The Australian dollar, also known as the Aussie, is one of the most traded currencies in the world. With its strong ties to the global commodity market and a stable economic and political environment, it has attracted the attention of traders around the globe. But should you trade the Australian dollar?
The answer to this question depends on your trading goals and risk appetite. The Australian dollar is a highly volatile currency, with prices influenced by a range of economic and political factors. This volatility can offer traders significant profit opportunities but can also lead to substantial losses if not managed effectively.
In the article, we aim to explain the basics of trading the Australian dollars for the uninitiated. We hope this can prompt rookie traders to look in the right direction and make informed trading decisions – including whether they will trade the Aussie or not.
Basic facts about the Australian dollar
The Australian dollar, also known as the AUD, is the currency of the Commonwealth of Australia. It is the fifth most traded currency in the world and is denoted by the symbol “$” or “A$”. In the forex market, it is one of the seven major currencies, alongside the other six of the world’s strongest economies, such as the US, the UK, the Eurozone, Japan, Switzerland, and Canada.
Factors that influence the AUD
Overall, the Australian dollar is a major currency in the global financial system and traders around the world closely watch its movements. A complex array of economic, political, and market factors have a profound effect on the currency’s rate in the forex market, and its performance can have far-reaching implications for the Australian economy and beyond.
Some of the biggest influencers of the price of AUD are the country’s export industry, its overall national economic health, global economic events, and the Chinese economy.
The Australian export industry
One of the major drivers of the AUD’s value is the country’s export industry. Australia is one of the world’s largest exporters of commodities, including iron ore, coal, and natural gas. As a result, changes in the demand and prices of these commodities can have a significant impact on the value of the AUD.
Global economic and political events
Another important factor that can influence the AUD’s value is global economic and political events. For example, uncertainty or instability in other major economies or regions can cause investors to seek safe-haven currencies like the AUD.
The Chinese economy
The AUD is also closely tied to the performance of the Chinese economy, as China is Australia’s largest trading partner. Economic data releases and announcements from the Chinese government can have a significant impact on the AUD’s value.
Why do people trade the Australian dollar?
Many forex traders enjoy trading the Australian dollar because it tends to be highly liquid in the forex market, offering traders decent opportunity for gains. The currency is also a proxy for market sentiment, especially when it comes to its close relationship with the commodity market. Finally, Australia’s stability as a country is very appealing to investors and always has been.
One of the key advantages of trading the Australian dollar is its high liquidity, which allows traders to enter and exit positions easily. As one of the major currencies in the forex market, many traders take part in trading the Aussie every day.
Potential for gains
Additionally, the currency’s high volatility offers traders the opportunity to make significant profits within a short period. However, this volatility can also lead to substantial losses, particularly if you trade without a proper risk management strategy.
Proxy for market sentiment
Thirdly, many traders like to use the AUD as a proxy for risk sentiment in the market. This is because the AUD is a commodity currency, which means its value is closely linked to global commodity prices. This is particularly true for commodities like iron ore and coal, which are major Australian exports. Monitoring and trading the AUD can provide insight into broader market trends and sentiment, and traders can use this knowledge to make more informed trading decisions.
Developed and stable economy
Finally, Australia is a developed and stable economy, which can provide a sense of security for traders. The country has a strong rule of law, a stable political system, and a well-developed financial infrastructure. This can help to provide a stable backdrop for trading the AUD and can make it an attractive option for those looking to diversify their portfolio.
How to get started trading the Aussie
If you are keen on getting started taking part in trading the Aussie, it is an exceptionally straightforward process. All you must do is as follows (though it does depend on which broker you choose to work with, as each one will have slightly different procedures and requirements).
- Educate yourself: Start by learning about the currency market, how it works, and the factors that influence exchange rates. You can find a lot of free educational resources online, including articles, e-books, and video tutorials. On top of that, you may learn about the different ways you can trade forex, such as through currency futures, options, and CFDs.
- Choose a broker: Next, you need to choose a broker that offers trading in the Australian dollar. Look for a broker that is regulated, has a good reputation, and offers competitive spreads and commissions.
- Open a trading account: Once you have chosen a broker, you can open a trading account. You will need to provide some personal and financial information and may need to verify your identity.
- Fund your account: Before you can start trading, you will need to fund your account. Most brokers offer a variety of funding options, including bank transfers, credit/debit cards, and e-wallets.
- Start trading: With your account funded, you can start trading the Australian dollar. Start small and use a demo account or a small live account to test your trading strategy.
- Monitor your trades: Keep an eye on your open trades and be prepared to close them if the market moves against you. Consider using stop-loss orders and take-profit orders to manage your risk.
- Keep learning: Trading the Australian dollar is a continuous learning process. Stay up to date with the latest market news and trends, and continuously refine your trading strategy.
Summary and last words
Trading the Australian dollar can be a profitable venture for experienced traders who are comfortable with the high volatility of the currency. However, beginners should be cautious and only trade the currency after obtaining a solid understanding of the factors that influence its price movements and adopting effective risk management strategies.
If you’re a beginner trader, you can first learn to understand the basics of the forex market and the factors that influence the Australian dollar’s price movements. The Australian dollar is heavily influenced by commodity prices, particularly the price of iron ore, which is Australia’s largest export. It is also impacted by global economic factors, such as the performance of major economies like the US and China. Additionally, political events such as changes in government policies or natural disasters can have a significant impact on the value of the Aussie.
Finally, the most important thing to remember is that trading is inherently risky, and you can lose money. Always trade with money that you can afford to lose, and never trade with money that you need for your daily living expenses.