Australia is a hub in terms of forex trading. A large number of traders have registered their interest in generating decent profits by buying and selling currencies of different countries. Similarly to forex trading around the world, traders in Australia perform forex trading through a broker, institution, or independently.
The mode to trade may be different; however, what remains constant are the factors that affect forex trading, the popular form of investment in Australia. No matter what one’s status is in the trading market, it is imperative to understand and learn about these factors.
Economic fundamentals are associated with every country irrespective of its geographic location. These include macro elements like GDP growth, interest rates, inflation, and stability in the political scenario. The US hiking the interest rate is a concern since it puts a lot of pressure on the traders who have packed their portfolios with USD.
Some of the best forex brokers in Australia recommend keeping an eye on the economic fundamentals to minimize the loss that could otherwise plummet the entire value of a trader’s forex portfolio. Upon analyzing these elements, traders can very well understand how well the currency will perform and the overall economic health.
Volatility of the Forex Market
Currencies across the globe can either be volatile or stable depending on the macro factors mentioned in the previous point. It must also be noted that several micro factors also affect forex trading. Foreign currencies are said to be posing a greater trading opportunity if they have high volatility on the charts. However, it has to be noted that it brings a higher chance of incurring a loss.
Therefore, one may stick to the relatively low-volatility currency. While it will have fewer trading opportunities, there will also be lower chances of losing the capital that has been invested. This is merely a suggestion, and it should be implemented only after consultation and research about the price fluctuation, which is apparently rampant in the current scenario of a possible recession.
Liquidity Factors to be Considered by Australian Traders
Long-term forex brokers are on the race track for a longer time. Australian forex brokers majorly looking for a breakthrough during the short-term period will have to specifically consider the liquidity factor attached to the foreign currency they want to add to their portfolio. Liquidity in forex trading refers to the ease with which it can be traded.
USD normally poses higher liquidity, allowing forex traders to easily buy and/or sell American currency in the market. Euro is also said to be highly liquid, just like USD. Australian traders could look into other currencies, provided they are not from developing nations. These are often subject to high inflation, low GDP growth, and an unstable political environment that does not allow the ministry to draft its strategies around forex trading. This is not a signal to never trade them but merely a warning to consider before adding them to the portfolio.
Correlation Between Assets
It is important to understand what kind of a relationship two different currencies share before they are traded. For instance, USD can be traded for JPY only if both share the same direction. A trusted forex broker is often no stranger to the fact that exchanging one currency for another is a smart move, provided it fetches higher profit.
Diversification of currencies can still be done by measuring the correlation. A higher correlation results in better results in the future, while a lower correlation is likely to deliver losses to the trader.
Technical analysis of forex trading is better left to experts, mostly institutional traders. It involves drawing charts and indicators based on past prices of a currency to predict its future movements. INR and USD, for instance, have an equation where INR to USD can be calculated at the rate of 0.012, where ₹1 is equal to $0.012. This is a fall of 0.000066.
Trading decisions can also be made by reviewing the trade volume and studying past prices.
To conclude the article, forex traders in Australia must consider the economic fundamentals, volatility of the forex market, liquidity factor, correlation of assets, and technical analysis before proceeding with the decision. An informed decision, with a sense of risk management, by Australian forex traders will better yield profitable results.