Forex trading Australia is a form of currency trading that deals in buying and selling currencies. It can be done from home on a computer using a live online broker or through any number of commercial brokers. There are a variety of strategies that can be used to trade forex, all requiring different amounts of time and dedication.
Scalping
A popular type of strategy used by many Australian traders involves scalping. Scalping is often seen as one of the most accessible forms of currency trading, but despite this, it requires high levels of focus to master correctly.
During a scalping session, an experienced trader will look for quick trades lasting around 1-5 minutes, which can reach at least 4-8 pips profit each. It might sound easy, but it requires excellent timing and a lot of patience.
A trader must be disciplined enough to enter only trades with the highest probability of becoming successful. Otherwise, they run the risk of losing their money very quickly.
Currency carry trade
The most popular type of carrying trade involves a high degree of leverage. It is an advanced strategy that is often described as somewhat similar to gambling. In a typical carry trade, a trader will borrow one currency with a low-interest rate, often Japanese Yen, and thus purchase another foreign currency with higher interest rates such as the Australian Dollar or Swiss Franc.
They immediately sell this higher-yielding currency to buy back the original lower yielding one. The difference in rates between these two currencies can create substantial profits for traders if played correctly.
Risk management
As with all forms of trading, risk management is essential for any forex trader to master. Buying or selling too many currencies at once can result in significant losses if the market moves against your position.
Because of this, it is always advised to spread your capital out over multiple different investments, limiting overall exposure while still having a chance of making substantial profits. It may also be wise to use stop-loss orders so that none of your trades is opened up irresponsibly, which you might not have time to monitor.
Forex trading can be an extremely lucrative investment strategy, but only if correctly. It requires very high levels of discipline and thorough research since each trade can wipe out months’ worth of profits. However, if you find the right currency pair and use the right trading strategy, it can prove to be a very lucrative way of making money on the side or even replacing your job entirely.
Hedging
Currency hedging is a trading strategy that involves using options to reduce the risk of currency fluctuations. Hedging can be used for both speculation and protection against adverse movements in currencies and works by either buying or selling put and call options on desired currency pairs.
A speculator who thinks that the Australian dollar will increase in value relative to US dollars might buy a six-month option to sell AUD/USD at 1.1500, thus locking in an exchange rate should their prediction prove accurate. If they were correct, they would make money from selling these options as their price increases, but if wrong, then there is no loss either as it only costs a fraction of what would have been obtained through outright trade.
Arbitrage
Arbitrage is the process of taking advantage of a price difference between two or more markets. Currency arbitrage can be achieved by buying a product in one market or selling it immediately in another where it is sold for a higher price, thus creating an instant gain. Arbitrage opportunities are not expected as they require quick manual trading, which can create slippage, but when used correctly, they are mighty.
Conclusion
As we have seen, Australian traders can apply many different types of forex trading strategies. Some require more dedication than others, but all will require careful planning and risk management to minimise losses and maximise gains. If you wish to try out any of these strategies for yourself, visit an online broker such as Saxo bank, where you can practice using virtual money before actually putting real funds into play.
