What is Forex Trading?

Extra Money While You Learn to Trade

It can be difficult to learn how to trade forex, but don't worry, we at ForexBonus.com.au have pulled together this handy guide to Forex Trading and a list of Forex Bonuses to help you maximise your trading funds while you put your toe in the water!

March 2017 Top Offers

We've rounded up the best forex deposit bonus offers for you

Ava Trade Forex Deposit Bonus

Best Beginner Bonus - 100% Deposit Bonus on First Deposits Between $100 and $300

bullet2AISC and MiFID regulated

bullet2Minimum Deposit $100

Your Capital is at Risk


XTrade Australia Forex Deposit Bonus

First Deposit Bonus - Ranging from 20% to 60% depending on your deposit amount.

bullet2AISC regulated

Your Capital is at Risk


Go Markets Australia Forex Deposit Bonus

Trade Safely - $250 refund on trading losses in first 30 days 

bullet2AISC regulated

Your Capital is at Risk


Australia Forex Deposit Bonus

Up to 30% deposit bonuses, T&Cs apply

bullet2AISC regulated (AFSL #417727)

bullet2A trader with a Plus500 account can trade CFDs on Forex

Your Capital is at Risk


Trading FX Explained

The internet is a wonderful place that allows you to do some wonderful things. Thanks to the web's ability to connect us to people and services from all around the world, you can now trade foreign currency like a professional. In the past, forex (foreign exchange) trading was all about the big boys with big money. From investment banks and trading houses full of full-time brokers, the industry used to be the reserve of those in the know.

However, just as the internet has broken down borders in a variety of industries, it's done the same in the forex (FX) arena. With just a small starting bankroll, you can now trade like a professional using a range of online tools and services. In fact, much like the iGaming industry has allowed casual punters to place bets on all manner of sports, online forex trading has given novices the chance to test their predictive skills in a new setting.

Although we're going to take you through the specifics of forex trading in this article, the point we've just made is what it all comes down to. When you're betting on sports, you're trying to predict the right outcome of a sporting event in a bid to make money. Similarly, forex trading is the process of thinking about which way a currency pair will move and then betting on it.

Of course, the process is slightly more nuanced than that, but the logic remains the same. Forex trading is all about picking the right option and putting your money on the correct result. If you can keep this in mind, you won't go far wrong in the industry.

Having said this, you do still need to understand the basics of trading before you can start investing your money online. So, to help you on your journey from a wannabe to the Wolf of Wall Street, follow us as we tell you exactly what online forex trading is all about.

Why You Can Now Trade Forex Online

Forex trading, at its core, is the process of investing in a currency pair. Because the value of each currency - be it the Aussie dollar,  US dollar, Euro, Yuan or Pound Sterling - is constantly changing, the FX market basically puts to currencies together in a buying/selling relationship and your job is to predict which one will increase or decrease in value against the other.

For example, let's say you choose the currency pair EUR/AUD. If you invested in this currency pair, you're basically saying that the value of the Euro will increase or decrease against the value of the Great British Pound.

Now, before you choose a pair, you have to think about where your interest lies. Basically, the way in which the pair is arranged will affect how you earn some money.  In simple terms, the currency listed on the left side of the equation is known as the "base". In contrast, the currency on the right of the equation is known as the "quote".

As we've said, the aim of the game is to buy or sell based on how you think a currency pair will move. Under the rules of trading, the currency you want to "sell" is always the one on the left, which means the one you want to "buy" is on the right.

To put this in context, let's say you think that the Euro will weaken against the Pound. In this situation you'd want to sell the Euro, which would mean you'd invest in this option: EUR/AUD, which means that you're taking some Euro (from the left) and converting them into Pounds (on the right). Conversely, if you thought the Euro would get stronger against the Pound, you'd want the latter to be the base currency, which means you'd invested in the following: AUR/EUR.

