Four Essentials Of Forex Trading

Over 7 trillion dollars worth of forex transactions happen every day, enticing new traders to enter the market and begin their journey. But while forex trading in Australia can potentially deliver profitable returns for savvy investors, beginners must take the time to understand the intricacies of the forex market. 

In this guide, we’ll look at four essentials of forex trading in Australia, including understanding currency pairs, trading tools, risk management and implications for tax on forex trading in Australia. 

1. Forex trading in Australia — understanding currency pairs 

Forex trading is conducted through currency pairs. A currency pair is the quotation of two currencies, where one is quoted against the other. The first currency in the pair is the base currency and the second currency is the quote currency. For example, in the EUR/USD currency pair, the Euro is the base currency and the US dollar is the quoted currency.

Currency pairs can also be classified as major, minor and exotic. Major pairs are the most commonly traded pairs and include the USD as one of the currencies in the pair. Minor pairs don’t include the USD, while exotic pairs include currencies from emerging or developing countries.

2. Using trading tools and platforms 

Forex trading tools and platforms are essential for traders looking to participate in the currency market. These tools help traders analyse market trends, make informed decisions and execute trades efficiently. As you start researching options, you’ll typically find there are three major players in this field:

• MetaTrader 4 (MT4) and MetaTrader 5 (MT5) — MT4 and MT5 offer a range of features such as charting tools, technical indicators and algorithmic trading options, allowing traders to create and test their automated trading strategies.
• TradingView — This platform is a web-based charting and analysis tool many traders worldwide use. It provides real-time market data, news and technical analysis tools. TradingView also has a large community of traders who share ideas and strategies, which can help you along your trading journey.

How to choose the right trading platform

Choosing the right forex trading platform is an important decision that can significantly impact a trader’s success in the market. When researching different platforms, be sure to compare the following: 

• Ease of use — The trading platform should be user-friendly and easy to navigate. It should provide easy access to important information such as charts, order types and account details.
• Demo account — It helps to choose a platform that offers a demo account to allow traders to test its features and trading strategies without risking real money.
• Features — The platform should offer a range of tools and features that cater to the trader’s trading style and strategy. For example, a trader may require a platform with advanced charting tools and technical indicators if they use technical analysis.

3. The importance of risk management in forex trading 

Risk management is a critical aspect of successful forex trading in Australia. It involves using various tools and strategies to identify, assess and mitigate potential risks in the market. Risk management helps traders remain consistent and disciplined while protecting their capital.

One popular risk management strategy is setting a stop loss order, which is an order placed at a predetermined price level. Once the price reaches that level, the trade is automatically closed. On the other hand, a take-profit order is placed at a predetermined price level to close a trade and take profits.

4. Tax and forex trading in Australia — what you need to know

Forex trading is considered a genuine way to earn profits and is defined as an assessable income for tax purposes, so it’s important to understand your tax obligations. Traders who are Australian residents are required to pay taxes on their forex trading profits. Non-residents are also expected to pay tax on any profits made. 

Forex trading profits may be subject to capital gains tax (CGT) in Australia. CGT is payable on the profits made from the sale of a capital asset, including forex trading profits. 

Forex Platinum Trading is your trusted guide for all things forex trading 

Whether you’re looking to learn more about Australian forex trading tax rules or which currency pairs you should add to your trading strategy, Forex Platinum Trading can help. We are a leading forex education platform providing a wide range of services to help traders of all levels succeed in the forex market.

Our exclusive trading packages and online workshops deliver unmatched insights from our experienced team. If you have any questions about our service or training packages, please contact us today.

Forex Trading For Beginners

Currencies are one of the most popular assets traded by investors around the world. With trading available 24 hours a day, five days a week, opportunities for success are around every corner. And if you’re thinking about diving into the forex market, you’ve come to the right place. 

Forex Platinum Trading is a global leader in forex trading education and can provide the resources you need to advance your trading journey. We’re here to simplify forex trading, answer questions and work alongside you as you reach your forex trading goals. 

Read on to learn more about trading with forex for beginners.

What is forex trading in Australia?

Forex trading refers to the process of buying and selling currency pairs to try to make a profit. Traders apply technical analysis to predict the value of one currency compared to another.

The forex market is one of the most active financial markets, with more than 5 billion daily forex transactions, or an average of $220 billion an hour! This makes for the perfect learning ground for beginner traders looking to develop their skills. 

Several global banks also run the forex market across the four major trading centres: London, Sydney, New York and Tokyo. And unlike shares or other traded commodities, forex trading occurs between two parties on an over-the-counter market (OTC).

