Foreign exchange trading refers to the buying of one type of currency and selling of another simultaneously. Forex traders exchange one currency for another with the aim of profiting from the conversion. In the foreign exchange market, currencies are usually quoted in pairs. Investors speculate on changes in the relative prices of currencies in a given pair. In any currency pair, the first currency is termed as the base currency while the second currency is the quote currency. For any price quote in the forex market, the figure shows how much of the quote currency you would receive for one unit of the base currency.
Foreign exchange trading is now a 24-hour market with the highest liquidity of all the markets. Traders from all over the world are able to participate in online currency trading through various forex trading websites. The Australian dollar (AUD) is the fifth most commonly traded currency in the world behind the U.S. dollar, British pound (GBP), Japanese Yen and the Euro. It dominates trading in the Australian market and is also very popular in the Asian markets like Hong Kong, Tokyo and Singapore.
The most commonly traded currency pair in the Sydney market is the AUD to GBP. The popularity of the AUD in the foreign exchange markets is due to the country’s geology, geography and government policy – all of which contribute to a strong, stable economy and subsequently, a strong, popular currency.
In forex trading, the economic performance of a country will determine the value of the currency in relation to other foreign currencies in the forex markets. Australia has an abundance of natural resources like gold, oil, diamonds, uranium, coal, nickel, iron ore and agricultural products. It trades heavily with other countries, especially Asian giants like China, India and Japan. As a result, there is high demand for AUD in the foreign exchange markets.
The government policy of a country also impacts significantly on its economy and the performance of its currency in the forex markets. For example, high interest rates will attract investors to a country, thus creating demand for the country’s currency in the forex markets. The currency will thus strengthen against other currencies in the markets. Countries with a trade surplus also have strong currencies while trade deficits weaken the currency. These are just some of the factors that influence foreign exchange rates worldwide. The rates fluctuate constantly as the markets react to news events and economic news releases from various quarters.
As a foreign exchange trading specialist one must keep an eye on the performance of the currencies and currency pairs that he likes to trade. In order to be a successful trader, you need not only be aware of the changes in currency values, you also need to know what causes the changes and the directions they will go so that you trader accordingly. For example, the Australian economy is closely linked to the Asian economies, and changes in the Asian markets usually affect the value of AUD. Therefore, anyone who trades in the AUD has to keep in touch with changes in the Asian markets in addition to what is happening locally.
All the information and changes from the markets can be overwhelming to traders, especially newcomers. However, dealing with the right forex broker can make your work very easy as a trader. Your forex broker will provide you with the necessary information in the form of forex charts, trading signals and forex news in real time. This is to ensure you know the condition of the foreign exchange markets at any time, and any changes that are anticipated to take place in the near future so that you trade accordingly.