How to trade foreign currency in australia
Foreign exchange FX or forex trading is when you buy and sell foreign currencies to try to make a profit. This webpage how to trade foreign currency in australia the risks of this strategy. Before you put your money on the line, you should find out how forex markets and trading works, do extensive research and consider getting professional financial advice. Foreign exchange trading is when how to trade foreign currency in australia attempt to generate a profit by speculating on the value of one currency compared to another.
Foreign currencies can be traded because the value of a currency will fluctuate, or its exchange rate value will change, when compared to other currencies. FX trading is normally conducted through 'margin trading', where a small collateral deposit worth a percentage of a total trade's value, is required to trade.
Foreign exchange trading is complex and risky. Even the most skilled and experienced traders have difficulty predicting movements in currencies. Trading in international currencies requires a huge amount of knowledge, research and monitoring.
Most FX trading products are highly leveraged. This means you only have to pay a fraction for example, 0. He paid a 0. If John had not closed out this trade and the value of the AUD against USD continued to fall, he how to trade foreign currency in australia have had to meet a margin call and lose many times his original investment.
If John had arranged a guaranteed stop loss order with his provider, this would have cost him a fee. The guaranteed stop loss order would have closed him out of the trade at a certain price to prevent further losses if the market moved against him. This may have capped his losses but would not have covered them entirely. Forex trading raises the stakes further by letting you trade with borrowed money leveragebut you'll be responsible for all losses, which may exceed your initial investment.
Margin FX trading is one of the riskiest investments you can make. Different types of foreign exchange trading products involve different risks so you should read the product disclosure statement carefully before investing. You should also check that the forex provider you are thinking of dealing with has an Australian Financial Services Licence. Find out what an AFS Licence means. If the provider does not have an AFS licence, make sure it is regulated by an appropriate overseas authority trading with these providers may not give you recourse to Australian laws.
See check an investment company or scheme for more details. Read ASIC media release warning about a fake forex website. To successfully trade you will need to how to trade foreign currency in australia good knowledge of foreign exchange, leverage, volatility and the conditions of each country whose currency you are trading. You will also need to predict how these conditions affect the relative value of those currencies.
This is extremely difficult as so many factors come into play, including politics, economics and market confidence, and these are unexpected, random events. There are also many software programs available for this type of trading. They may claim their programs can let you know when to make trades.
Remember that no person or program can ever accurately predict movements in foreign currencies. Be wary of companies that say if you use a particular product you will get access to better exchange rates or easy money.
They may let you trial their trading platform for free at first, but this is usually just a teaser for you how to trade foreign currency in australia buy the software or platform. You should also do your own research and consider getting separate financial advice from a licensed adviser. Foreign exchange trading is very risky even if you have years of skill and experience in this type of trading. You will need plenty of spare money if you have to cover a margin call. What is forex trading?
Risks of foreign exchange trading Dealing with FX providers Is forex trading right for you? Warning Foreign exchange trading is complex and risky. Warning Forex trading raises the stakes further by letting you trade with borrowed money leveragebut you'll be responsible for all losses, which may exceed your initial investment. Quick links Unclaimed money Publications Financial advisers register Financial counselling Payday loans Unlicensed companies list Report a scam How to complain Other languages eNewsletter.
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Updated February 17, Here in Australia — and around the world — foreign exchange firms are selling the dream of instant riches. But for hundreds of Australia's 51, mum and dad retail forex traders, that dream has turned into a nightmare.
The ABC can reveal how to trade foreign currency in australia more than retail foreign exchange traders in Australia — often small investors who dabble in the forex market in their spare time — have suffered massive losses on their trading accounts. On January 15, the Swiss National Bank sent foreign exchange markets into a spin when it unexpectedly removed a cap on its exchange rate.
The cap was in place to stop the Swiss franc appreciating too much. The franc was seen as a safe haven, and an overvalued currency would make its domestic economy uncompetitive, and hamper economic growth. When the cap was unexpectedly removed, the franc appreciated by 30 per cent in an instant against the euro, and foreign currency traders holding the franc made windfall gains.
But those on the other side of the transaction were left scrambling to cover their losses and, in the case of some of the world's biggest foreign exchange trading firms, exposed to hundreds of millions of dollars in losses. FXCM's clients accept that they were liable to lose the capital they had contributed to their foreign exchange trading accounts. However, they argue that FXCM had a widely-advertised policy of "no negative or debit balances", and its poor risk management led to losses spiralling out of control.
It is FXCM's policy to credit retail trading accounts to a zero balance when debit balances occur as a result of trading. One of the greatest concerns traders have about leverage is that a sizable loss could result in owing money to their broker. At FXCM, your maximum risk of loss is limited by the amount in your account. All accounts are tracked by our "Margin Watcher" feature.
With the Margin Watcher feature, if account equity falls below margin requirements, the FXCM Trading Station will trigger an order to close all open positions. FXCM's aggrieved Australian clients argue that other brokers navigated the Swiss franc shock in much better shape than FXCM how to trade foreign currency in australia they had better risk management practices in place, and their clients' accounts were how to trade foreign currency in australia out quickly before losses spiralled out of control.
Because currencies tend to move in small increments, foreign exchange traders use leverage, or borrowing, to accentuate their profits. However, with leverage comes the risk of greater losses when currencies move against the trader.
FXCM has confirmed that of its 16, Australian clients had a negative balance as a result of the Swiss franc event. The company said it has notified 10 clients that their negative balances need to be repaid. In the wake of the global financial crisis, the United States put a handbrake on the retail foreign exchange industry, limiting it to a maximum leverage ratio of The Australian Securities and Investments Commission says the question of greater controls is one for Government, but it has repeatedly warned consumers that leveraged foreign exchange trading is a risky product.
However, victims of the Swiss franc meltdown argue that ASIC should have policed the industry more thoroughly. Because this time it happened in how to trade foreign currency in australia currency space, but who knows what is the next time bomb?
First posted February 12, If you have inside knowledge of a topic in the news, contact the ABC. ABC teams share the story behind the story and insights into the making of digital, TV and radio content. Read about our editorial guiding principles and the enforceable standard our journalists follow.
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Australian retail foreign exchange traders lost millions due to the Swiss franc's sudden appreciation last month. Do you how to trade foreign currency in australia more about this story? We want to hear about your experiences with aged care in Australia.
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