Tax on Forex Trading in Australia

Forex trading has become increasingly popular in Australia and is now worth an estimated AUD$9 trillion daily. The foreign exchange market is larger than any other financial market, including traditional stocks or commodities. Here we have outlined what you need to know about trading forex in Australia and the tax rules involved.

How To Start Forex Trading In Australia?

The global forex market is worth an estimated $6 trillion. Unsurprisingly many want a piece of this highly liquid market. What is forex trading? So, let's start with a basic understanding of what forex trading is. Forex or foreign exchange trading involves speculating on the increase or decrease of an exchange rate between two chosen currency pairs. It sounds simple right? For the most part, forex trading is straightforward but can be costly if you don't master the basics and develop a good trading strategy. 

Thanks to technological advancements, all trading markets are now more accessible to the public, not just the big financial institutions or hedge funds. The best way to access the forex market and start trading is with a broker. Who are the brokers in Australia? Thankfully, there are now numerous quality brokers to choose from when starting to trade Forex in Australia. When deciding which broker is right for you, some features to look out for include highly regulated, low deposit requirements, and educational content for beginners. 

What Do Beginners Need To Keep In Mind?

For a beginner starting to trade Forex, it is first vital to educate on the fundamental of forex trading. As with any new skill, you need to first learn the language or terminology. 

• Forex Pairs: You trade two currencies against each other, e.g., USA/AUD American Dollar against the Australian Dollar.
• Major Pairs: always includes the US dollar, the most traded currency globally. Major pairs also include another strong currency, such as the British Pound or Australian Dollar, GBP/AUD.
• Minor Pairs: two strong currencies, for example, the Canadian Dollar (CAD), New Zealand Dollar (NZD), and Japanese Yen (JPY). Major pairs never include the US Dollar (USD). 
• Exotic Pairs: includes one emerging or low-demand currency, such as Turkish Lira (TRY) or Danish Krone (DKK), and a strong currency, as mentioned above. Keep in mind that not all brokers offer volatile exotic pairs.

What are the most traded forex pairs? EUR/USD is the world's most traded forex pair. Some other very popular FX pairs include AUD/USD, USD/JPY, USD/CAD, etc. 

Other terminologies and aspects of forex trading that you will need to grasp fully include pips, orders, market orders, stop-loss orders, and spreads.

What Are The Taxation Rules For Forex Trading In Australia?

Are you looking to trade Forex in the long term and ensure that your trades are as profitable as possible? What percentage of tax is levied in Australia on forex trading, in comparison with western countries? Of course, each country has unique and specific taxation rules regarding investing and trading, and having a well-rounded understanding of your tax responsibilities needs consideration. 

For instance, taxation in the United Kingdom depends on the particular type of trading activity you perform. For example, with Forex or spread betting trading accounts, no tax payment is required. On the other hand, full-time CFD trading is subject to capital gains tax. In Australia, on the other hand, forex traders are liable for tax. However, there are two categories to understand. Firstly, you need to determine whether you fall under the bracket of investor or trader.

A trader is someone who makes money from short-term speculation, holds assets for no longer than 12 months, and pays tax at personal tax rates. Do you fall under the category of investor? If you trade for more than 12 months and make a profit, you are liable to pay capital gains tax on forex trades. It is worth taking some time to understand what the current capital gains tax rate is and what discounts are available. 

Are you a beginner trader and need some guidance? If you are a beginner forex trader, carefully consider the tax implications for your long-term trading and investing goals. Choose a broker with a high level of regulation and a reputation for being trustworthy. Carefully choosing a regulated and credible broker will protect you against fraudulent activities or malpractice and assist you in complying with any taxation requirements. 

Conclusion

Don't be content with learning just the fundamentals of forex trading. It is best to master not just the basics of trading on the highly liquid forex markets but also to understand how best to manage your assets in the long run. Understanding tax rules and how to make the most of them is part of a well-thought-out forex trading strategy.