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Foreign exchange FX or forex trading is when you buy and sell foreign currencies to try to make a profit. This webpage outlines the risks of this strategy. Before you put your money on the line, you should find out how forex markets and trading works, do extensive research and consider getting professional financial advice.
Foreign exchange trading is when you attempt to generate a profit by speculating on the value of one currency compared to another.
Foreign currencies can be traded because the value of a currency will fluctuate, or its exchange rate value will change, when compared to other currencies. FX trading is normally conducted through 'margin trading', where a small collateral deposit worth a percentage of a total trade's value, is required to trade.
Foreign exchange trading is complex and risky. Even the most skilled and experienced traders have difficulty predicting movements in currencies. Trading in international currencies requires a huge amount of knowledge, research and monitoring. Most FX trading products are highly leveraged. This means you only have to pay a fraction for example, 0. He paid a 0. If John had not closed out this trade and the value of the AUD against USD continued to fall, he may have had to meet a margin call and lose many times his original investment.
If John had arranged a guaranteed stop loss order with his provider, this would have cost him a fee. The guaranteed stop loss order would have closed him out of the trade at a certain price to prevent further losses if the market moved against him. This may have capped his losses but would not have covered them entirely. Forex trading raises the stakes further by letting you trade with borrowed money leverage , but you'll be responsible for all losses, which may exceed your initial investment.
Margin FX trading is one of the riskiest investments you can make. Different types of foreign exchange trading products involve different risks so you should read the product disclosure statement carefully before investing. You should also check that the forex provider you are thinking of dealing with has an Australian Financial Services Licence.
Find out what an AFS Licence means. If the provider does not have an AFS licence, make sure it is regulated by an appropriate overseas authority trading with these providers may not give you recourse to Australian laws. See check an investment company or scheme for more details.
Read ASIC media release warning about a fake forex website. To successfully trade you will need to have good knowledge of foreign exchange, leverage, volatility and the conditions of each country whose currency you are trading.
You will also need to predict how these conditions affect the relative value of those currencies. This is extremely difficult as so many factors come into play, including politics, economics and market confidence, and these are unexpected, random events. There are also many software programs available for this type of trading. They may claim their programs can let you know when to make trades.
Remember that no person or program can ever accurately predict movements in foreign currencies. Be wary of companies that say if you use a particular product you will get access to better exchange rates or easy money. They may let you trial their trading platform for free at first, but this is usually just a teaser for you to buy the software or platform.
You should also do your own research and consider getting separate financial advice from a licensed adviser. Foreign exchange trading is very risky even if you have years of skill and experience in this type of trading.
You will need plenty of spare money if you have to cover a margin call. What is forex trading? Risks of foreign exchange trading Dealing with FX providers Is forex trading right for you?
Warning Foreign exchange trading is complex and risky. Warning Forex trading raises the stakes further by letting you trade with borrowed money leverage , but you'll be responsible for all losses, which may exceed your initial investment. Quick links Unclaimed money Publications Financial advisers register Financial counselling Payday loans Unlicensed companies list Report a scam How to complain Other languages eNewsletter. Having a baby Buying a mobile Losing your job more life events