What is the foreign exchange market?
The foreign exchange market, also known as the forex (or even more simply, the FX market), is the largest financial market in the world. Every day trillions of Australian dollars of global currencies are traded in what are called “pairs”, i.e. the exchange of one currency for another, such as US dollars for Australian dollars, euros for Japanese yen, etc. These transactions are carried out five days a week, 24 hours a day around the globe and determine the value of every currency on the planet second by second, based on supply and demand. So, if the Australian dollar is in demand, its value against, for example, the US dollar will rise and vice versa.
Given its scale and breadth, forex trading is easily accessible by individual investors, who can open an account with a few hundred dollars and begin trading immediately. But it is easy to lose money, especially if you are a beginner. Trading successfully requires effort, discipline and a determination to learn as much as you can about the market before you start. You also need to understand the regulations governing the market, the costs of trading and which brokers to use. Most importantly, you should understand the risks and disadvantages before deciding whether forex trading is for you.
Why does the forex market exist?
There are many reasons why people trade currencies. Australian companies may need to buy US dollars to pay for imports, or a Japanese business may need Australian dollars (known by the abbreviation AUD in FX markets) to pay for the acquisition of an Australian company. Central banks, such as the Reserve Bank of Australia (RBA), can intervene in FX markets, buying and selling currency to manipulate its value for reasons of economic policy. Speculators also drive a very large part of the market, trading with the aim of generating a profit.
Large financial institutions, multinational corporations and hedge funds dominate the forex market, which reached a value of US$6.6 trillion per day in April 2019, according to the latest statistics.[i] That size means it is a hugely liquid market, i.e. it is very easy to buy and sell currencies because there are so many buyers and sellers in the market for most currencies.
What drives the Forex market?
The Aussie dollar is a free-floating currency. In other words, the value of the AUD in the FX markets is determined by supply and demand. This is the case for the currencies of most advanced economies. By contrast, some currencies, such as the Chinese renminbi (RMB), have a fixed exchange rate. The Chinese authorities determine the value of the RMB against the dollar and keep the link until they decide to alter the exchange rate. Clearly, there is no potential for individual traders to profit from trading currencies with a fixed exchange rate.
The value of a floating currency such as the AUD, however, is constantly moving up and down against other currencies. Often these movements are relatively small, so the AUD may begin the trading day buying 75 US cents and end a fraction of a cent higher or lower, or even back at its opening level. But dramatic news can spark much greater volatility. For example, the outbreak of the coronavirus in early 2020 caused the AUD to fall sharply against the US currency. It fell by around 13% during the first two weeks of March on fears the virus could have a much greater impact on Australia than on other advanced economies that are less dependent on global trade and growth. Traders, fearing a prolonged period of economic uncertainty, sold the AUD as quickly as they could.
Economic developments are also a key influence. New data suggesting the economy is growing faster than anticipated might spark concerns that the RBA could raise interest rates to rein in growth. Higher interest rates enhance the appeal of holding a currency, since you are getting a bigger return on your money. That outlook consequently boosts demand for the AUD and its value rises. Similarly, if Australia’s economic outlook darkens and traders anticipate the RBA will cut interest rates, they will sell the Aussie dollar, so depressing its value against other currencies.
So, FX traders follow economic, financial and political news closely from day to day, looking for any hint of information that could sway the value of the AUD. They are hoping to react before other traders spot the development. Or they may take bets on a likely development, believing they have some insight that other traders lack.
Longer-term global economic trends are also a key factor driving the AUD. For example, the currency appreciated from less than US$0.50 in 2001 to a peak of over US$1.10 in 2011. Why? Simply because Australia has a wealth of natural resources, including iron ore, coal, gold, crude oil and gas. During that decade, China developed an immense appetite for these commodities, reflecting the industrialisation of its economy and its massive spending on infrastructure, such as roads, railways, airports and new cities.
