Home

Foreign currency trading: What is it and how do I get started?

Compare Forex BrokersSponsored
Get it right and you could stand to make a huge profit.
Camera IconGet it right and you could stand to make a huge profit. Credit: Unsplash

Once something people only did when travelling in other countries, foreign currency trading involved exchanging some of your home country’s currency for another at a bank or foreign exchange broker. You would receive the foreign currency at the current exchange rate.

These days, when you hear someone refer to foreign currency trading, they are usually referring to a type of investment trading that has now become common.

We’ve teamed up with the foreign currency trading experts, Compare Forex Brokers, to bring you the basics of foreign currency trading including how you can get started.

What is foreign currency trading?

Get in front of tomorrow's news for FREE

Journalism for the curious Australian across politics, business, culture and opinion.

READ NOW

Compare Forex Brokers Co-founder Noam Korbl describes foreign currency trading as speculating whether a particular currency will appreciate or depreciate in value in relation to another.

“Take the USD/AUD example,” he said.

“Over the last little while the Australian dollar has fallen in value against the USD. Had a speculator correctly forecast that this would take place, they would have stood to make a far bit of money.”

Currency trading is used mainly for hedging, to protect any downside of currency rates moving against you. For instance, if a business regularly purchases stock from the United States at 70 cents and then the Australian dollar drops to 65c, it is now costing the business 7 per cent extra to purchase that stock.

To protect against that exchange rate risk, a business might enter into a deal with a currency provider to lock in an exchange rate, so any loss can be offset.

How is foreign currency trading conducted?

“Normally, it’s an agreement between two parties with the use of an intermediary such as a Forex broker,” Mr Korbl said.

One party believes a currency pairing will appreciate while the other takes the opposite position. Trading is conducted online via popular trading platforms such as MetaTrader.

Is there a financial advantage to foreign currency trading?

“There is a very large financial advantage to foreign currency trading if you can correctly predict which way a currency’s value will move,” Mr Korbl said.

“This is a big gamble however and like anything with high return it involves a large amount of risk, particularly if one doesn’t really know what they’re doing.”

I’m interested in trading, what should I know about foreign currency trading?

“Trading involves risk, particularly when trading with large amounts of leverage which is required in the currency game. Practice on demo accounts. Attend training seminars and really learn the ropes before risking your hard-earned funds,” Mr Korbl said.

“However, if you know what you’re doing it can be very rewarding. Given markets are open 24 hours a day five days a week and all one needs to start trading is an internet connection, trading professionally provides a flexibility and lifestyle one can’t really find in other fields of work.”

Don’t get sucked in though. It takes years and years to carefully hone your trading craft.

What are the steps to begin trading?

“Learn. Research. Practice. Repeat. Once you’ve developed some confidence, test the waters slowly,” Mr Korbl said.

“Find the right, regulated broker for you. Deposit an amount of money into your trading account that you are comfortable ‘losing’ and start trading ever so slowly. Don’t bite off more than you can chew. For every success story you hear, there are hundreds, maybe thousands of traders whose fortunes have sadly gone the other way.”

Compare Forex Brokers help shortlist and recommend the best forex broker based on factors including spreads, trading commission, leverage, reviews, customer support, range of currency pairs and more. Visit the website to find out more.

Get the latest news from thewest.com.au in your inbox.

Sign up for our emails