Forex trading for beginners — what you need to know

From keeping up to date with the last financial news to test-driving forex trading strategies, understanding forex trading in Australia as a beginner is no mean feat. As you begin trading and get comfortable with how the market moves, your skills will continue to grow. 

But before you start making waves in the market, you’ll first need to get your head around the basics.

How to read currency pairs

One of the first things you will need to understand before forex trading in Australia is reading currency pairs.

AUD/USD is an example of one currency pair, which involves buying or selling the Australian dollar against the US dollar. Within a currency pair, there is the base and quote currency. The base currency is the first currency listed in the pair representing the currency you are buying or selling during the transaction against the quote currency which is the second currency listed in the pair.  

The classes of currency pairs

In addition to reading currency pairs, it’s also important to understand the different classes of currency pairs, which can help you determine currencies to trade in and establish yourself as a trader. The three common currency pairs are:

• Major pairs — These are currency pairs that feature the Australian dollar, British pound, Japanese yen, Swiss franc, Euro and US dollar. Major pairs experience high trading volume, making them an excellent choice for beginner traders learning the ropes.

• Minor pairs — These are currency pairs that involve major currencies outside the USD and are an alternative to reading major pairs. AUD/NZD is an example of a minor currency pair. 
• Exotic pairs — These are less traded currencies from emerging economies paired with the US dollar. Naturally, these currency pairs experience high volatility and unpredictability, which means greater profit or loss opportunities. USD/TRY is one example of an exotic pair. 

The types of forex markets

Beginners trading in forex will also need to research the different types of forex trading styles to determine which best suits their trading preferences. The three types of forex trading styles are: 

• Scalping — This is a trading style that specialises in profiting off of small price changes and making a fast profit. Scalping requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains the trader worked to obtain.
• Swing trading — This is a style of trading that attempts to capture short- to medium-term gains over a period of a few days to several weeks.
• Intraday trading — Intraday trading means buying and selling currency pairs on the same trading day. Intraday trading is also known as day trading. Currency prices keep fluctuating throughout the day, and intraday traders try to draw profits from these price movements by buying and selling currency pairs during the same trading day.

Leverage and contracts for difference (CFDs)

While it is possible to trade forex on the above markets, trading with forex for beginners can also occur through contracts for difference (CFDs). CFDs are derivatives that allow you to track and speculate on the value of underlying currency pairs in a spot market without purchasing and holding the currency. 

With a CFD, traders only have to pay the price difference from when they open a trading position to when they close it. CFDs also allow you to employ leverage, a trading strategy that allows you to increase the size of your position by using capital from a broker — ideal for beginners who do not have sizeable capital to start with. 

Three reasons why forex trading is great for beginners

While there are many assets to trade on the market, forex trading for beginners boasts some excellent advantages, including: 

• Highly liquid market — Millions of transactions happen daily on the forex market, so you can almost always find someone to trade with, especially if you’re trading major currency pairs like AUD/USD, USD/JPY, and EUR/USD.
• 24-hour trading — Unlike other market exchanges, the forex markets are open 24 hours a day, five days a week, allowing traders to jump in and out of the market as they see fit.
• Not as easily manipulated — Unlike other markets where financial institutions or companies can control asset values, the forex market is not as easily manipulated.

Trading with forex for beginners — building a solid foundation

One thing you will need to focus on before you begin trading is understanding the importance of building a solid foundation. Building a solid foundation comes from understanding the order of importance of psychology, risk management and strategy. 

• Psychology —  This is the emotional component of a traders decision-making process which may help explain why some decisions appear more rational than others. Trading psychology is characterised primarily as the influence of both greed and fear. Greed drives decisions that appear to be too risky.
• Risk management — The key to surviving the risks involved in trading is to minimise losses. Risk management in forex trading begins with developing a trading strategy that accounts for the win-loss percentage and the averages of the wins and losses. Moreover, avoiding catastrophic losses that can wipe you out completely is crucial.
• Strategy — What is a trading strategy? A trading strategy is a plan that employs analysis to identify specific market conditions and price levels. While fundamental analysis can be used to predict price movements, most strategies focus on specific technical indicators.

Charts, indicators and trading platforms, what you’ll need as a beginner trader

Forex trading requires tactical and planned movements with zero room for emotion. 

That’s why many traders implement technical analysis and various trading tools and indicators as part of their trading strategy to maximise profits and gain insights into the forex market. 

These resources take the guesswork out of forex trading and help you forecast upcoming risks, giving you a head start to exit a trade and minimise your losses. Trading analysis styles are often split into two categories:

• Fundamental analysis — This involves looking at news reports and other economic information to predict events or announcements that can impact the value of specific currency pairs.
• Technical analysis — This involves using charts, like line bar or candlestick charts, market indicators and volume data to predict the price movements of currency pairs. Technical analysis allows you to assess how a market is moving or may move based on reading a chart.