At the start of the century (in 2000-01), total Australian goods exports to China were worth just A$6.8 billion, and of that total, exports of iron ore and concentrates accounted for some A$1.2 billion, or about 18 per cent of all exports to China. By 2011, Australian exports to China had surged to A$77.1 billion, of which iron and concentrates accounted for nearly A$44 billion, or about 57 per cent of all exports to China. China’s voracious demand for raw materials meant it also had to buy huge amounts of Aussie dollars on FX markets to pay for these imports, and that was the main factor driving up the value of the Australian currency over the decade. [ii]
However, while the AUD more than doubled in value against the greenback over those ten years, it was far from a smooth ride: the currency lost value over some months and years and, of course, there was volatility on a weekly and daily basis. That meant there were plenty of opportunities for FX traders to make money during that period, betting on whether the currency would rise or fall during a particular day, hour or even minute, even though the long-term trend was upwards.
Why is forex trading popular in Australia?
Forex trading is the largest and most easily accessible market in the world. The costs involved are relatively low compared with other markets, there are lots of brokers to choose from in Australia, and it is relatively easy to understand the ways in which you can trade the market. There are many freely floating currencies and since they can all be traded against each other there are a huge number of currency pairs to trade in. A vast amount of information is available to would-be traders, ranging from how to get started to outlining potentially profitable trading strategies.
You can trade from your living room using a fairly basic computer if you download the appropriate trading software, and it is relatively easy to set up an account with a broker. Unlike other financial markets, you can also exploit the concept of “leverage”, where you make use of borrowed money to increase your potential profits (and your losses). To explain what this means, currency pairs are traded in specific amounts called lots. They tend to be in 100,000 units of a currency, so, for example, if you are trading in the Aussie dollar against the US dollar, you would buy or sell A$100,000 at a time. Since most people don’t have A$100,000 available to trade, the broker effectively offers to lend you money. So, they may allow you to trade in a lot of A$100,000 by opening an account with A$1,000 and lend you the remainder. The initial A$1,000 is known as the margin and your leverage in this case would amount to 100 to one (100:1).
As we mentioned, as well as increasing potential profits, leverage can dramatically increase risk. There are methods you can use to contain risk, but that is a topic for another article.
The disadvantages of Forex trading
Forex trading requires a considerable commitment. It takes time to learn how to trade profitably, and when you start to trade you may have to spend many hours per day on your computer screen following and researching what is happening in the market – and why – in preparation for your trading day. When that day is finished, you will need to analyse what happened and why your trading activities succeeded or failed, so that you can apply the lessons learnt to the next day’s trading. There could be days when you lose money and it is easy to become disheartened. There is certainly no guarantee of success. FX trading can be risky and you can lose money or you may find that it is simply not something you like or have the temperament for. You have to be patient, for example, waiting for opportunities to arise, and the market can experience bouts of extreme volatility that you may find highly stressful.
Introduction to the regulation of the Australian market
Trading is legal in Australia, and is regulated by the Australian Securities and Investments Commission (ASIC), an independent government agency that oversees financial markets in the country. The ASIC’s role is to:
- facilitate and improve the performance of the financial system and entities in it
- promote confident and informed participation by investors and consumers in the financial system
- administer the law effectively and with minimal procedural requirements
- receive, process and store, efficiently and quickly, information it receives
- make information about companies and other bodies available to the public as soon as practicable
- take whatever action it can, and which is necessary, to enforce and give effect to the law.
Before any FX broker in Australia can take on clients, it must be approved and licensed by ASIC. Brokers that are not licensed are operating illegally in Australia. It is easy to check whether a broker is licensed by ASIC: simply find the company’s register number from the disclosure text at the bottom of its Australia homepage and then enter it into the search facility on the ASIC website. ASIC also recommends using its financial advice service Moneysmart to check if a broker is on its list of unlicensed overseas companies. If so, says Moneysmart, you should not deal with that broker.
Recent regulatory changes
In 2021, ASIC introduced several new initiatives aimed at protecting investors from being exposed to volatile assets and unpredictable markets following the COVID-19 global pandemic. The changes included a huge reduction in the maximum leverage that brokers can offer individual traders, from 500:1 to 30:1. Reducing leverage is designed to reduce the risks associated with trading, making it harder to make large profits and losses. ASIC also banned brokers from offering rewards for activities such as signing up to the broker, referring a friend, or trading high volumes.
