Forex Trading in Australia - Is it Legal? Is it Taxable?

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Forex trading is legal in Australia and is regulated by the Australian Securities and Investments Commission (ASIC). Profits from forex trading are generally considered taxable income and need to be reported to the Australian Taxation Office (ATO). It's recommended for individuals engaged in forex trading to keep accurate records of their transactions for tax purposes.

Australia has the 50th largest population globally, with a thriving GDP. The Australian dollar ranks in the top five global currencies despite becoming a free-floating currency only in 1983.

Australia's geology has a vast range of natural high-demand resources: gold, oil, diamonds, nickel, uranium, coal, iron ore, and agricultural products.

Geographically, Australia is well-positioned to trade with the dynamic Asian economies. The government and economic stability significantly contribute to the high-interest rates in the currency markets.

In Australia, trading Forex (currencies) is popular among local and international traders. In this guide, let’s explore how to start trading Forex in Australia and answer all your questions regarding minimum investment, earning potential, regulation, and taxes.

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What is Forex Trading?

Forex trading refers to exchanging foreign currencies in the Forex market. When Forex brokers exchange the currency, the profit comes from the price difference between the currencies.

As a trader, you decide which currencies increase their value in the Forex market. This exchange rate determines your profit. The goal is to buy a cheaper currency today but will be more valuable tomorrow when the rates rise or fall.

How Does Forex Trading Work?

To better understand Forex trading Australia, let’s pair up the euro/dollar. Every currency pair has two prices; a bid and an ask. A bid is a price the broker is willing to buy the currency from the trader, and an ask is a price the trader is ready to sell.

The spread is the difference between these two price indicators, and it's either floating or fixed. The broker takes the difference between the sale and purchase prices while you receive the difference from buying or selling the currency.

Your speculation of the price changes in the Forex market earns you a profit. Besides the Australian dollar, you can also trade with other currency pairs.

This article gives you an elaborate explanation of the Forex features, market participants, currency pairs, indices and stocks, and cryptocurrencies. You'll also learn the benefits, risks, regulations, and how to earn on Forex without trading.

If you prefer watching a video, here’s an informative YouTube video.

How Much Money Do I Need To Start Trading?

Before you start trading, you will need a Forex trading account. A micro Forex trading account is a great starting point because it has low capital requirements, and it will help you get accustomed to Forex trading.

The minimum start-up amount required by brokers is $10. However, if you start with a low amount, you’ll have to connect to a very high margin to make a profit. This is a risky step for a beginner due to the increased risk.

Starting with a very high amount is also not advisable, as you have little experience with the Forex market and the risks involved. Experts recommend the golden mean starting with about $ 500- $ 1000. It's a reasonable amount to generate profit without risking too much.

Looking at three popular Australian Forex Brokers, the minimum deposit requirement is:

eToro- $50
IC Markets- $200
AvaTrade- $100

How to Begin to Trade Forex in Australia? A Step-by-Step Guide

1. Choose an ASIC-Regulated Forex Broker

Various ASIC-Regulated Forex Brokers in Australia offer different trading styles based on their experience level.

When searching for a Forex broker, some critical considerations to make include:

The Type of Broker

There are two different types of Forex Brokers:

Dealing Desk Brokers
Non-Dealing Desk Brokers

A Dealing Desk Forex Broker or a market maker creates market liquidity on behalf of their client, making it possible to buy or sell the currency. Your profit comes from the dealing desk broker, but they benefit from your trading losses.

This means that your trading order doesn't go directly to the actual inter-bank market but goes to your broker instead. You'll be trading against the broker who decides the best time to sell in the real market when the price is right.

A non-dealing desk broker or a straight-through processing broker doesn’t trade against their client. They work with liquidity providers to provide variable spreads to their clients. They also pair up traders who would like to switch currencies.

The spreads offered by non-dealing desk brokers are often lower than dealing desk brokers.

The Type of Trading Account and Pricing Structure You Prefer

The broker you choose determines the pricing structure you use. Commission accounts require you to cover the Forex spread and a commission fee, but commission-free accounts only need you to cover the spread.