Forex Platinum Trading — your go-to for expert forex market knowledge

At Forex Platinum Trading, we eat, sleep and breathe forex trading. We have spent years developing and finetuning our unique and practical forex education platform to benefit traders of all levels. From hosting live trading sessions to online educational workshops, we help all investors reach their forex trading goals. 

Our team of forex experts have more than 19 years of experience with forex trading in Australia and are dedicated to helping you take your trading skills to the next level. For more information about our forex trading for beginners packages, contact us today.

FAQs

How do beginners trade in forex?

Before you can start trading on the foreign exchange market, it’s important to understand the basics. This includes but is not limited to learning how to read currency pairs, apply risk management processes and research trading styles and strategies to determine which aligns best with your trading goals.

What is the best time frame to trade forex for beginners?

The best time frame for forex trading will depend on your trading style. For instance, day traders may benefit from any timeframe within the 5-minute and 1-hour during a trading session. Swing traders, on the other hand, may experience better success within the 4-hour to the daily one in any timeframe.

Which trading strategy is best for beginners?

This will depend on your trading style. If you are looking to trade rapidly and receive smaller profits to build over time, scalp trading may be ideal. On the other hand, swing trading may be more suitable if you don’t want to spend time analysing charts and economic news.

How much can you start trading forex?

There is no definitive answer to this, as every trader’s goals and financial circumstances differ. Though it’s worth noting that the more capital you have to start with, the greater your chances are maximising profits.

Technical Analysis Vs Fundamental Analysis In Forex Trading

Forex trading for beginners — Technical Analysis vs Fundamental Analysis

From placing your first trade to receiving your first win, trading in forex as a beginner can be both an exciting and daunting experience. And with a rapidly growing and evolving market at your fingertips, it’s no wonder forex trading in Australia has taken off.

While the prospect of generating significant profits from trading currencies can be enticing, the complexity and volatility of the market can make it difficult to know where to start. As a beginner trader, learning to use different tools to analyse the market, such as fundamental and technical analysis, is essential.

Forex Platinum Trading believes that access to expert-leading education is key to potential successful trading endeavours. By learning these tools, beginner traders can gain a more comprehensive understanding of the market and make informed trading decisions to help them achieve their financial goals. Let’s explore technical and fundamental analysis in greater detail.

Technical Analysis in Forex Trading

Technical analysis is a method of analysing the forex market by studying past market data, such as price and volume, to identify patterns and trends that can be used to predict future price movements. There are a wide variety of technical indicators that beginner forex traders can use to analyse market data, such as:

• Moving averages — Moving averages are used to identify trends and are calculated by averaging the price over a specific period. Traders often use two or more moving averages to identify trend direction, momentum and strength.
  
  
• Relative strength index (RSI) — The RSI is a momentum oscillator that measures the strength of a trend. Traders use it to identify overbought and oversold conditions and potential trend reversals.
  
  
• Fibonacci retracements — Fibonacci retracements identify potential support and resistance levels based on the Fibonacci sequence. Traders use them to identify potential price levels where a trend may reverse.
  
  
• Bollinger bands — Bollinger bands identify potential breakouts and trend reversals. They consist of three lines plotted on a price chart, with the middle line representing the moving average and the upper and lower lines representing the standard deviation.
  
  

Why use technical analysis?

Technical analysis can provide a beginner trader with forex quantitative results, though the tool has other benefits. Technical analysis uses historical market data, which can help traders identify trends and patterns that may not be apparent in current market conditions.

Many technical indicators can also be automated, which can help traders identify trading opportunities and execute trades more quickly and efficiently. This is also ideal for time-poor traders who cannot commit to ongoing price monitoring.

Fundamental Analysis in Forex Trading

Fundamental analysis examines financial markets using economic and financial data to identify the underlying drivers of currency movements. The goal of fundamental analysis is to identify the intrinsic value of an asset and make trading decisions based on that value. Here are some of the most common indicators used in fundamental analysis in forex trading:

• Interest rates — Central banks use interest rates to control inflation and stimulate economic growth, and changes in interest rates can significantly impact a currency’s value.
  
  
• Economic indicators — The GDP, inflation and unemployment can provide insight into the health of a country’s economy and its potential impact on currency movements.
  
  
• Geopolitical events — Geopolitical events such as elections, wars and trade agreements can drastically impact currency movements.
  
  
• Market sentiment — This refers to the overall mood of traders and investors, which can be influenced by factors such as news events and economic data releases.
  