FX trading scams
Australian consumers are increasingly being targeted by unauthorised forex trading and brokerage firms offering the chance to trade in foreign exchange and other financial instruments. These firms can promise very high returns and guaranteed profits, either through a managed account where the firm makes trades on the investor’s behalf or by trading using the firm’s trading platform.
Many scam firms claim to be based in Australia and even to be ASIC-authorised. They may even clone the details of firms that are registered with ASIC but give their own phone number, address and website details, sometimes claiming that a firm’s contact details on the Register are out of date.
That is why it is so important to check that a firm really is authorised by ASIC. You should scrutinise all of their details and call the company using the switchboard number on the ASIC Register to check the information you’ve been given. Never trust an email or a website link from a firm offering you an investment. If you have any doubts about a broker, contact ASIC either online or by telephone.
Always be wary if you’re contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true, and never take investment advice from the company that contacted you, as this may be part of the scam.
Making a complaint against a broker
The Australian Financial Complaints Authority (AFCA) is a free, fair and independent dispute resolution scheme. If you have a complaint against a broker, you should use their Make a Complaint service.
AFCA can generally only consider your complaint if it is made to AFCA within the earlier of two timeframes, either:
- six years after you first became aware, or “should reasonably have become aware”, that you had suffered the loss you want to complain about; or
- if you have already complained directly to your financial firm through its internal dispute resolution (IDR) process, within two years of getting a response from your financial firm through that process.
Comparing forex brokers in Australia
A forex broker provides traders with a platform that gives them access to the FX market and allows them to buy and sell currencies. Opening an account is simple and can be done online. You will be asked to provide proof of identity and a deposit.
All ASIC-regulated forex brokers are required to adhere to the strict guidelines enforced by ASIC, which are designed to protect consumers. These include keeping their client funds in segregated (or separate) accounts from their company accounts, and not using their traders’ money for any other purpose. Every ASIC-regulated broker is required to have at least A$1 million in operating capital, which increases according to the number of traders and the trading capital. Licensed brokers must have a compensation scheme in place to compensate clients if the company breaks the law.
Using an offshore broker – the pros and cons
However, you don’t have to use an Australian broker regulated by ASIC. You can open an account with an offshore broker, i.e. a company based outside Australia.
There are advantages and disadvantages to using an offshore broker. The main advantage is that you won’t be subject to the same restrictions as when using an Australia-based broker regulated by ASIC. An example is leverage limitation: retail traders are limited to 30:1 leverage under ASIC rules, whereas an unregulated broker could offer a 500:1 ratio. Offshore brokers also tend to have lower costs, which they can pass on to you in terms of lower commissions or better spreads.
The disadvantages include the fact that if you use a broker registered in another country, it will be subject to the regulations of that country and it may not be as well supervised as an Australian firm. If things go wrong and your broker is registered in a country thousands of miles from Australia, it might be difficult to gain legal redress.
There are things you should consider whether you use an ASIC-registered broker or one based offshore. These include:
- The trading experience – is the trading platform easy to use, what kind of support do they offer, and are there tools that can help with research, etc?
- Trading costs and transparency – these can vary widely from broker to broker. Some charge a fixed commission regardless of how much you trade, while others charge a fee based on trading volume (the higher the volume, the greater the commission). Other brokers don’t charge a commission but instead charge a spread fee. The spread is the difference between the price the broker quotes you for buying a currency and the price it quotes for selling it. This is effectively the fee your broker charges you to trade. (For example, imagine the US dollar is trading at 0.75 to the AUD and you decide to buy some US dollars. The broker may quote you a price of 0.7502, so you have been charged two pips – “percentage in point” or “price interest point” – for your trade. The pip is thus $0.0001 for US dollar-related currency pairs.) It is also important to be aware of the hidden fees some brokers charge, such as inactivity fees, monthly or quarterly minimums, and fees associated with calling a broker on the phone.
- Customer service – you can trade forex 24 hours a day, five days a week, but does the broker offer round-the-clock support? Is help available instantaneously online or by phone, or do you have to wait a long time for a response? You can check by calling the broker at different times of the day before signing up.
- The size of the minimum deposit – some brokers may allow you to open an account with just A$1, but the minimum is generally between A$100 and A$300.
