Introducing Forex Trading
Forex traders enable investors to profit in the currency exchange following the fluctuations in the market. It creates an opportunity for the traders to realize the losses and gains from the difference in values. As most forex traders use leverage, they require a low amount of capital compared to other forms of trading. With the leverage of 1:50, traders can execute a 10,000 AUD trade with a margin of 2% or 200 AUD. Forex currency trades in pairs or a forex pair which traders exchange, like USD for AUD or British Pounds (GBP) for a Euro. Euros and US dollars are the most popular pairs. However, numerous other trade currencies like the Australian dollar are present in high volumes. AUD stands in fifth place for the most traded currencies in the world. The first currency in a forex pair is the base currency, and the second is the quote.
Profits and Losses While Trading Forex
The price movements within the currency pair determine the amount of profit or loss a trader incurs in Forex trade. A slight shift in the base or the quote currency can result in the value difference. Similar to stocks and shares, losses and profits exist on paper until the trader close their positions. These price movements can be volatile when it amplifies due to high leverage. Some brokers like Metatrader in Australia allow leverage of over 1:1000. The traders can increase their profit on a foreign exchange trade using a corresponding amount. Currency prices do not shift constantly. But when they do, they can lead to massive profits or losses depending on where the investor had purchased their currency.
Strategies For Trading in Australia
Every trader must have a trading plan that incorporates a successful, profitable strategy to increase their chances of gains. Novice traders can practice trading strategies through demo accounts in platforms like Metatrader in Australia. The trading strategies depend on experience and expertise in the market. Below-mentioned is some strategies that have worked for retail and professional traders for profit.
Day trading limits forex trading to a single day’s session. The traders trade all their assets during the session. They generally liquidate them during the closing time to avoid the risk of carrying the value overnight, leading to losses.
The primary objective of the trading involves monetizing over swing resulting from buying a currency at a lower exchange rate and selling it at a higher value. They liquidate it at a lower value with no time restrictions. Therefore, the traders can hold the positions for a longer time.
Traders who follow this strategy follow the global economy and geopolitical news to cash in at the right time. They take advantage of the economic shifts in different countries due to natural or institutional events. For example, in the past two years, COVID-19, wars in Iraq, Afghanistan, Ukraine etc., impacted the currency of different countries.
It involves a strategy where the trader takes advantage of minute market fluctuations. Scalping traders enter and exit the market swiftly and capture profits in the form of pips.
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