Basically, whichever currency you think will get weaker is the one you want to sell. When you want to sell, the currency in question needs to be the base (i.e. on the left). In contrast, when you think a currency is going to get stronger, you want to buy it and, therefore, have it as the quote (i.e. on the right).

The Basics of Forex Trading Online

Forex trading, at its core, is the process of investing in a currency pair. Because the value of each currency - be it the US dollar, Euro, Yuan or Pound Sterling - is constantly changing, the FX market basically puts to currencies together in a buying/selling relationship and your job is to predict which one will increase or decrease in value against the other.

For example, let's say you choose the currency pair EUR/AUD. If you invested in this currency pair, you're basically saying that the value of the Euro will increase or decrease against the value of the Great British Pound.

Now, before you choose a pair, you have to think about where your interest lies. Basically, the way in which the pair is arranged will affect how you earn some money.  In simple terms, the currency listed on the left side of the equation is known as the "base". In contrast, the currency on the right of the equation is known as the "quote".

As we've said, the aim of the game is to buy or sell based on how you think a currency pair will move. Under the rules of trading, the currency you want to "sell" is always the one on the left, which means the one you want to "buy" is on the right.

To put this in context, let's say you think that the Euro will weaken against the Pound. In this situation you'd want to sell the Euro, which would mean you'd invest in this option: EUR/AUD, which means that you're taking some Euro (from the left) and converting them into Pounds (on the right). Conversely, if you thought the Euro would get stronger against the Pound, you'd want the latter to be the base currency, which means you'd invested in the following: AUD/EUR.

Basically, whichever currency you think will get weaker is the one you want to sell. When you want to sell, the currency in question needs to be the base (i.e. on the left). In contrast, when you think a currency is going to get stronger, you want to buy it and, therefore, have it as the quote (i.e. on the right).

Pips Aren't Just for Fruit

So far, we've talked about the movement of a currency and how that determines its overall value. However, what we haven't said is that this movement is measured in pips, which stands for Percentage in Points. Because you're dealing with micro movements in the value of a currency, it would be extremely rare to see whole number movements.

For example, it would be virtually impossible to see the AUD drop from a rate of 1:0.62 (i.e. AUD$1 = £0.62) to 1:0.10 .  However, what you might see is the value shift from 1:0.62001 to 1:0.62002. This small movement is what you're betting on when you trade forex. When you see a currency pair listed, it will almost always be to five decimal places e.g. 0.0001 and your job is to predict whether the fourth decimal (i.e. the 1 in this instance) will go up or down.

Understanding Leverage and What to Be Wary Of

It used to be the case that when you were looking to trade forex, you needed large amounts of money. It's still true that a single currency pair is defined in terms of lots and each "lot" costs a six-figure sum. If you wanted to trade a specific currency pair, you technically needed to purchase one of these lots. Of course, unless you were very rich, you weren't able to do that on your own.

Fortunately, forex sites allow you to use something known as leverage so that you can actually make a trade without needing to invest a six-figure sum at all. In simple terms, leverage allows you to use something small to control something much larger. So, in our example, forex leverage gives you the ability to take a small amount of money and control a much a larger amount in the currency market. Effectively, leverage gives you the opportunity to still bet on the forex market without already being rich.

For example, if a broker was offering you leverage of 100:1, this would mean your starting stake has the ability to control something 100x larger than its actual value - i.e. your AU$100 would be capable of controlling AU$10,000 in currency. Each FX trading site will have its own rules on leverage, but the most common amounts you'll find are 50:1, 100:1, 200:1 and 400:1.

So, if we look at 50:1 as an example, it would basically have this effect on your account:

For every AU$1 you have in your account, 50:1 leverage would allow you to place a trade worth AU$50.Therefore, if you deposited AU$300 into your account, you would have the ability to trade amounts up to AU$15,000. Of course, that doesn't mean you have to use your full bankroll on a trade worth AU$15,000, it just means you theoretically have AU$15,000 to use in the FX market.

Leverage, but don't go too high...