The Trading Platform and Tools You Need

There are three leading Forex trade platforms; MetaTrader 4, MetaTrader 5, and cTrader. Each medium has various trading tools that you can use to optimize your trading strategy.

The goal is to minimize financial distress due to the high risk involved in trading.

Expected Forex Commissions and Fees

Brokerage firms are businesses like any other; you'll need to pay the broker some fees for allowing you access to the Forex market.

The trading commission is usually a percentage that varies based on your order's value, both when entering and exiting a position.

Overnight interest fees or swap fees are a form of interest that applies to trades that remain open beyond one trading day.

When comparing brokers, ensure you check the terms and conditions, spreads, and fee table. Some also charge inactivity fees that apply when there's no activity in your trading account for a pre-determined duration.

Remember to find out whether you can earn passive income from the broker.

2. Try Demo

Demo accounts provide you with the practice to trade in marketing conditions similar to the actual market but without any risk.

You can use the virtual funds to place orders in Forex markets to assess trading strategies. Since the funds are usually more than you would use in the real market, it can be misleading. The high amounts make it easy to recover losses, which is more challenging with small portions in your real account.

Unlike virtual funds, you can expect a roller coaster of emotions when dealing with real money.

3. Think About Your Trading Strategy

A Forex trading strategy refers to the technique you use to decide if you should buy or sell a currency pair. You can develop a trading strategy by analyzing significant news-based events or conducting a technical analysis of the market.

Your strategy should have trading signals that prompt your decision to buy or sell. These signals are either manual or automatic. For manual methods, a trader analyzes trading signals to decide whether to buy or sell.

The trader develops an algorithm to look for signals and trade without any manual input in automatic methods. You can create a customized strategy or get one online.

Creating a Forex Trading Strategy

Forex trading Australia for beginners recommends using a simple strategy based on your free time and initial knowledge. For instance, if you note how a particular currency pair behaves in specific conditions, you can include additional elements that will help you be more accurate.

Creating a Forex Trading Strategy

For your trading strategy to be effective, it should include components such as:

Market selections; which are the currency pairs you will specialize in.
Position sizing; which sets the limit on how large every position should be to control the risk on every trade.
Entry points determine when to enter long or short positions in specific currency pairs.
Exit points that govern when to exit losing positions and long or short positions
Trading tactics guide you on buying or selling a currency pair and which execution technology to use.

As you learn, the best option is to use low-activity trend strategies that don’t require many trading opportunities or leverage. Keep in mind that the most crucial trading skill is risk management.

4. Explore Passive Income Options

As a beginner, there are several ways to earn passive income.

Forex Robots or Expert Advisors (EAs)

Automating trades using robots or Expert Advisors (EAs) is a great way to earn passive income. The automatic systems execute trades within pre-set parameters, such as the acceptable risk levels.

Forex Signals

Forex signals provide information about the currencies to buy or sell. These signals originate from various sources like social media platforms and popular trading forums.

You can pay for the signals or get them free of charge; the difference is that paid signals have better results. The accuracy of the signs depends on where you sourced the information.

Copy-trading

Copy-trading refers to cases where a signal follower mimics the position of signal providers to benefit from winning trades.

As the follower, you copy the trader’s actions hoping for high profits. It’s essential to select the right trader to copy and a trading platform that best protects your account.

As a signal provider, you earn a certain percentage of the fees and commissions. You can get instant rebates and more income as your following increases.

Becoming an Introducing Brokers (IB)/partner

Introducing brokers get rebates and commissions from signing up as broker partners or merchants.

As an IB, you’re responsible for building and nurturing direct client relationships. You’ll have access to top-rated marketing materials and exclusive training to help you grow your network.

Forex Managed Accounts

Forex-managed accounts or percentage allocation money management (PAMMs) operate like copy trading, except your trader handles other investors' funds.

As an investor, you pay some capital to a trader or money manager who trades on your behalf. If there are any profits, what you get depends on your capital.

5. Learn, Learn, Learn

When learning the ropes of Forex trading, learning is a dynamic process. It’s essential to understand both currencies in every pair. Learn the significant macro-environmental drivers that affect the markets you’re dealing with.

