Currency Trading Australia

If you are interested in currency trading Australia keep in mind that there are some factors that impact the price of the Australian dollar. It does not matter whether or not you live in Oz, you still may want to trade this currency from time to time. It can have benefits because the Australian dollar sometimes stays more stable when other major currencies are very volatile. This is partly because of its position as a commodity currency.

Commodity currencies are the currencies of countries whose main exports are in raw materials rather than manufactured goods or services. Raw materials can include food and other agricultural products, iron and other metals, gem stones, oil, etc. In Australia, the main commodity export is gold.

When the average consumer thinks of gold they usually equate it with jewelry. However, in the world of investments, gold is bought and sold more for its commodity value than for use. Gold is something that often preserves its value in times of economic crisis. For example if there is rampant inflation or a major stock market crash, the average person’s savings will often become almost worthless but an investment held in gold will maintain or more likely increase its value.

Australia is one of the world’s largest sources of mined gold. Production levels have fluctuated a little due to the effect of internal taxation but broadly speaking, Australian gold production has risen from just 20 tonnes a year in the late 1970s to around 300 tonnes a year today.

Because of this, there is a close correlation between the price of gold and the value of the Australian dollar. Interestingly, even though the USA is another major source of gold, even producing slightly more than Australia, the price of the AUD/USD currency pair is also closely correlated with the price of gold, other things being equal. This is because gold is not such an important factor in the huge American economy as it is in Australia.

So when gold prices rise, the price of AUD/USD will often also rise, and when gold falls AUD/USD is likely to fall. Often there is a little delay before the currency price reacts so a foreign exchange trader involved in AUD/USD has the opportunity to use this to his advantage.

You can also expect that commodity prices in general and gold in particular will go up when there is any major economic crisis in the world. Provided that Australia is not too closely involved in a crash, that is often another early indication of an upcoming rise in the price of AUD/USD.

Of course, gold is not the only factor here and if you want to trade AUD/USD you will need to stay informed about anything else that might affect the price. You can never completely remove the risk involved in forex trading. However, understanding the influence of gold prices on the Australian dollar will be of benefit to you if you want to make money from currency trading Australia.

Why Are You Trading Forex Online?

Many people see trading forex online as a way to make money without having much idea of what they want to do that for. Of course money is useful, but with other types of investment people are usually clear in their minds about what they are looking for in terms of a return: income or wealth building. But forex traders do not always think about this.

It is important. Even though you can make money with currency trading without having a clear aim in view, the ideal strategies and trading plan will be different depending on your aims for your investment. Something that a wealth builder considers to be a successful strategy could cause an income seeker to consider that he is failing at times. So let’s look at the differences and how to handle them in your online trading strategies.

If you are seeking profits for income, then your aim will be to live on the profits of your currency trading account. You may only have a small fund now but you will probably be hoping that in a few years you can give up your day job and pay all of the bills from your forex profits.

On the other hand, somebody who is building for wealth will not plan to take an income out of his profits. He will leave them in the account to grow. He may have the aim of building a retirement fund or some other plan where he will eventually use the money, but this is a long term goal and anything taken from the account in the meantime will be lump sums for a particular purchase rather than money to live on.

So someone who is trading for income has to make a certain amount of profit per month, or at least a certain average over a few months. You’d need your income to be reasonably stable and above a certain level, otherwise you risk not being able to pay the bills.

You would need some backup in the form of savings to cover you in the case of drawdown. You would also need extremely good money management and discipline to stick to your system in difficult times. Somebody who depends on trading forex online for their living expenses is under a lot more pressure and mindset will be crucial.

Traders who are building for wealth tend to trade less often because they do not feel this same pressure. Ironically, this can mean that they wait for clearer signals and make more consistent profits than the income trader. They do not mind if their money is tied up in a trade for weeks or even months. They do not need the profits right now.

Wealth builders are also able to accept a bigger drawdown. They take a longer term view and know that they will regain the losses and then some before they ever need to cash in. This means that, other things being equal, they can afford to take a bigger position with the associated bigger risk.

The bottom line is that if you are trading for income you should be looking for a system with low drawdown and your trading plan should be set for low risk. A system that provides frequent signals for small trades will probably suit you better than a system that waits for major trends and swings. If you have clear aims for your trading and understand the implications as set out in this article, you will put yourself in a good position to make profits from trading forex online.

Secrets to Making Money with Foreign Currency Trading

There are thousands of new beginners coming into foreign currency trading all the time now and most of them are desperately searching for the magic system that will make them pots of cash. They think the system is the only important factor in working out the best way to make money.

Probably 90% of these beginners will fail, and not because they didn’t find a good system. There are plenty of good systems. No, they usually lose because they did not understand the importance of money management and planning.

Professional traders, on the other hand, know how vital this is, and that is a major part of why they succeed. Here are 3 top tips to make sure that you are among the winners.

1. Strictly Limit Your Risk On Each Trade

The amount of your funds that you risk on each trade can vary according to the system and the amount of your funds, but it should never be more than 5%. In fact 5% is very high. Unless you have a very small foreign currency trading fund that you want to build up fast and don’t care too much if you lose it, you would be better off sticking to around 3%.

When your funds are large you will probably find that you want to decrease the percentage risk. If you have hundreds of thousands of dollars in your account you want to make absolutely sure that you do not lose it all, even in the worst of losing runs. Most traders at this level will risk just 1% of their capital per trade.

3. Think About Your Risk To Reward Ratio

Something that many traders never even think about is the relationship of the risk that they are taking to the possible reward. Yes they keep their risk to a certain percentage but they only take small profits from each trade. They may even be risking more than they expect to profit (e.g. risking 60 pips to make 30).

Usually, this is not a successful strategy in the long term. It may work in theory if you have a system that makes a very high percentage of successful trades but the effect of having a few losses in a row will be devastating. Choose instead a system that has a risk to reward ratio of around 1:2 (e.g. risking 30 pips to make 60).

2. Do Not Open A Second Trade Until The First Is In Profit

However confident you are about your first trade, do not open a second position until the first is actually in profit and you have moved your stop up above the break even point.

There are two reasons for this. The first is that if your first trade suddenly takes a dive, you are in a stressful position and having to deal with a second position at the same time could lead to panic decisions.

The second reason is that with multiple unsecured trades you are very vulnerable to a sudden unforeseeable market event that could cause the prices to dive in the wrong direction and trigger all of your stops at once. So keep to the rule of trading your positions singly to make sure that you keep a good grip on your profits.

Observing these three rules is the best way to make money with foreign currency trading.