Now, although leverage is great for allowing you to trade large amounts with a small bankroll, it can have its risks. Because you're essentially magnifying the size of your investment, small shifts can have a dramatic affect on your profit/loss. Essentially, the higher you set your leverage, the more risk you assume because any pip movements will be multiplied by a larger figure.

The trick here is to find an amount of leverage that allows you to trade at a meaningful level (and make meaningful returns), but not so high that a single movement could wipe out your bankroll.

A Word on Trading Platforms

To actually trade forex on the open market, you need access to something known as an electronic trading platform. Provided by the site you join, this piece of software is basically your link to the daily markets.

When the online FX trading industry first went live, the dominant platform was MetaTrader 4. Developed by MetaQuotes in 2005, this piece of software was made available on a multi-licence basis - which meant individual brokers (i.e. trading sites) could use it. On a basic level, MetaTrader is split into two parts: the server and the client.

The server, in this instance, is the part of MetaTrader each broker uses to offer services to its customers. Depending on the broker's position and business plan, they will offer their own trading conditions through the server side of MetaTrader.

The client side of the equation is what customers can download when they join a site. So, on the one hand, MetaTrader offers a portal to the daily trading markets for operators who can adjust the settings to suit their business. On the other hand, MetaTrader is the software customers can download (from their broker) in order to trade using a set of conditions unique to the site they've joined. For more info on this read our Vantage FX Review to understand how they allow you to access the markets.

For those familiar with sports betting, a similar system is available online. All of the major operators basically tap into a system that allows them to offer odds to customers. As an example, Kambi offers a trading platform through which leading online bookmakers display their odds to customers. Because Kambi's system is available on a licensed basis, it means different bookies will offer different options through the software.

So a customer may be accessing the same underlying technology at two different sites. However, the actual odds and options they see might be different. This, in simple terms, is what a trading platform like MetaTrader 4 or the latest version, MetaTrader 5, does for the forex world.

Trade 24/7 at a Pace that Suits You

One of the great things about forex trading is that it's a 24/7 activity. From Sunday evening until Friday night, you can effectively trade at any time you like as the markets will follow the movement of clocks around the world. In other words, when one international market closes, another one will still be open. Naturally, because you're dealing with multiple markets (because you can trade in a variety of currencies), there will be times when the market movements slow down. Although this can cause some active trades to stagnate, it doesn't mean you can't join the action.

In fact, the beauty of trading FX online is that you can choose a position that suits you. For some, making quick trades is the way forward. Because there are no time limits on how long you need to keep a trade active, some people will find an active currency pair, make an investment and then close the trade within a few minutes. This strategy of dipping in and out as quickly as possible is basically known as "intraday trading" because an active investment is never carried on for longer than a day.

In contrast, if you're someone that likes to play the long game, you can set up trades that continue for days at a time. For example, let's say you got some inside information that a major event would be taking place in the next few days and it would affect the price of the AUD. Knowing that a huge price jump is likely to occur, you could invest in a AUD-based currency pair and let the price ride until the event happens. At this point, you can cash in your profit and walk away with a smile on your face.

Online trading can be a bit of a tricky topic to get your head around if you're a novice. However, if you take the time to learn the basics we've outlined in the article, start with small steps and never risk more than you can afford, it's a great way to make some money online. Although it might take some time to turn a profit, the process is one you'll certainly enjoy. In fact, if you're a fan of in-play sports betting and want to try something new, forex offers a fantastic alternative.


The Very Best Deposit Bonus - AVA Trade

So what is the best Deposit Bonus right now? Our choice is AVA Trade

Five reasons why we like the AVA Trade Deposit Bonus:

  1. It's a great starting Bonus, 100% matched on deposits between $100 and $300 AUD  which is huge for the Australian market
  2. They are regulated by AISC
  3. Zero commission on Forex Trades
  4. The bonus is credited automatically to your account
  5. Profits from the bonus can be withdrawn as cash

Trade Within Your Limits

It's pretty simple, don't be THAT guy, stick to your limits and trade sensibly!