Forex Trading Australia for Beginners

Forex Trading is regulated and legal in Australia. If you are looking to trade forex then it is important to understand the risks & only trade via ASIC regulated brokers. We explain everything in this guide.

Editorial Team

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You can trade forex via forex brokers that are licensed with ASIC

Summary Table of Best Forex Brokers for Beginner traders in Australia in 2022

Broker Name Highlights Trading Fees (EUR/USD Avg Spread) Account Minimum Max. Leverage Learn More

Pepperstone Australia

Pepperstone

Pepperstone Group Limited is regulated with ASIC with AFSL number 414530

Commissions
0.77 pips

with Standard Account

Account Minimum
0
Max. Leverage
1:30 for Forex
Open Account

on Pepperstone

IC Markets Australia

IC Markets

International Capital Markets Pty Ltd is regulated with ASIC with AFSL number 335692

Commissions
0.6 pips

with Standard Account

Account Minimum
A$200
Max. Leverage
1:30 for Forex
Open Account

on IC MArkets

FP Markets logo

FP Markets

First Prudential Markets Pty Ltd is regulated with ASIC with AFSL number 286354

Commissions
1.3 pips

with Standard Account

Account Minimum
A$100
Max. Leverage
1:30 for Forex
Open Account

on FP Markets

eToro Australia

eToro

eToro Aus Capital Ltd is regulated with ASIC with AFSL number 491139

Commissions
1.1 pips

with Standard Account

Account Minimum
$50
Max. Leverage
1:30 for Forex
Open Account

on eToro

IG Markets logo

IG Markets

IG Markets Limited is regulated with ASIC with AFSL number 220440

Commissions
1 pips

with Standard Account

Account Minimum
A$450
Max. Leverage
1:30 for Forex
Open Account

on IG Markets

Plus500 logo

Plus500

Plus500AU Pty Ltd is regulated with ASIC with AFSL number 417727

Commissions
0.8 pips

with Standard Account

Account Minimum
$100
Max. Leverage
1:30 for Forex
Open Account

on Plus500

Chapter #1

What is Forex Market?

Foreign exchange market is a global marketplace where currencies are exchanged at different prevailing rates. International or offshore sales and purchases cannot be conducted without exchanging different currencies.

  • To get a fair value off the trade, the exchange of one currency in return for another is done according to a conversion rate.
  • The conversion rate of each currency pair is different and can be affected by numerous economic, geo-political, and other factors.
  • By analyzing the markets, traders can predict the price movement of currency pairs and place buy or sell orders on them with leverage, called margin trading.
  • Although, it is important to note that this is a high-risk market for Retail traders, and a majority of the beginners face losses in their initial phase of forex trading.

The Forex market involves various currency pairs that are divided into major, minor, and exotic pairs. EUR/USD is the most traded currency pair in the global forex market followed by GBP/USD. Any trading position on currency pair means the trader is buying or selling one currency in return for the other.

Let’s take an example, a buy order on AUD/USD means buying AUD and selling USD at the same time.

In simple terms, by opening a buy position on AUD/USD, the trader is buying AUD by paying USD in return.

In this case, the trader will earn a profit if AUD gains in value against USD or USD loses its value in terms of AUD. If a position is closed, the AUD will be sold back at the prevailing conversion rate of AUD/USD and the trader will receive the converted USD in return.

Forex is the largest capital market in terms of the daily trading volume. Unlike stock markets, the forex market is active throughout the day. The liquidity on the traded currency pair depends on the time zone in the local jurisdiction of concerning currencies.

For example, when the liquidity on USD/CAD is high, it will not be the same on AUD/JPY due to different time zones.

Lower liquidity means a lesser trading activity on the concerned pair and the difference between buy and sell rates (spreads) will increase dramatically during this period.

Forex Trading can also be done by exchanging physical currencies. However, through derivatives like futures contracts and CFDs, forex trading has become more accessible for retail traders. But at the same point, it is risky for retail traders.

