Buying and selling currencies to profit from fluctuations in exchange rates is known as foreign exchange trading or forex trading. The forex market is the largest and most liquid market in the world. This gives traders plenty of opportunities to take advantage of. Foreign exchange (Forex) trading is conducted bilaterally between two parties through intermediary financial institutions and electronic communication systems (OTC). In this post, we’ll cover some of the basics of forex trading in Australia to help beginners get started.
What is Forex Trading in Australia?
To earn from foreign exchange, one must buy and sell currencies. Anyone who has ever gone overseas has probably dealt in foreign exchange. To buy American dollars with Australian dollars, for instance, a tourist must exchange their native money.
Traders engage in the same action but employ different tactics to pursue a common goal: profit. Forex traders, on the other hand, never handle actual cash. Contracts for difference (CFDs) are widely used in the foreign exchange market. This derivative allows traders to open and close bets without holding the underlying assets.
Historically, banks and other financial institutions have controlled the foreign exchange market (the largest market in the world). However, with the advent of the internet and other technical breakthroughs, anyone with access to the internet can participate in foreign exchange trading from the convenience of their own home.
The Legality of FX Trading in Aussie
The Australian Securities and Investments Commission (ASIC) authorizes and oversees the country’s legal and regulated foreign exchange (Forex) market. This organization issues licenses to a forex broker and other businesses, checking that they comply with rules meant to safeguard traders and investors.
For instance, ASIC regulates maximum leverage ratios. If a trader has only $500, a leverage of 2:1 would allow them to open a transaction worth $1,000 by borrowing an additional $500.
Depending on how the trade goes, this might double their gain or loss. For this reason, the ASIC has imposed restrictions on the maximum amount of leverage that can be applied. Depending on the asset, it might be as high as 30:1 or as low as 2:1.
For maximum safety, Australian forex traders should only work with brokers registered with the Australian Securities and Investments Commission (ASIC).
Is FX Trading Subject to Tax in Australia?
For tax purposes, there are essentially two groups to examine. Do you invest or trade? A trader engages in short-term trades and owns assets for less than a year. Therefore, they are subject to individual tax rates. However, an investor is defined as a person who engages in profitable trading for more than a year. They must pay capital gains tax in this case.
Someone who deals frequently may be labeled “in business.” In this case, they may be eligible for tax breaks like those for working from home. If you are unsure if your trading activity falls within the definition of “in business,” the Australian Taxation Office (ATO) can help.
The foreign exchange market (FX) is the world’s most extensive and dynamic. You can start trading forex in Australia by opening an account with a brokerage firm authorized by the Australian Securities and Investments Commission (ASIC). While benefits can be made trading Forex, there are also risks involved. However, before beginning trading, seek professional guidance and educate yourself on the tax consequences of any potential benefits.