- Maximum leverage offered – there is a standard 30:1 ratio for ASIC-regulated forex brokers in Australia, but offshore brokers can offer higher levels of leverage, with some providing a 500:1 ratio.
How to Compare Forex Brokers in Australia
Though Forex brokers might appear to be similar, they are quite different once you dig a little deeper, and account conditions will vary for Australian residents. These are some of the most common questions traders will have when comparing Forex brokers.
Forex Brokers for Beginners
Forex Broker Fees and Trading Costs:
Other Trading Options
Forex Broker Regulation
Forex Broker Customer Support:
Forex Trading Platforms:
Do I Need a Broker to Trade Forex?
Yes, you will need a broker to trade Forex. Connecting traders to the Forex market is an expensive and technically complex business. It’s important to choose a regulated Forex broker with low costs and a history of treating its clients fairly.
Which is the Best Broker in Australia?
The best broker in Australia is FP Markets. FP Markets is ASIC regulated, with low trading costs on both the MT4 and MT5 trading platforms. Traders have access to Forex, shares, commodities, indices, and crypto pairs. A standard commission-free account is available alongside the RAW Account, with spreads starting at 0 pips for a 6 USD round turn commission per lot.
FP Markets allows hedging, scalping and automated trading and the broker’s ECN pricing model allows for fast execution using its network of liquidity providers and Equinix NYC servers. FP Markets invests in new traders with award-winning customer service, dedicated account managers and a rich education section, which includes daily email updates of the latest financial news impacting the currency markets.
Which is the Best Broker for Beginners?
CMC Markets is the best broker for beginners in Australia. ASIC-regulated since 2002 and with no required minimum deposit, CMC Markets is a safe broker to trade with and a low-risk option for new traders. Trading costs are some of the lowest in the industry, with spreads starting at 0.7 pips on the EUR/USD. CMC Markets also has a great education section, with articles, video tutorials, frequent webinars, advanced trading strategies, and chart analysis.
If you are looking for a reliable ASIC-regulated broker for beginners, some other good options are:
Which Broker has the Best Demo Trading Account?
CMC Markets also has the best demo trading account in Australia. The CMC Markets demo account never expires and comes with 100,000 USD preloaded and can be loaded with more virtual funds at any point. The CMC Markets demo account gives Australian traders access to 10,000+ trading instruments and can be used on both MT4 and CMC Markets’ own Next Generation trading platform.
Some other brokers with great demo accounts and ASIC regulation are:
Are Forex brokers in Australia reliable?
Yes, most Forex brokers in Australia are reliable and trustworthy. The most reliable brokers in Australia are regulated by ASIC and have a history of treating Australian traders fairly. If you are unsure about the reliability of your Forex broker, you can check our list of brokers to avoid.
How do I Choose a Forex Broker?
When choosing a Forex broker there are three things to consider:
- Regulation: Make sure you choose a broker regulated by the FSCA in South Africa or one of the other major regulators like CySEC (Europe), ASIC (Australia) or the FCA (UK). Regulated brokers have better security and will treat their traders fairly
- Cost: Look for a broker with a low minimum deposit and low fees. Broker fees will include the spread, commission and deposit and withdrawal fees.
- Education: If you’re a beginner you will want a broker with good educational content. All of the brokers on our Best Brokers for Beginners page have high-quality education for beginners.
How do Forex Brokers Make Money?
Some brokers (called market makers) only make money from the spread – the difference between the buying and selling price of the currency pair. These brokers will be the counterparty to any trade, so they make money when clients lose trades.
Other brokers (called ECNs) have tight spreads but make money from commissions, which are charged every time a trade is opened or closed. This type of broker makes money whether a client wins or loses.
Which Broker has the Lowest Fees?
Tickmill is the broker with the lowest fees, with the total trading cost on its Pro Account equalling 0.4 pips on the EUR/USD, this includes a 0 pip minimum spread and a round turn commission of 4 USD per 100,000 traded.
Other brokers with low trading costs are:
Broker fees are split into the trading costs, which is the total of the spread and commission, and non-trading fees such as deposit and withdrawal fees.
The spread is the difference between the buy and sell price of a Forex pair and is measured in pips, the smaller or “tighter” the spread the less money you spend when you make a trade. Commission is charged by some brokers every time a trade is opened or closed.
