Eur/Aud

[GreenApple]

he dollar was flat while the Aussie slipped on Tuesday. Comments by New York Fed President John Williams received some focus as he said the Federal Reserve “will be likely raising interest rates somewhat.”

[GreenApple]

"Many people start with leverage prematurely, and because of this they're attracted to FX before they're ready," says Louise Bedford, founder of the Trading Game Mentor Program. "It always pains me to see someone begin in the FX market when it's best that they gather some experience in trading a slower-moving beast first. Conquer the basics before you move on to a trade involving too much leverage."

[GreenApple]

In margin FX, the investor takes a simultaneous buying and selling position on a currency pair, and the margin FX provider is on the other side of the transaction. Margin FX offers greater leverage than CFDs: 400-to-one is common, and some margin FX providers offer 500-to-one leverage. The trader needs to have the margin in their account to cover the amount at risk. Traders in both CFDs and margin FX pay interest on a long (buying) position and receive interest on a short (selling) position.

[GreenApple]

The most popular tools for currency trading are contracts for difference (CFDs) and margin FX (margin foreign exchange.) A CFD is a financial derivative that represents a theoretical order to buy or sell a certain amount of currency. Your profit or loss is determined by the difference between your opening price and the price at which you close your position. CFDs allow traders to leverage an investment in FX with a deposit of as little as 1 per cent – that is, the leverage is 100 to one.

[GreenApple]

Anecdotally, FX brokers say that many traders have moved from the equity markets to FX in recent years, attracted by smooth trends – perfect for "trend-following" – and little in the way of "gaping" risk, where the price of a security opens lower (or higher) than the price at which it closed the previous night, without trading in between. Big overnight US market moves can sometimes result in Australian shares opening much lower (or higher) in the morning – that is, "gaping".

[GreenApple]

And there is a growing market of FX traders in Australia. When Investment Trends last surveyed the retail FX industry, there were about 50,000 clients of FX brokers, with a record 16,000 new traders (people who had opened at least one FX position throughout the year) having entered the market in the most recent 12 months.

[GreenApple]

The "Aussie" represents close to 7 per cent of the market, with an average turnover of $US353 billion ($490 billion) a day: it is widely viewed as a higher-risk currency that swings according to investor sentiment and commodity prices. In the "risk-on/risk-off" dichotomy that characterizes global markets these days, the Aussie is definitely a "risk-on" play.

[GreenApple]

Australia is a major participant in the forex market, not only because it is the first major trading hub to open in the virtually 24/7 market (the only time that the FX markets are dormant is a five-hour period on London's Sunday, between midnight Sunday and 5am Monday in Australian standard time.) The Australian dollar is the fifth-most traded currency, behind the US dollar (involved in about 90 per cent of volume), the euro, Japanese yen and British pound.

[GreenApple]

FX market turnover is down from the record $US5.36 trillion ($5.17 trillion) traded in April 2013 – but a huge increase on the $US1.93 trillion ($2.5 trillion) that was traded daily back in 2004.

[GreenApple]

As markets go, the foreign exchange (forex) market is a behemoth: it trades about $US5.1 trillion ($7 billion) worth of currency a day. To put that figure in context, it is 20 times the trading value of the US stock market.