Forex trading is the common abbreviation used to refer to investment in foreign exchange. It basically refers to investing and trading in the foreign exchange market. Forex traders aim to make profitable returns by trading one currency for another, for instance, exchanging Euros for US dollars. Like any other business, forex trading does have a fair share of risks and challenges.
Forex Trading: How It Works
As already mentioned, forex trading helps an investor earn some income when he trades currency A for B. In order to make the decision on which currency one should invest in, the trader needs to observe the trends in order to predict the forex prices that are likely to go down.
On the forex market, currencies are normally quoted in pairs. The pairs help indicate the value of one currency, let’s say ‘A’ against ‘B’. An example of the popular pairs on the market is AUD/USD, EUR/USD, and USD/GBP.
In order to choose a trade, an Australian trader may think that the value of the Australian Dollar; when paired against the US dollar will go down. In such a scenario, the trader will opt to sell the AU dollar and buy the US dollar. In the event that the US dollar gains more value, then the trader earns more money which helps him buy more AU dollars than he initially had, which results in a profitable gain.
There are a number of forex trading platforms for investors who are interested in trading in foreign exchange. In order for you to place a trade, all you are required to do is sign up on one of these accounts, open a forex trading account of your choice, select the currency pair you want to trade in and set the amount of money you want to spend on the transaction.
How Beneficial Is Forex Trading?
Trading in the foreign exchange market has proven to be beneficial in many ways and that is one of the reasons why many more investors across the world are opting for it as opposed to other forms of investments like stock markets and indices. Below are the reasons as to why;
Forex markets run for 24 hours. During the weekdays, the forex market remains open and running for 24 hours. This does not only give traders enough time to trade but also ample time to study the trends while allowing them to access the numerous opportunities that may arise at any time of the day or night.
Forex trading also allows traders to make a trade even on a small initial capital. For you to place a trade, you are only required to spend a small percentage of the total value of the position you stand. This means that you have a much better trading potential and higher chances of making good returns on a small startup. This is something that is not present in other forms of trades.
What One Needs To Open a Forex Trading Account in Australia
Currently, many forex trading dealers will allow you to open and run a trading account online. Basically, this takes only a few minutes but the approval may vary with the forex dealer. After approval, the dealer will email you a link that will lead you to your account and you are set for trading.
During the sign-up, you will be asked to provide personal details such as your contact details, your name, birth date, postal address, and an identification document such as an ID or passport. You will also be required to state your country of residence.
After successful signup, you load your account (from your bank), and once the deposited amount reflects on your account, you are good to do business.
Are There Any Costs Involved In Foreign Exchange Market?
Brokers or forex dealers normally charge a commission for all the trades you place. These fees are low and will be just a few cents per thousands of dollars. Nonetheless, there are some dealers who will not charge anything for you to place a trade.
Credit and debit charges may also reflect whenever you are loading your forex trading account.
You will also be required to meet something known as ‘the margin’ before placing a trade. For instance, to place a trade worth £100,000 with an account that has 1% margin, you will be required to spend £1,000.