CFDs on Forex do not involve physical buying and selling of currencies but the price difference is paid out or debited from the traders.

In Australia, several financial services providers offer Forex Trading on leverage.
Leverage allows traders to open bigger positions with smaller deposits. The risk factor increases with the increase in leverage.

Apart from market risk, there is also a counterparty risk or third-party risk of choosing a fake broker. To mitigate this risk, Australian traders must always choose a broker that is licensed/authorized by the Australian Securities and Exchange Commission (ASIC), which can be verified from the ASIC Connect’s Public Register.

Chapter #2

What is Forex Trading?

Frequent buying and selling in the forex market in short tenure are called forex trading. The forex trader tries to make profits out of price movements of currency pairs. Most of the online forex trading is done via CFDs.

Losses are incurred if the price moves against the anticipation. Leverage makes forex trading riskier but also more profitable as it allows opening bigger positions with a smaller account balance.

There are several terminologies associated with forex trading. Acknowledging these terms is important to understand the working of forex trading.

1) Currency Pair: Forex trading is done on currency pairs in which two currencies are involved separated by ‘/’. The currency above or before the / is called base currency that is bought or sold in opening a position. The currency after or below the / is called quote currency that is used to buy and sell the base currency. For example, AUD/USD is a currency pair in which AUD is the base currency and USD is a quote currency.

2) Bid Price: Each time you see the price of a currency pair, there will be two prices. The price that the dealer is willing to pay if you sell the currency pair is called the bid price. The bid price is lower than the ask price and is generally mentioned before the ask price.

3) Ask Price: The ask price is the price that you will pay or the price dealer is willing to accept if you buy the base currency. The ask price or buy price is slightly higher than the bid price. For example, the price of AUD/USD will be denoted as 0.7287/ 0.7291. In this example 0.7287 is the bid price in USD at which the dealer is willing to sell 1 unit of AUD. 0.7291 is the ask price in USD at which the dealer will buy 1 unit of AUD.

4) Spread: In the above example, you can see the slight difference in the bid and ask price of the currency pair. This difference between the bid and ask price is called the spread. It is a type of fee that is paid to the dealer for creating and accommodating the market. Higher spreads mean more earnings for the dealer and lesser gains for the trader and vice versa. If the spread is 0, the bid and ask prices are equal. The spreads are generally denoted as the fourth decimal point in a currency pair. If AUD/USD is trading at 0.7287/ 0.7291, the spread is 0.0040 or 40 pips.

5) Pips: Pip or percentage in points is the smallest unit at which the prices of a currency pair can fluctuate. Most of the currency pairs fluctuate by four decimal places as the smallest change. If AUD/USD is trading at 0.7287/ 0.7291, then the smallest movement possible will be 0.0001 or 1 pip.

6) Lots: Forex trading is done in fixed lot sizes. A standard lot of a currency pair involves 1,00,000 units of the base currency. Generally, the minimum lot size that can be traded is 0.01 lot or 1000 units of the base currency. 1000 units of the base currency are also called a micro lot.

7) Leverage: Forex trading is commonly done with leverage. Since there is a very small price movement, leverage plays an important role to book higher profits with smaller deposits. Leverage is the fund borrowed from the dealer to open any position in forex trading. If a broker offers a leverage ratio of 1:100 on forex, it means that 99% of the amount in the opened position is leveraged or loaned from the broker. Bigger positions can be opened with leverage with a smaller deposit amount. Excessive leverage increases the risk factor as losses are to be covered by the trader.

8) Margin: It is the amount that the trader is required to pay to open a certain position in forex trading. Suppose if 1:100 is the leverage ratio then 1% of the overall cost of the position has to be paid by the trader initially. Any opened position in forex trading is worth margin amount + leverage amount.