How do I make a Deposit with a Broker?
Making a deposit with a broker is a simple process. Once you have signed up and opened a live account you will be given a few options. Most brokers in Australia will accept local bank transfers, credit cards, online payment solutions like Bpay, POLi and eWay, and eWallets like Neteller and Skrill. Bank transfers usually take 1-2 days to process and may have a fee attached but all other deposit methods are usually instant and free.
How do I make a Withdrawal from a Broker?
To make a withdrawal from a broker you must have enough money in your trading account after deducting the margin needed to keep any trades open. Once you know how much you can withdraw, you can make a withdrawal request via your account dashboard. To prevent money laundering, Australian brokers will only let you withdraw the same amount as your initial deposit back to your credit card or eWallet. Anything more than this will have to be withdrawn to a bank account in your name.
Which Broker has the Lowest Minimum Deposit?
CMC Markets is the broker with the lowest minimum deposit. Regulated by ASIC since 2002, CMC Markets has a single commission-free trading account with a minimum deposit of 5 AUD. Other ASIC regulated brokers in Australia with low minimum deposits are:
With most brokers, larger deposits usually unlock lower trading costs and other perks. What level of minimum deposit you are comfortable with depends on your financial situation.
How do I Calculate Trading Costs?
When trading Forex, the total trading cost is the spread on the currency pair you are trading plus any commission your broker may charge. If you keep a trade open overnight you will also be charged a rollover (or “swap”) fee, which will be deducted automatically from your account. Major pairs, such as the EUR/USD or USD/JPY have tighter spreads and are cheaper to trade.
Which Broker has the Highest Leverage?
HotForex offers the highest leverage of any reliable Forex broker available to Australian clients at 1000:1 on its Micro Account (other accounts have a leverage limit of 500:1).
ASIC-regulated brokers can only offer 30:1 leverage to Australian clients, so all brokers who offer higher leverage will be offshore (i.e. not ASIC-regulated). In HotForex’ case, Australian clients will be trading with its St Vincent and Grenadines registered subsidiary, though all clients have negative balance protection and their funds are kept in segregated accounts. This is not the case with all offshore brokers.
Below is a list of other offshore brokers who offer high leverage and accept Australian clients. These brokers are ordered not by the highest leverage but by regulatory trustworthiness. JustForex offers 3000:1 leverage but has no regulatory oversight over any part of its business (it is registered in St Vincent and Grenadines, which does not regulate Forex brokers) so is the lowest on the list. Trading with unregulated, or poorly regulated, Forex brokers is risky and not recommended.
Leverage is money borrowed from your Forex broker to increase the size of your trading position. Leverage is essential in Forex trading because the movements of the market are too small to make a decent profit unless you place thousands of dollars per trade. Leverage can be used to make large profits with little of your own money, but you can also quickly lose more than your original investment.
Which Broker Has the Most CFDs?
MultiBank is the broker with the most CFDs to trade. Regulated by 10 different authorities, MultiBank offers trading on over 20,000 instruments, including Forex, indices, share CFDs, commodities and cryptocurrencies. Multibank’s Standard Account has a minimum deposit of 50 USD and Islamic accounts are available for all Malaysian traders.
Other brokers with a wide range of instruments to trade are:
Which Broker has the Most Currency Pairs?
CMC Markets is the Broker with the most currency pairs, with over 330 currency crosses to trade. Publicly traded on the London Stock Exchange, Swissquote is also ASIC-regulated and is one of the most trusted brokers in the world. CMC Markets targets both beginners and professional traders with minimum deposits and low trading costs.
Other Forex brokers with a larger than usual selection of currency pairs to trade are:
Which Broker is the Best for Professional Traders?
Pepperstone is the best broker for professional traders. An ECN broker with extensive liquidity streams, Pepperstone supports all three major trading platforms (MT4, MT5 and cTrader) and has some of the tightest spreads in the industry (0.09 pips EUR/USD spread on its Razor Account).
Commissions are low and there are no minimum deposit requirements. Commissions can be further reduced by becoming a member of Pepperstone’s Active Trader Program. The Active Trader Program has a number of other advantages for high-volume traders, including a free VPS service and priority customer support.
