex Trading Legal Down Under? While forex trading has a questionable reputation in some jurisdictions, it’s fully legal and regulated in Australia. In fact, Australia boasts a strict regulatory framework, which is overseen and managed by the Australian Securities & Investment Commission (ASIC). However, this regulatory setup is also incredibly market-friendly, which encourages investment from across the globe and drives collaboration with similar regulators like the FCA in the UK.

• #2. Who Controls the AUD and is FX Trading Taxed? All major currencies are controlled by the relevant central bank, which in the case of the AUD is the Reserve Bank of Australia. Historically, this has maintained inflated rates of interest to help support robust currency values. You should also note that FX trading in Australia is a legal source of taxable revenue, and it’s your responsibility to understand your precise liabilities as a trader.

• #3. What Are the Australian Trading Times? According to Australian Eastern Standard Time, the Sydney Exchange opens at 7.00am, before closing at 4pm. Tokyo, which also handles Asia-Pacific trades and currencies, is open from 9.00am and 3.00pm, with these periods most likely to optimize liquidity for the AUD and similar currencies. Of course, the market is also accessible 24 hours between Sunday and Friday across three geographical trading sessions, so there’s ample opportunity to trade whenever and wherever you are in the world.

How to Trade Forex in Australia

Now that you understand the legality of forex in Australia, its regulatory framework and the main trading windows, the question that remains is how can you trade international currencies safely and successfully and launch your brand-new career? Here’s a brief guide to help you on your way!

#1. Choose Your Currency Pairs and Investment Vehicle

Forex is essentially a speculative market, through which you can buy or sell currencies in dedicated pairs. Popular pairings include the AUD/USD and AUD/CHF, the latter of which is heavily influenced by the robust trade relationship between Australia and China.

It’s crucial that you start small by selecting one or two currency pairs that you intend to trade, focusing on those that reflect your knowledge base or understanding. As an Aussie investor, this may include the pairs referenced above or alternatives such as the AUD/NZD, while the AUD/JPY and highly liquid EUR/USD also provide viable options.

Of course, you can scale your efforts and diversify your currency portfolio organically over time, but it’s important to start small and manage your expectations from the outset.

At the same time, we’d recommend choosing a preferred investment vehicle for trading forex. For example, both spread betting and CFDs (contracts for difference) offer value to investors, although there are subtle differences in terms of accessibility, taxation and functionality that need to be considered.

#2. Understand Leverage and Use This Wisely

The forex market is underpinned by the relationship between margin and leverage, which plays a key role in modern-day currency trading. 

While margin describes your deposit or the amount of money required to open a position, for example, leverage refers to the multiple of exposure to account equity. For example, your margin may unlock leverage of up to 100% or 200% with some reputable brokers, enabling you to open and control positions that are disproportionate to your capital holdings.

While this can unlock significant and inflated returns, however, it may also see you incur devastating losses that are considerably more than you can afford.

So, we’d recommend controlling your leverage and exposure to risk, as you opt to keep this relatively low initially before potentially scaling this in line with increased profitability and as you gain experience in the marketplace.

#3. Be Patient in Your Pursuit of Success

It’s argued that the typical duration for study and achieving success in the forex market is between two and five years, as you’ll need to build knowledge and understanding of the sector while also cultivating a keen sense of determinism over time.

This also enables you to understand the underlying laws that govern change in the forex market, which encourages you to remain patient and disciplined in the pursuit of success and manage your risk responsibility over time.

Another key aspect of preparation is using a broker’s demo account, which can usually be accessed for a period of up to six months and affords you access to a simulated, real-time marketplace in which you can back-test and hone your FX trading strategies.

You can do this without risking your hard-earned capital too, while demo account usage plays a key role in cultivating successful FX trading traits and bridges the often cavernous gap between theoretical knowledge and practical market experience.

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