9) Buy/Sell Order: Each currency pair can either be bought or sold. If a trader has placed a buy order, he would want the price of base currency to increase and the quote currency to decrease. This is commonly called a long position in forex trading. In a short position, the trader has sold the base currency and will gain if the price of the base currency decreases. Going long as well as short is quite convenient in forex and CFD trading compared to other asset classes.

10) Stop Loss/Take Profit: These are the type of limit orders which can greatly assist in forex and CFD trading. The stop loss feature allows traders to limit losses or protect their profits. The take-profit features allow traders to automatically take the profits if a target is achieved. If the set stops loss or take profit target price is triggered, the position is closed automatically. Stop loss and take profits can be set while placing the order and can also be placed or modified after opening the position.

11) Support and Resistance: Support and resistance are quite popular indicators in technical analysis. The support and resistance are the specific prices of a financial instrument that are likely to reverse the course of price trends. Support is the lower point or bottom while resistance is the upper level or ceiling. Falling prices are likely to halt or increase after reaching the support level. Rising pricing will stop moving upward after reaching the resistance.

Market Trading Terms

Some terminologies are based on market activities and traders must acknowledge these to understand price movements in the forex market.

1. Bull Market

Bullish trend or bullish market is a commonly used term in financial markets to denote appreciation in the price of the asset. For example, a continuous rise in prices of a commodity or stock for a prolonged period will be called a bullish trend.

In a forex pair, a bullish trend can be due to appreciation as well as the depreciation of one currency with respect to other. For example, a bullish trend in EUR/USD currency pair represents an appreciation of EUR and/or depreciation of USD.

2. Bear Market

A bearish trend or bearish market is exactly the opposite of a bullish trend. Continuous depreciation in the price of an asset is commonly denoted as a bearish trend.

In the forex market, appreciation of quote currency and/or depreciation of base currency can be called a bearish trend on a currency pair.

3. GDP

GDP or Gross Domestic Product is the total value of all the goods and services produced in a country in a particular time period. It is a popular indicator that represents the overall health of a nation’s economy.

Growth in GDP can be compared with other nations to predict the increase or decrease in the price of a currency pair. For example, in a hypothetical currency pair ABC/XYZ, the GDP of the country with ABC currency increases more than the GDP of XYZ nation. This means ABC is growing faster than XYZ and the price of ABC in terms of XYZ is very likely to increase.

4. Inflation

Inflation means a rise in prices in a nation over a time period. There are multiple factors in an economy that can increase or reduce inflation. Each country has different inflation rates at a particular time interval.

Inflation rates of two currencies involved in a currency pair can be compared to predict the price movement of a currency pair. The country with a higher rate of inflation will lose its value against the one that has a lower inflation rate.

5. Interest Rates

The interest rate of a country that is also known as the repo rate is the basic rate at which the central bank will provide loans in a particular nation to commercial banks. Interest rates also depict the rate at which investors can earn through fixed deposits in the country.

Interest rates are decided by the central bank or the monetary authority of a nation. Interest rates can be comprehended to predict the price movements in a currency pair.

Forex trading can best be learned with experience. It is a high-risk market and traders must use demo trading where they can gain experience with virtual currencies. It is a high-risk capital market and is not ideal for every type of trader. One must check the suitability, objective, and risk elements thoroughly before entering the forex market.

Chapter #3

Understanding Forex Trading with an Example

Understanding forex trading can be complex for those who have never traded on any financial instrument online in the past. Those who have a slight experience of trading other capital markets like stocks, cryptocurrencies, or CFDs would be very comfortable with forex trading.

Let us understand the complete process and working methodology of forex market with the help of an example.

Online forex trading is done through trading platform which is a software that can be downloaded on electronic devices. The trading platform connects the traders to brokers, liquidity providers, and other forex traders.

Traders place buy or sell orders through trading platforms on their preferred trading instruments. The exposure and profit/loss depends on the volume traded and leverage involved.

A leverage of 1:10 will allow you to open a position worth $100 exposure with $10 in your trading account.