What are Managed Forex Accounts?
Some brokers will operate a managed account for you, but this is rare. There are independent money managers who can manage your account while they are trading for themselves. It is vital that you understand the minimum deposit requirements and additional risks involved when trading CFDs.
If you have any questions after reading through this guide, please get in touch with us in the comments at the bottom of the page.
How do I Know if a Forex Broker is Regulated?
All regulated brokers are required to display their licence number and the authority they received it from on their website. These licence numbers can be easily verified on the regulatory authority’s website. Some scam brokers will use similar names to legitimate businesses, so make sure the name of the licence holder on the regulator’s website matches the broker’s details.
How do I check if a Forex broker is licenced by ASIC?
All Forex brokers that are regulated by ASIC are required to publish their AFS licence number on their website. Once you have the AFSL number of a broker you can go use ASIC’s search page to enter the licence number and verify that the broker is indeed regulated.
How Can I Report Scam Brokers?
If you believe you have been scammed by your broker, the first thing to do is warn others and tell your story. You can contact ASIC’s misconduct department here and ask them to investigate. We also have a report a scam broker form which we use to gather information so that we get the word out. If you have been scammed, please complete the form.
Which Broker has the Best Customer Support in Australia?
FP Markets is the ASIC-regulated broker with the best customer service. FP Markets’ customer support team has won 22 awards since the company was founded in Australia in 2005. Available 24/7 (0800-1600 on weekends) via live chat, email, telephone and call-back service in over 12 languages, FP Markets’ customer support is knowledgable, responsive and can assist traders with all aspects of CFD trading, from setting up accounts to navigating its platforms, plus any other technical queries.
Which Forex Broker has the Best Platform?
Marketsx is a trading platform from Markets.com, which has been ASIC-regulated since 2012. Traders can use the Marketsx platform to trade over 2,200 financial instruments. The platform also offers advanced charting, making it easier to spot trends and identify new trading opportunities. Marketsx also allows traders to use five types of indicators once, overlay multiple assets, or compare up to eight instruments side-by-side. Marketsx is available on mobile devices and via the markets.com website.
Which is the Best Platform for Forex?
Currently, MetaTrader 4 (MT4) is the best platform for trading Forex. MT4 has been around since 2005 but is supported by most Forex brokers and used by millions of traders around the world. MT4 is resource-efficient, fast, and can run on older hardware without any issue. It’s also fully customisable and can handle multiple trading accounts from different brokers with a single installation.
MT4 is particularly valued for its automated trading facilities. Traders can create or buy algorithmic trading robots and install them on their version of MT4 to automate trading or assist in decision making. It’s also possible to copy other traders through the MT4 trading signals facility.
Forex Risk Disclaimer
Trading Forex and CFDs is not suitable for all investors as it carries a high degree of risk to your capital: 75-90% of retail investors lose money trading these products.
Forex and CFD transactions involve high risk due to the following factors: Over-leveraging, unpredictable market volatility, slippage arising from a lack of liquidity, inadequate trading knowledge or experience, and a lack of regulatory protection for clients.
Traders should not deposit any money that is not disposable. Regardless of how much research you have done, or how confident you are in your trade, there is always a substantial risk of loss. (Learn more from the FCA or from ASIC)
Our Rating & Review Methodology
Our State of the Market Report and Broker Directory are the result of extensive research on over 160 Forex brokers. The explicit goal of these resources is to help traders find the best Forex brokers – and steer them away from the worst ones – with the benefit of accurate and up-to-date information.
With over 150 data points on each broker and over 3000 hours of research and review writing, we believe we have succeeded in our goal.
In a world where trading conditions and customer support can vary based on where you live, our broker reviews focus on the local trader and give you information about these brokers from your perspective.
All research has been conducted by our in-house team of researchers and writers, gathering information from various company representatives, websites and by sifting through the fine print. Learn more about how we rank brokers.
4.28
Accepts Australian Clients. Average spread EUR/USD 0.10 pips with 6 USD commission round turn on the trading account with lowest minimum deposit. Max leverage 30:1. Islamic account available. MT4, MT5 & IRESS platforms supported. FP Markets is regulated by CySEC and ASIC.