After every trade, evaluate it to understand what features or processes need improvement or change. Once you get a basic understanding, test your trading strategies using a demo account and re-test after every change.

Top 8 Best Trading Apps in Australia

Rules and Regulation

Forex regulation in Australia
The Australian Securities and Investments Commission (ASIC) serves as the primary regulatory authority overseeing Forex activities within the country. Its mandate involves ensuring compliance with regulations, maintaining market integrity, and protecting investors.
To obtain a Forex license in Australia, firms must:
- meet ASIC’s capital requirements
- implement certain risk management protocols
- adhere to anti-money laundering (AML) regulations.
Investor protection in Australia
Australia has strong investor protection mechanisms, with ASIC playing a pivotal role in safeguarding investor interests. Through market surveillance, enforcement actions, and investor education initiatives, ASIC promotes fair and transparent trading practices.
Additionally, the Australian Financial Complaints Authority (AFCA) offers recourse for investors in case of disputes with financial service providers, further enhancing investor confidence in the market.
Taxation in Australia
Forex trading profits in Australia are typically subject to taxation under the Australian tax system. Individuals engaging in Forex trading may be liable for capital gains tax or income tax, depending on various factors such as trading frequency, duration, and intent. However, certain tax exemptions or deductions may apply, and it's essential for traders to consult with tax professionals to ensure compliance with applicable tax laws.

Best Australian Forex Brokers for Beginners

eToro- Best Copy-trading Platform

eToro Review

Open an account

Your capital is at risk.

eToro is famous for the social trading features that allow users to copy more successful traders. It provides access to the largest social network of cryptocurrency, commodity, Forex, stock, and CFD traders.

eToro offers $0 commission and broker fees for all trade assets, attractive to over 20 million users. Forex spreads are often higher for major currency and exotic currency pairs.

The minimum trade amount on eToro is $10, and the account minimum is $50. You can use a CopyTrader, but you'll have to pay $200, and the free demo account comes with $100,000 virtual funds.

Etoro has no rollover, ticket, management, or additional broker fees. Users can access customer support via live chat or get answers from the FAQ section. You can also attend webinars and take an online course at the education centre.

How to use eToro copy trading to earn money

IC Markets - Extra Low Fees for Active Trading

IC Markets Review

Open an account

Your capital is at risk.

IC Markets offers the lowest average spread, fast execution, and advanced trading platforms. The non-trading fees are low, and there are no deposit, account, or inactivity fees.

Besides the free deposit and withdrawal charges, IC Markets offers both MetaTrader and cTrader platform suites and copy-trading platforms.

However, the limited portfolio offers only Forex and CFDs whose financing rates ate significantly higher. There's also little customer support and educational content for beginners.

The minimum deposit is $200, and you can open a free demo account.

AvaTrade - Best Forex Trading App for Beginners

AvaTrade Review

Open an account

Your capital is at risk.

AvaTrade offers a wide range of assets such as cryptocurrencies, stocks, bonds, Forex, indices, commodities, and ETFs. Users can access copy-trading community channels on social platforms such as AvaSocial, DupliTrade, MQL5 Signal service, ZuluTrade.

Get MQL5 signals right now

One of the best features of Avatrade is the AvaProtect and negative balance protection, which allows you to ensure your trade. The minimum initial deposit is $100, while the deposit and withdrawals are free.

However, there’s a quarterly $50 inactivity fee if your account remains dormant for three consecutive months.

The comprehensive educational materials include FAQs, articles, and video tutorials categorized into beginner, intermediate, and advanced topics. Customer support is excellent, bilingual, and broad.

Forex trading Australia reviews indicate that Avatrade is an asset for any beginner. It offers competitive, low spreads and the highest leverage.

AvaTrade copy trading review

How Much Can I Earn?

How Much Can You Make Trading in Forex

There's no actual limit to the amount you can earn in the Forex market. The market fluctuations make it difficult to predict future earnings, depending on your course of action. Find out in our article about the richest traders in Australia, their secrets and success stories, as well as how to achieve financial success in the world of Forex.

Although there are good days and bad days to trade Forex Australia, trading more equips you with experience, which improves your chances of succeeding.