In this example, we will take the leverage of 1:10 on EUR/USD currency pair. The supposed market price for EUR/USD is 1.2100/1.2102. This means that the bid price is 1.2100 (the price that the dealer is willing to pay) and the ask price is 1.2102 (the price at which the dealer is willing to buy) and the spread is 2 pips (difference between the bid and ask price at 4th decimal).

First, we will place a buy order for 1 standard lot (100,000 units of the base currency). To place a buy order of 1 standard lot on EUR/USD, the following will be the calculation of the required account balance.

$1.2102 * 100,000 * 1/10 = $12,102
(ask price) * (units of base currency) * (leverage ratio) = (minimum account balance required to open the given position)

Now suppose the price of EUR/USD went up by 100 pips and reaches 1.2200/1.2202. By closing the buy position at this price, the following will be the profit.

(1.2200 * 100,000 * 1/10) – $12,102 = $12,200 – $12,102 = $98
(bid price * units of base currency * leverage ratio) – (exposure) = Profit/Loss

Now let us understand the same scenario with a short position on EUR/USD with 1 standard lot at the current market price of 1.2100/1.2102. Following will be the exposure amount in a short position.

$1.2100 * 100,000 * 1/10 = $12,100
(bid price) * (units of base currency) * (leverage ratio) = (minimum account balance required to open the given position)

Now suppose the price of EUR/USD went down by 150 pips and reaches 1.1950/1.1952. By closing the position at this position, the following will be the profit.

$12,100 – $(1.1952 * 100,000 * 1/10) = $12,100 – $11,952 = $148
exposure – (ask price * units of base currency * leverage ratio) = profit

It must be noted the exposure amount ($12,102 in the long position example and $12,100 in the short position example) will be at risk of capital markets. If the leverage is high, the profit/loss amount will move more with the change in the pip value of the underlying asset.

Chapter #4

How to Trade Forex in Australia?

Forex trading in Australia is legal and in compliance with a strict regulatory framework. The Australian Securities and Exchange Commission is the regulatory authority that regulates forex trading in Australia.

There are a lot of Forex and CFD brokers in Australia that are regulated by ASIC and offer leveraged trading on forex and other instruments. Trading with brokers that do not have a regulatory license from ASIC is illegal in Australia.

The first and foremost thing to do as a trader is to choose an ASIC-regulated forex broker in Australia. Brokers without ASIC regulation in Australia have high third-party risk and must be avoided.

Most brokers display their regulation details on the footnote of their website. Some also have a separate page on their website. If not available, clients can also ask the customer support executives to provide the license or registration number of the ASIC license.

IC Markets Regulation

The ASIC regulatory license can be cross-checked from the official website of ASIC. There is a separate page to search for license details under ‘search company and other registers’ > ‘professional registers’. Clients can search for license details either with the name of the broker or the license number. This detail must be checked before choosing a forex broker in Australia.

ASIC Search Registers

After checking the license, potential traders should also check and compare the fees, available instruments, trading platforms, customer support, and other details of the broker. Online reviews by professionals and existing clients can also be read to get a glance at trading experience with particular brokers.

ASIC Regulation

How to open trading account with broker in Australia

The next step to trade forex in Australia is to open a trading account with the selected broker. The account opening process is simple but each broker takes a different time to complete this process. Following are the details that the trader needs to provide to the broker to open an account.

1) Your Full Name: The name should be the same as that on Identity and address proofs and bank accounts. Any spelling mistake will not allow you to open the account.

2) Your Contact Details: This includes the mobile number and email id. The entered contact details will be cross-checked via OTP.

3) Current Address: You must have proof of the address where you are currently living.

4) Country of Residence

5) Documents: The proof of identity and address will be verified by the broker to complete the KYC process. This process can take 2 hours to 2 days depending on the service efficiency of the broker.

