How To Trade Forex In Australia?
Ready to master the art of Forex trading? Join us as we unveil the strategies, tools, and techniques to navigate the global currency markets successfully.
Currencies are exchanged around the clock throughout the globe. With an estimated $6 trillion in daily turnover, this alone is an indication of the immense opportunities available in the Forex market.
Thanks to technology, it has made it easier for any trader to pursue the lucrative opportunities available in the Forex markets. But where there is potential reward, there is also risk. This article provides a step-by-step guide to help you get started with your Forex journey the right way. In addition, we’ll also present popular forex trading strategies and tips.
Open an account with an award-winning, regulated Forex broker for a world of trading opportunities!
Forex Trading Steps
Trading Forex can be highly rewarding, but there are risks involved. Therefore, it is essential not to just jump into the market without the right knowledge. The better prepared a trader is, the greater their chances for success.
Here's a Beginner's Guide on How to Trade Forex:
Step 1: Learn About the Forex Market
- The Basic Terminology (I.E. Currency Pairs, Exchange Rate, Pips etc)
- Forex market structure (I.E. interbank and over-the-counter market)
- Forex market participants (E.g. Commercial banks, retail traders etc)
- Factors that move the market (E.g. Economic news and events)
A solid grasp of the basics of trading will help you understand the available risks and rewards, build your trading skills and assist you in using important trading tools and resources.
To learn more on the basics of the Forex market, check out: ‘What is Forex’.
Step 2: Choose How You Want to Trade Forex
Forex trading is all about buying and selling currencies. There are many ways you can trade FX products. The most common FX trading products that retail traders use are spot, CFDs and FX options.
With AvaTrade, you have the choice of both CFDs and FX options.
A CFD (Contract for Difference) is a derivative product that allows traders to speculate on the price changes of underlying assets without actually owning them.
Learn more: What are CFDs?
FX options are derivative contracts that give you the right (but not the obligation) to buy or sell a Forex contract at a specific price on a specified date.
Both CFDs & Options profits and losses depend on the size of the trade position as well as how far the price moves between the trade’s entry and exit points.
Learn more: Options Trading Guide.
Step 3: Choose a Reliable Broker
A broker provides access to the forex market. Choosing a reliable broker is a decision every trader must make as your broker is your trading partner.
Some factors to consider when selecting a forex broker include:
- Regulation - The number of licenses and jurisdictions the broker is legally allowed to operate in, the safety of funds, transparency in services offered and other criteria.
- Trading Platforms – The types of trading platforms offered, reliability, tradable assets, copy or automated trading capabilities, multi-device functionality, ease of use, trading costs, and more.
- Trading Resources – The broker should supply you with a range of trading resources including an Economic Calendar, educational materials, a demo account, trading calculators, and risk control tools.
- Payment Methods – A reliable broker should offer safe and convenient payment options, quick deposits, and most importantly, hassle-free withdrawals.
- Customer Service – The broker should be professional and responsive and provide exceptional customer support.
AvaTrade boasts all of the above features and more. As a highly reputable brokerage firm, you are guaranteed an exceptional trading experience at AvaTrade.
Step 4: Prepare a Trading Plan
A trading plan is a clear and detailed plan of how you intend to trade. It helps you stick to clearly defined goals so you are not just trading randomly.
Trading plan details aspects such as your:
- Trading strategy
- Trading goals and ambitions
- Risk management plan
- Trading log
- Overall trading rules
- Trading psychology
A trading plan will help you make trading decisions efficiently as well as build the trading discipline required to achieve consistent success in the forex market.
Step 5: Choose a Forex Pair to Trade
In the Forex market, you can trade many currency pairs that fall into broad categories of majors, minors, and exotics.
The pairs differ in the level of liquidity and volatility, which consequently impacts their spreads and overall risk exposure.
For beginners, it is better to choose a pair that is highly liquid (I.E. the most volume traded) with low spreads. The most liquid FX markets with the lowest spreads are the majors, which are all paired against the USD.
Some of the most popular FX pairs you can trade with AvaTrade include EURUSD, GBPUSD, USDJPY, USDCHF, and many more…
Step 6: Open a Trading Account
After choosing a broker, preparing a trading plan and deciding what FX market to trade, you are ready to open a trading account. Be sure to check what account options are offered and select the appropriate one for your needs.
