More and more retail investors are interested in trading forex. This trend shows no sign of slowing down, and a wide range of brokers now jostle for business from new traders. Clients can open a forex trading account with ease, but it is important to ensure you have done the relevant research before choosing one and funding the account. The most important checks involve regulation and the legal status of the broker, but once these essentials are confirmed its time to think about your own trading style. When you open an account, you will want to be familiar with how to place trades, how to use the platform, and to confirm all the necessary features are there.
Australian Securities and Investments Commission (ASIC)
The Australian Securities and Investments Commission (better known as ASIC), is regulator for all forex brokerages and similar enterprises in Australia. Ensuring your account is protected by ASIC should be your first consideration when selecting a brokerage, as it is unwise in the extreme to open an unregulated account.
There are several reasons for this: firstly, unregulated accounts do not offer the same protection to your deposit in case of firm bankruptcy. Secondly, the risk of fraud or sharp practice increases away from regulatory oversight. In order to protect your money, using a regulated broker is vital. ASIC carefully monitor the persons involved in firms, ensuring they are of good character and without any past history of fraud, and ensure that client funds are kept in segregated accounts. A strict system of registration allows for close monitoring for potential risks, and the accounts of registered brokerages are closely scrutinised.
The segregation of client money is an important feature of regulated banks and brokerages. This system exists to protect clients in case of bankruptcy – let’s imagine you have deposited $1000 with an unlicensed brokerage, and the firm goes bust. A regulated firm would separate client money from their own funds, ensuring liquidators do not take any client money. In an unregulated firm, you would have little legal recourse if liquidators or creditors tried to take your assets to cover the unpaid obligations of the brokerage. Of course, it is not a common occurrence for a forex brokerage to go bust, but similar incidents do happen and it is considerably safer to keep your money in a regulated firm.
Common features of trading accounts
Trading accounts come with a large range of potential features, which will not be suited to all traders. Some of the most common include charting capabilities, financial calendars, and signals.
Most retail traders use technical signals to generate buy or sell points. Chart patterns generated from candlestick charts, oscillators such as the relative strength index, and the interaction of price and volume with support and resistance levels allow traders – in theory – to predict future price movements and enter trades at the most profitable point. This sort of trader will have specific requirements from their Australian broker, including detailed charting software, fast trade execution, and the ability to superimpose signals onto live charts.
Financial calendars are important for all traders, as news announcements and financial results can suddenly cause major price swings. They have a particularly important role for fundamental traders, who use economic data such as the balance of trade and GDP changes to trade currencies. If this applies to you, ensure your broker has a detailed calendar feature and offers fundamental signals to allow you to make timely decisions.
How to open the account
Once you’ve made your choice, perhaps running the account for a while on a demo setting, it is time to open the account. This process is now fairly simple. First you choose your account type, which will be dictated by several factors including leverage, deposit size, and currency.
It is normally advantageous to open a forex account using your home currency. If you have to make an FX transaction to open your account, you will be exposed to forex risk before even beginning to trade. Many forex accounts are denominated in US dollars, so you should be mindful of the AUD/USD rate when opening an account in Australia.
Different accounts may be available depending on your deposit size. Some brokers offer very low minimums for their main account, but for specialised services you will sometimes need $1000 or even $10,000 to open a new account. Minimum deposits are not inclusive of leverage; most forex brokers offer considerable leverage to accounts, which can significantly increase both your potential gains and any losses.
Conclusion
The actual act of account opening is simpler than ever. Simply clicking on ‘open account’ on your brokers website will lead you through a streamlined deposit and trading process. The difficulties come in screening and selection of potential brokerages. By fully understanding all of your requirements, what is being offered by different firms, and by using a demo account, you can help save time and the difficulty of changing brokerages.
The main limiting factor with a new brokerage account will be your deposit balance. For some account types, tens of thousands of deposited dollars might be required. Fortunately, brokerages exist with low or even no minimum deposit, so there is no reason why traders with $50 or $100 to invest cannot open account. Of course – making a considerable profit on such a small initial sum will be difficult if not impossible, even with leverage.
Whatever you decide is best for your trading style and budget, a few points remain essential. The most important impact on your trading success is cost. If you are paying fixed commissions on every trade, your profits will have to exceed the impact of fees to break even. Different brokerages have different spreads, with some far more competitive than others. Finally, ensuring you are dealing with a regulated ASIC-approved brokerage helps protect your assets from fraud or broker bankruptcy. Each of these factors should influence your decision in opening an Australian forex trading account.