6) Deposit: You will receive a confirmation mail from the broker once the KYC process is completed. The trading can now be started after making an initial deposit. The minimum initial deposit amount requirement can differ from broker to broker and must be checked before opening the account. Time taken to process the transaction is also different for every deposit and withdrawal method.

For new clients, it is always advised to trade with a demo account and gain a decent amount of experience before risking real money. The demo account can also be used to check the success rates of trading strategies and suitability with different trading instruments.

Chapter #5

What are the Costs of Forex Trading?

The cost that will be incurred by traders in forex trading will differ from broker to broker. Each broker charges different types of fees and the amount of fees can also be different.

Spreads and commissions are the major source of revenue for brokers and liquidity providers.

To be familiar with the fee structure, clients must check or inquire about the following components of fees before opening the account.

These are the common ways in which a forex broker will charge the traders in Australia for trading.

1) Spreads: Spreads are the major component of fees involved in forex trading. This is the difference between the bid and ask price or the buy and sell price.

Wider spreads mean lesser profit and lesser probability to make profits in a forex trade. Clients should seek brokers that offer narrower spreads.

2) Trading Commission: The commission that is incurred while executing trade orders is called a trading commission.

Some brokers offer commission-based trading on currency pairs with low spreads or zero spreads. Commission-based spread-free trading is considered ideal for large volume traders and scalpers.

A commission on forex pairs can range from $2 to $10 for a Roundturn trade (both sides) of a Standard Lot. Details of commission (if charged) must be checked before opening the account.

3) Swap Fees: Swap fees are also called overnight charges. These are the charges that are incurred if a trading position is kept open overnight.

Orders that are opened and closed on the same day will incur no swap fees at all.
For every night the position is kept open, the swap fees will be added. Swap rates or overnight charges differ from broker to broker on every instrument.

4) Non-Trading Charges: These are the charges that will be incurred without executing trade orders. Non-trading charges can be of various types and can be tricky to identify as they are not clearly mentioned.

5) Inactivity Fee: An inactivity fee is a fee that gets deducted from the account balance if no trade orders are executed in a prolonged period of 3 months to 1 year.

6) Deposits & Withdrawals: Deposits and withdrawals can incur additional commission for some or all of the methods. Clients must check the commission or fees for deposits and withdrawals.

Other non-trading charges include account opening fees, conversion fees, internal transfer fees, etc. Subscription to additional services can also cost additionally.

Clients must enquire from the support executives about the non-trading charges separately.

Chapter #6

What are the Risks of Trading Forex?

There are plenty of risk elements involved in forex trading. We have discussed some of the major components of the risk in trading forex in Australia.

1. Unregulated Broker risk:

Online forex trading has attracted thousands of retail investors in Australia. Trading with a trusted and well-regulated broker ensures your funds are in safe hands. If something goes wrong, there is a security mechanism that comes into play to protect your investments.

National, as well as major Tier-1 Forex Broker regulators, ensure that brokers offer fair and transparent trading environments. They set standard criteria and reporting requirements for a forex dealer before providing services to its clients. They also continue to monitor brokers’ trading practices and in case of wrongdoing, the financial regulator can cancel the broker’s license.

Before choosing, ensure that your broker is well-regulated and trustworthy. Don’t get persuaded by Pyramid schemes or fake agents offering unbelievable and unrealistic returns. There are plenty of examples of when retail investors lost their money to fake brokers and Ponzi schemes.

The best way to avoid this risk is by selecting a broker having Tier I or Tier II licenses. Tier I indicates the highest level of trust, and Tier II has a low level of confidence. UK, European, American, Australian, and Canadian regulators score well on their trust level and are called Tier I regulators.

Traders based in Australia must only trade with forex brokers that are regulated with ASIC. You must check the products for which the forex broker/firm has been Authorised, and verify the Firm’s Reference No. and their website from FCA’s Register. Only this will ensure that you are trading with an authorized firm.