For all traders, especially beginners, it is advisable to first open a demo account to practice trading with virtual money before risking any real money. When you are ready to trade for real profits, you can easily switch to your real money trading account.
You can open a demo account or real trading account with AvaTrade Today.
Step 7: Analyse the Market
When trading, your profits or losses are determined by your entry and exit prices in the market. It is advised to make an analysis of your preferred assets to identify the best opportunities in the market as well as the most optimal price points to take advantage of the prevailing opportunity.
There are 3 main types of forex market analysis:
- Technical Analysis - Use charts, trend lines, support and resistance levels, and various indicators to identify potential trading opportunities.
- Fundamental Analysis - Monitor economic indicators, news releases, and geopolitical events that can impact currency values.
- Sentimental Analysis - is based on examining prevalent market sentiment expressed in open Buy/Sell positions and in COT (Commitment of Traders) reports.
Ultimately, there is no right or wrong strategy. Ideally, every trader should have a solid understanding of all types of analysis. Using more than one type of analysis can reveal new opportunities and expose potential profit opportunities. With experience, you will customise a strategy to suit your personality and risk appetite.
Step 8: Buy or Sell
Having completed your trading plan, opened a trading account and chosen your preferred currency pair, you will then need to decide whether to buy or sell.
In the forex market, you buy (go long) when you expect the price of an underlying asset to rise. Similarly, you sell (go short) when you expect the price of an underlying asset to fall.
For example, while doing analysis, you identify a signal to buy the AUDUSD pair, that can be triggered when the price is falling to a support level. If the current price is 0.6650 and falling, a trader may wait to buy at 0.6640 in anticipation that the price will hold up at that support level.
Alternatively, you may also consider the price of 0.6700 as a strong resistance area and look to sell AUDUSD if it climbs to that level.
The two most common order types are limits and stops. With a limit order, you place a buy order below the current market price if you expect it to go up and a sell order above the current price if you expect the market to go down. Stop orders are the opposite. You place a sell order below the current market price if you expect the market to continue trending downwards and a buy order above the current price if you expect the market to continue going up.
Step 9: Risk Management Plan
Forex is a market full of opportunities, but risks are also present. To have a chance at achieving and sustaining success, you must have a solid risk management plan.
Some of the risks that traders are exposed to in the forex market include:
- volatility risk
- liquidity risk
- leverage risk
- market risk
Here are some strategies you can use to manage these risks:
- Define your maximum risk per trade.
- Define your maximum drawdown over a defined period of time.
- Use stop loss and take profit orders.
- Only make trades with a favorable risk/reward
- Carefully pick the assets to trade.
- Avoid excessive leverage.
Step 10: Monitor Your Positions
The market is highly dynamic and volatile, which presents many opportunities and risks. This is why it is so important to actively monitor your trade positions to ensure that they are in line with the prevailing market conditions.
Do not neglect to monitor your positions as a good trade can easily turn bad and vice versa. Keeping your finger on the pulse will help you to minimise losses and boost your potential profits.
Strategies to adequately monitor your trading positions include:
- Staying on top of emerging news and events
- Setting up trading/price alerts
- Subscribing to trading signals
- Following top traders and others through social media
- Take advantage of monitoring and reporting features available through your the trading platform and apps
Step 11: Close Your Trade
After opening a position and monitoring it, the next vital decision is when to close it. Closing your trade is what determines whether you earn a profit or incur a loss. A good exit strategy will ensure that you do not maintain unnecessary risk exposure in the forex markets and that you also do not leave good profits on the table.
You can close your trade when:
- The market hits the stop loss or take the profit levels you defined.
- A trading session/week has ended and there will be unforeseen risks in the new session/week.
- You need to avoid a margin call.
- A new profitable opportunity has arisen, and you want to free up capital.
- The market situation has changed, and your initial analysis is no longer valid.
A Sample Forex Trade
One of the most significant dates in the history of the Forex market is January 15th, 2015. On this day, the SNB (Swiss National Bank) abandoned the Euro-peg it had set on the Swiss franc.
Since September 2011, the SNB set a floor price of 1.2000 on the EURCHF rate. This meant that the exchange rate of the pair could not go any lower than the set floor. There was only room for the exchange rate to go higher.