Take a look at George Soros, for instance, which rose to fame in 1992 when he risked $10 billion on one speculation and earned a profit of $1 billion. You might be interested in reading about the best funded trader programs in Australia in the TU article.

Can I Trade Forex with $100 in Australia?

Yes, trading Forex with just $100 in Australia is entirely feasible. Many brokers in the region permit low minimum deposits of around $100 and even offer micro contracts for traders who open live accounts. These micro contracts often consist of just 1,000 units of currency, allowing you to get your feet wet in the Forex market without requiring a substantial investment.

However, before jumping in, consider a couple of factors. Firstly, your choice of a broker should not only hinge on minimum deposit requirements but also on the availability of micro lot contracts. Secondly, trading with a modest sum like $100 can be a double-edged sword. While it minimizes your financial risk, it also curtails your profit potential. Due to this, there's an increased chance of losing a significant portion of your investment, especially if you're trading without leverage.

Generally speaking, starting with a more robust capital base, such as $500 to $1,000, may give you a better footing. This larger amount provides a buffer against losses and enables you to employ varied trading strategies for better profit potential.

How to Check Broker Regulation

Regulation is one of the most critical factors to consider when choosing a Forex broker. A regulated broker adheres to rules and standards that protect traders from fraud and unfair practices. Here's how you can check if a broker is regulated:

Research the Regulatory Body: The starting point is to identify the regulatory authority governing the broker. You can do this by visiting the websites of major regulatory bodies like ASIC in Australia or FCA in the UK.
Check the Broker's Website: Regulatory information is usually available on the broker's website. Make sure to find details like the address of the broker's headquarters, their history, and other pertinent details that speak to their credibility.
Verify the Registration Number: With the regulatory information at hand, proceed to the website of the respective regulatory body. Use the registration number provided by the broker to verify its legitimacy.
Look for Red Flags: Even if the broker appears regulated, still conduct your own due diligence. Check for elements that might indicate fraudulent behaviour. This could be things like overly promising guaranteed returns or the lack of transparency in their operations. Discover the Forex scammers list in Australia, key red flags, and tips to identify and avoid fraudulent brokers effectively.
Use BrokerCheck: Many traders use tools like BrokerCheck to validate a broker's registration and past work history. It's a quick way to ensure the broker you're considering is not only registered but also has a clean or understandable operational history.

Through these steps, you can assure yourself that you are not walking into a scam but rather investing your money in a venture regulated by authoritative bodies. It's a time-consuming process, but the peace of mind it brings makes it utterly worthwhile.

Find out about the best binary options brokers in Australia: regulations, trading platforms and how to choose reliable brokers for safe trading.

FAQs

Is Forex Trading Legal in Australia?

Yes, Forex trading is legitimate in Australia, and you can trade with both local and offshore brokers.

What Is the Most Stable Tradable Currency Pair?

Most major Forex pairs are stable, starting with the EUR/USD and others such as USD/JPY, GBP/USD, and NZD/USD.

Are There Bonuses in Forex Trading?

Yes, some brokers offer bonuses to attract traders, but it shouldn't be a key contributor to your decision.

What Is a Pip in Forex Trading?

A Percentage In Points (Pip) is the rise or fall of a currency’s value to the fourth decimal point. For instance, if the Australian dollar’s value increases from $0.8530 to $0.8532, the increase is by two pips.

Team that worked on the article

Dwight specializes in risk, corporate finance, alternatives, fintech, general business trends, and financial markets, and he has broad experience managing complex projects. Dwight is an author for the Traders Union website.

Dwight was a financial columnist for The Wall Street Journal and The New York Times during the Great Financial Crisis. He has served as Editor-in-Chief of Worth, a personal finance magazine for the wealthy, and as Editor of Risk, the premiere global publication about derivatives, risk management, and quantitative finance, based in London.

He has also served as Managing Editor at The Economist Group and ran the Americas operations of two British trade publications.

For the last 12 years, Dwight has worked as a freelance writer and editorial project manager, serving clients in the financial technology, banking, broker/dealer, consulting, asset management, and corporate sectors. This has given him considerable experience in idea generation and project management, working collaboratively to help clients meet their goals with little or no supervision.

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Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).

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