2) Market Risk

This is the risk of extraordinary price swings in currency pairs. Forex is a complicated market as the price movement depends on countless factors. It is active throughout the day and any event across the globe can have an impact on the price movements. It is nearly impossible to correctly predict the price movements. Research and analysis can greatly enhance the success rates but the market risk will always prevail in the forex market.

3) Leverage Risk

The leverage allows traders to open bigger positions with smaller margin requirements. High leverage can help in booking higher profits in case of favourable outcomes. The extent of profits, as well as losses, depends on the size of the opened position. The bigger positions can provide dramatic losses and can also wipe out your account balance completely if a position is not closed.

Beginners should not involve too much leverage in trading forex in the initial phase. A leverage of more than 1:10 is considered risky. The Australian Securities and Exchange Commission (ASIC) has restricted the maximum leverage that CFD brokers can offer to 1:30 for major forex pairs. The maximum leverage is lesser for CFDs on indices and commodities to protect the traders from high leverage risk. Although, clients can increase their leverage if they fulfil the ASIC criteria to become a professional trader.

4) Technical Glitches

Forex trading is mostly done online through trading platforms on mobile, tablets, and PC. A technical glitch can disrupt the trading experience. Traders can miss out on trading opportunities due to slow internet or processor issues.
The timing to open or close a position can vary due to technical problems. Accounts can be hacked. The account credentials and passwords must be protected. Public wi-fi networks must be avoided. Fingerprint or facial recognition to login into an account can enhance the safety of traders.

5) Country Risk

Forex trading involves buying and selling currencies. These currencies are used for day-to-day activities in respective countries. Each country has different growth rates and interest rates. Their price trends will be different for each pair.

The sudden price movement on any currency pair can occur at any time due to different reasons. A country might implement expansionary or contractionary monetary and fiscal policies that can affect the price trends. Country risk is more effective in automated trading as policies implemented by countries can alter the course of price trends.

There are multiple risk elements in the forex market. Choosing the right broker, taking informed decisions, technical and fundamental analysis, and other precautionary measures will reduce the risk factor. However, risk in the forex market can be mitigated but cannot be removed completely.

Leveraged forex trading involves significant financial risk. Forex trading is easily accessible for retail traders. More than 70% of forex traders face losses. It is always advisable to use the demo account and trade with virtual currencies before trading with real money. This will also allow traders to know whether forex trading is suitable for them or not.

Forex Trading Australia FAQs

Is Forex Trading Legal in Australia?

Yes, Forex trading is legal in Australia, and you must trade with ASIC Regulated Forex Brokers. All forex trading activities & brokers must comply with the regulatory guidelines of ASIC and the profits made are subject to tax implications.

What type of forex trading is best for beginners?

For beginners, it is better to gain experience through demo account where they can test their suitability and strategy through virtual currency. Traders can also get familiar with the terminologies and basics of forex trading through demo account. After that, it is better to trade on small lot sizes with small initial deposits in the beginning.

How do I start forex trading in Australia?

Forex trading in Australia can be done by opening a Live Trading Account with any of the ASIC-Regulated forex and CFD broker in Australia. After opening the account, traders need to make a deposit to start trading forex pairs in Australia.

How do I trade forex as a beginner?

As a beginner, you should trade with small lot size after gaining experience through demo accounts. Beginners should spend more time and effort on learning and research before making a trading decision. Beginners should make emotion driven trading decision.

What are the risks of forex trading?

Forex trading involves multiple risk factors as it is a high risk capital market. More than 70% forex traders lose money. Risks associated with forex trading are market risk, leverage risk, third party risk, country risk, etc. The risk elements can be mitigated to lower levels by taking precautionary measures but can never be eliminated in forex trading.

Is Forex Trading Profitable?

No, forex trading is not profitable for most retail traders as a majority of the new retail traders face losses in the initial phase.
It is a high-risk capital market and is only ideal for experienced traders who can analyse the price movements of currency pairs. 70% to 80% of forex traders lose money in Forex Trading.

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