  

Why trade using fundamental analysis?

Forex trading in Australia is subject to many external factors, including natural and man-made events worldwide. By using fundamental analysis to understand these factors, traders can gain:

• Contextual insights — Fundamental analysis considers various factors that can influence currency movements, providing traders with a more contextual understanding of market trends.
  
  
• Advanced predictions — Through fundamental analysis, traders can gain insights into potential market trends and trading opportunities before they become apparent through other indicators.
  
  

Choosing between technical and fundamental analysis

Understanding and highlighting the benefits of technical and fundamental analysis is only one step. You’ll then need to determine which option best suits your trading style. Ultimately, choosing between technical and fundamental analysis largely depends on your trading style, goals and personal preferences, though there are a few factors to consider, such as:

• Your trading strategy — Technical analysis tends to be more suited to short-term trading strategies, while fundamental analysis is more suited to longer-term trading strategies.
• Risk tolerance — Technical analysis tends to focus more on short-term price movements, which can increase risk. On the other hand, fundamental analysis is more focused on long-term trends and may involve less risk in trading.
• Market conditions — Different market conditions may be more conducive to technical or fundamental analysis. For example, technical analysis may be more effective in trending markets.

For many traders, combining both analyses to gain a comprehensive understanding of the market is best. By combining the two, traders can gain a more interconnected view of the market and identify trading opportunities from multiple perspectives.

Start your forex trading journey with Forex Platinum Trading

From identifying the strongest currency pairs to learning your way around popular trading platforms, forex trading for beginners can be challenging, which is why having expert guidance alongside you is essential.

Andrew, the founder and CEO of Forex Platinum Trading, has helped several traders gain the confidence and skills to become seasoned forex traders. We’ve meticulously crafted several online workshops, courses and webinars designed to suit all levels of traders.

Our experts are passionate about forex trading and can pass down hands-on experience to get you the best possible results. If you would like to learn more about our services and forex learning packages, please do not hesitate to contact us or visit our helpful FAQs page.

FAQs

What is technical analysis in forex trading?

Technical analysis is a method of analysing the forex market by examining past market data, primarily price and volume, to identify patterns and trends that can be used to predict future price movements. In forex trading, technical analysts use charts and various technical indicators to analyse market data and develop trading strategies.

Some of the most commonly used technical indicators in forex trading include moving averages, oscillators and support and resistance levels. These indicators help traders identify trend direction, momentum and potential entry and exit points for trades.

What is fundamental analysis in forex trading?

Fundamental analysis in the forex market is examining economic and financial data, news events and other relevant factors to identify the underlying drivers of currency movements. Traders who rely on fundamental analysts use this information to make informed trading decisions and determine the intrinsic value of a currency.

Regarding forex trading, fundamental analysis involves studying economic indicators such as GDP, inflation, interest rates, unemployment rates, and political and geopolitical events that can affect a country’s economy and currency value.

What tools are used in technical analysis?

Technical analysis uses digital tools to analyse past market data and identify trading opportunities. While many technical analysis tools are available, some commonly used indicators include charts, which display a graphical representation of price movements over time. These oscillators measure the momentum of price movements and Bollinger bands, which measure the market’s volatility and identify potential entry and exit points for trades.

What factors are considered in fundamental analysis?

Fundamental analysis involves considering a wide range of economic, financial and political factors that can influence the value of a currency. Economic indicators refer to the GDP, inflation and interest rates, which can provide insight into the economy’s health. Central bank policies, major political events and even reports on natural disasters can significantly impact a country’s economy and currency value.

Which is better, technical analysis or fundamental analysis?

There is no definitive answer to this question, as the choice between technical and fundamental analysis ultimately depends on a trader’s individual trading style, preferences and goals. Technical analysis can be helpful for traders who prefer a more quantitative approach to trading. Meanwhile, fundamental analysis may benefit traders who prefer a more qualitative approach to trading.

How can I learn technical analysis and fundamental analysis in forex trading?

As you’ve probably gathered, learning technical analysis and fundamental analysis in forex trading requires time and effort, especially if you’re a beginner trading in forex. Traders can study technical and fundamental analysis in many ways, from books to online forums and seminars. However, we believe there’s no better way to learn the intricacies of forex trading than with Forex Platinum Trading.

Can technical analysis and fundamental analysis be used together in forex trading?

Yes, traders can combine technical and fundamental analysis in forex trading. In fact, many traders use both approaches to gain a more comprehensive understanding of the market to make more informed trading decisions. For example, a trader may use fundamental analysis to identify long-term trends and make strategic investment decisions, while using technical analysis to identify short-term opportunities and optimise entry and exit points.