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Forex trading

Foreign exchange trading is highly complex and risky

Page reading time: 3 minutes

Foreign exchange (FX or forex) trading is when you buy and sell foreign currencies to try to make a profit. Even the most skilled and experienced traders have difficulty predicting movements in currencies.

How forex trading works

Foreign exchange trading attempts to make a profit by predicting the value of one currency compared to another.

FX trading is normally conducted through 'margin trading'. A small collateral deposit worth a percentage of a total trade's value is required to trade.

Trading in international currencies requires a huge amount of knowledge, research and monitoring. Before you put your money on the line, get independent advice from a licensed financial adviser.

Margin FX trading is one of the riskiest investments you can make. It raises the stakes further by letting you trade with borrowed money, but you'll be responsible for all losses.

Contracts for difference (CFDs)

Contracts for difference (CFDs) are a way of speculating on the change in value of a foreign exchange rate. CFDs can also speculate on a change in share price or a market index. You're not buying the underlying asset, just speculating on the price movement.

CFD leverage is like trading with borrowed money. The deposit (or 'margin') you give to the provider is a small part of what you borrow to invest.

A CFD contract is legally binding. If the market goes against you, the CFD provider:

Risks of forex trading

Forex trading software programs, seminars and courses

Forex software programs are available for forex trading. They may claim their programs can let you know when to make trades. But no person or program can ever accurately predict movements in foreign currencies.

Be wary of companies promoting a particular product that gives you access to better exchange rates or easy money. They may let you trial their trading platform for free at first. This is usually just a teaser for you to buy the software or platform.

Any provider offering an add-on service like software, trading robots or seminars must hold an appropriate AFS licence or authorisation from an AFS licensee for the service. Before you use a service like this, check they are licensed or authorised through ASIC Connect’s Professional Registers.

A basic FX trading course or seminar won't give you enough information to start trading.

Do your own checks on forex providers

Different forex products involve different risks. Read the product disclosure statement (PDS) carefully before investing.

Check that the forex provider has an Australian Financial Services (AFS) Licence. ASIC Connect's Professional Registers will tell you if they do.