How small investors gain new currency

Forex tools can help manage the risks of the world’s biggest market.

When it comes to investing, most Australians stick with shares, managed funds and property.

However, a growing number of traders are turning to the foreign exchange market in hopes of generating faster returns.

The forex market is the global currency market and is the largest financial market in the world. It became available to the general public in recent years.

“To give you an idea of size, on a typical day 16 times more money is traded on the forex market than all the sharemarkets across the world combined,” says Daniel Byrne, managing director of APAC for trading platform easyMarkets.

“This is because traders can enter and exit trades easily and instantly, unlike share trading where you need a buyer and a seller. In forex you simply open or close your position,” he says.

Another reason for its popularity are the trading hours.

Forex can be traded 24 hours a day from 7am Monday to 6am Saturday. As a result, many traders have jobs during the day and trade forex during the evening.

Famously, forex is the market that American dealer Andrew Krieger used in 1987 to ‘raid’ the New Zealand dollar and net a $300 million profit on a trade for his employer, a US bank.

However, it’s not just for big players any more. A part-time trader can start with a small balance and trade a single currency. This way they can become familiar with regular patterns to trade.

Despite a potential for high returns, forex trading can be risky, especially if you don’t have access to the right platform and tools with which to trade. Byrne says that easy-Markets is one broker that is leading the way.

“We kept seeing traders losing money because trading was too complex, so we became focused on creating innovative tools for trading. That process resulted in dealCancellation – the ability to undo losing trades – and easyTrade – a tool that allows trading with absolutely no margin. In our industry, these are game-changers for traders,” he says.

Byrne advises traders look carefully at what different trading platforms offer, as the wrong platform can result in increased trading risks.

One risk with many brokers is allowing high leverage without protection. Some brokers offer up to 500:1 leverage, which means a trader, in effect, controls $500 of currency for just $1. While this can seem highly profitable, it can also be incredibly risky if a trade goes the wrong way.

Without protection, a trader can lose far more than what he or she invested, even ending up with a negative balance for which they are liable.

Traders also need to be aware of misleading trading fees. For example, brokers offering trades ‘from 0.0 pips’. In reality, ‘from 0.0’ usually means ‘very rarely 0.0’.

It’s also worth looking for features that offer extra protection, Byrne says.

He says trading should be fair and all traders should be protected, especially beginners.

The easyMarkets feature he is especially proud of is dealCancellation, which he says has a risk-free trade period that gives the trader a 60-minute margin to cancel an order if the market moves against them.

“We want forex trading to be accessible to everyone and we’re giving traders the protection they need,’’ Byrne says.

‘‘We have pioneered exclusive features like dealCancellation and easyTrade to manage traders’ risks. There’s no reason any more for forex to be the exclusive domain of big banks and billionaires.”

The advice in this article is general in nature and readers should seek their own professional advice before making any financial decisions.

‘‘On a typical day 16 times more money is traded on the forex market than all the sharemarkets across the world combined.’’

- Daniel Byrne