Transaction Risks

In basic macroeconomics courses, you learn that interest rates have an effect on countries’ exchange rates. If a country’s interest rates rise, its currency will strengthen due to an influx of investments in that country’s assets putatively because a stronger currency provides higher returns. Conversely, if interest rates fall, its currency will weaken as investors begin to…

Contracts for difference (CFDs) are a way of speculating on the change in value of a foreign exchange rate. CFDs can also speculate on a change in share price or a market index. You’re not buying the underlying asset, just speculating on the price movement. CFD leverage is like trading with borrowed money. The deposit (or…

In forex trading, leverage requires a small initial investment, called a margin, to gain access to substantial trades in foreign currencies. Small price fluctuations can result in margin calls where the investor is required to pay an additional margin. During volatile market conditions, aggressive use of leverage can result in substantial losses in excess of initial investments.1

Forex software programs are available for forex trading. They may claim their programs can let you know when to make trades. But no person or program can ever accurately predict movements in foreign currencies. Be wary of companies promoting a particular product that gives you access to better exchange rates or easy money. They may…

Different forex products involve different risks. Read the product disclosure statement (PDS) carefully before investing. Check that the forex provider has an Australian Financial Services (AFS) Licence. ASIC Connect’s Professional Registers will tell you if they do.