On that fateful day when the SNB abandoned the set peg, the EURCHF pair tumbled to below parity (1.0000), with the Swiss franc gaining over 30% in a single day. To put that into context, the pair traded in a tight range of between 1.2000 and 1.2360 in the entirety of 2014. However, on 15 January alone, EURCHF traded as low as 0.8050, representing a loss of about 4000 pips.
Most pairs experience average price changes of about 100-200 pips during volatile days. The sheer scale of this particular day illustrates the potential risks and rewards that traders are exposed to in the Forex markets.
Like in any market, prices of Forex assets are influenced by forces of demand and supply. Some of the factors that trigger price changes in Forex markets include Central Bank Decisions and Interventions, Economic/Political News and Events, and Market Sentiment.
To learn more about these and other factors influencing the Forex markets, please visit our “What is forex” page.
Forex Trading Strategies
There are many trading strategies that you can use to identify and exploit high-quality trading opportunities in the fx market. For any trader that seeks to achieve consistent trading success, it is important to be equipped with flexible strategies that will help you make the most of opportunities available in diverse and volatile market conditions.
Good strategies to consider include:
Price Action Trading
Price action is considered the purest form of technical analysis, and it typically involves interpreting the behavior of market participants using raw prices. Most price action strategies involve the use of ‘naked’ charts and candlesticks.
The most common types of Forex charts for analysing prices:
- Line Charts – These are plotted using only closing prices, thus smoothing out price action and making it easy to clearly identify trends as well as major support and resistance areas.
- Bar and Candlestick Charts – These provide more detailed price information during specific time periods. In addition to closing prices, a single price bar or candlestick also shows open, high, and low prices achieved during every time period.
Price movements in the market lead to the formation of different types of candles and candlestick patterns. Reading these patterns can give clues as to what market sentiment is developing or prevailing in the market.
There are many popular candlestick patterns such as head and shoulders, double bottoms, and bullish/bearish engulfing formations that provide various price action clues such as trend continuation, trend reversal, and trend neutrality in the markets.
An age-old wisdom in the markets is that the ‘trend is your friend.’ The idea is that you do not need to ‘fight’ with the markets, you simply need to ‘flow’ with them. There are 3 types of trends: Bullish (uptrend), Bearish (downtrend), and Neutral (sideways).
When trading directional trends (uptrends or downtrends), it is important to gauge their momentum, speed, and duration. Sideway trends are characterized by prices oscillating between areas of support and resistance. Markets generally trade in a range more than they trend. It is, therefore, important to have strategies to take advantage of opportunities that are present in range-bound markets.
Markets never range indefinitely. Eventually, the defined levels of support and resistance are breached and new trends emerge. Every trader should always look out for breakout opportunities to ride new trends from the very beginning.
Forex Trading Tips
Here are some tips to become a better and consistent trader:
- Open a demo trading account - Always open a demo account even if you no longer consider yourself a beginner. A demo account will ensure that you continuously refine your trading skills, try out new strategies, adjust new leverage levels, and explore new markets, risk-free. As they say, ‘practice makes perfect.’
- Keep learning - Markets are dynamic. Keep learning about the markets to continually improve your trading ability and decision-making.
- Always use stop losses - Forex markets are highly risky. Always ensure that you protect yourself from unnecessary losses with a stop-loss order.
- Control your emotions - With all types of trading, emotions can cloud your judgment, leading to impulsive decisions. Keep your emotions in check and maintain objectivity while trading.
- Keep a trading log - As mentioned earlier, maintain an active diary of your trading activity. This will keep you accountable and you will also be able to identify effective strategies that need improvement in your trading.
Are you ready to open your first Forex trade?
Open a real account or register for a risk-free demo account now.
How to Trade Forex FAQs
Yes, anyone can trade, provided you invest time to learn about the fx market and develop a well-thought-out trading strategy.
You need a computer or a smartphone, a reliable internet connection, a trading account with a reputable broker, and a foundational knowledge of the market.
At AvaTrade, you can get started with as low as $/€/£ 100. Nonetheless, the amount you decide to start trading Forex with depends on your financial situation, trading skills, and experience, risk appetite, as well as your trading goals.
Beginners should start with learning the basics of Forex trading, then practice on a demo account before transitioning to live trading, always adhering to a carefully thought-out strategy.
The currencies that tend to move the most are often those of major economies, such as the USD, EUR, and JPY. However, the specific volatility of a currency can vary based on economic events and news.