Forex trading is legal in the UK & is regulated by the Financial Conduct Authority. Read our guide on how you can trade forex in the UK through licensed forex & CFD brokers. Also learn about the risks of Forex Trading.
The foreign exchange (forex) ma+rket is the world’s largest capital market, where more than 6 trillions worth of USD are exchanged every day. It can be overwhelming for beginners to get started with forex trading.
Forex trading can be profitable but it also involves financial risk. It is better to start forex trading only after understanding the fundamentals, terminologies, and basic details associated with forex trading.
This introductory guide will tell you about the basics of forex trading along with helpful tips, risk mitigation techniques, and how to develop a trading strategy. It will also highlight the pros and cons of forex trading to ensure that you make an informed decision. Without further ado, let’s get started with the fundamentals of forex trading.
6 Steps to Start Forex Trading for Beginners in UK
|Broker Name||Highlights||Trading Fees (Benchmark EUR/USD Standard Accounts)||Account Minimum||Max. Leverage||Learn More|
XTB Ltd is authorized by FCA under FRN (Reference No.) 522157.
Minimum spread of 0.6 pips
with Standard Account
1:30 for forex
StoneX Financial Ltd. is authorized by FCA under FRN (Reference No.) 446717.
Minimum spread of 0.5 pips
with Standard Account
1:30 for forex
on City Index
CMC Markets UK Plc is authorized by FCA under FRN (Reference No.) 173730.
Minimum spread of 0.7 pips
with Standard Account
1:30 for forex
on CMC Markets
Pepperstone Limited is authorized by FCA under FRN (Reference No.) 684312.
Minimum spread of 0.6 pips
with Standard Account
1:30 for forex
The foreign exchange market, also known as the currency market or simply FX, is a decentralized over the counter (OTC) market that deals in global currencies. The market determines the value for each traded currency against the other.
It is the world’s largest financial market in terms of trading volume, with more than 6.5 trillion average daily trading volume. The key players of the forex market are banks, financial institutions, governments, and multinational corporations.
A tiny percentage of the total forex trading volume is accountable for retail trading. Financial centers act as an intermediary between buyers and sellers around the world. Currency trade always happens in pairs like USD/GBP or USD/EUR, which indicates how much worth one currency holds against another.
Currencies are essential for global trade as they enable buying and selling commodities, products, and services locally and worldwide. It provides a means for international trade. For instance, if you’re living in the UK and want to buy an imported car from the US, you might need to pay in US dollars. That means you must convert your British Pound into US dollars to pay the bills for this purchase.
One unique characteristic of the FX market is that there is no centralized marketplace where foreign exchange can happen. It is conducted electronically via connected networks rather than on a centralized exchange as the stock trade happens. Secondly, the FX market operates 24 hours a day and five days a week in the major financial centers, such as London, Tokyo, and New York. It can be traded around the clock because of time zone differences. For example, when trading sessions end in New York, it begins in Singapore and Tokyo. In sum, the forex market never sleeps.
The history of the forex market is as old as the world’s trading history. In the beginning, people bartered goods and later used precious metals and stones to buy and sell goods and services. However, the present foreign exchange is a relatively modern phenomenon.
The modern forex history begins with the establishment of Bretton Woods in 1944, where selected currencies were pegged against the US dollars. By 1971, more currencies were included in the currency basket. Each currency derived its value based on demand and supply.
Most of the trading happens via commercial and investment banks, which trade on behalf of their clients. The retail investors also speculate on the currency values to earn a profit. They can profit via two options, either through interest rate differential or making money from changes in the exchange rate.
Investors keep shorting their currencies with lower interest rates in exchange for currencies with higher interest rates. For instance, if the US Federal Reserve increases the interest rate, those holding Japanese yen can sell their yen for US dollars.
Forex trading used to be difficult for retail investors before the internet. MNCs, hedge funds, or high-net-worth individuals were the leading players as currency trading required significant capital. However, things started to change around the 1990s as the internet made it easy for individual traders, as brokers and banks provided access to electronic trading. Today, online brokers enable retail investors to place a trading order with a very minimum amount known as leverage.
There are three main ways to trade in foreign exchange: spot, forward, and future.
The spot market is also known as the ‘cash market,’ where currencies are bought and sold and delivered on the spot. The price of a currency in the spot market is determined by demand and supply. That means the more the demand for a currency higher the value of that currency.
However, it’s not that simple. Some countries intentionally keep the currency values low to make export cheaper or attract foreign investments. The currency value is calculated on many factors, such as interest rate, market sentiment, political change, and economic news.
The final deal between one party that sells an agreed-upon currency price and the other that buys that agreed-upon exchange rate is known as a ‘spot deal.’ Once you close the position, you receive the specified amount of that currency in cash. Although the spot deal is considered spontaneous, the cash settlement usually takes two days.
A private agreement between the two parties to buy a currency at a future date and the pre-agreed price is a forward contract. Let’s take an example to understand how a forward contract works.
Assume that a UK car company wants to secure a contract for a future purchase of spare parts from X, which is located in the US. The UK company signs an agreement with the US company to buy the spare parts after six months.
Both agree for a future exchange rate of 1 GBP = 1.3700 USD, and at the time of the agreement, 1 GBP is equal to USD 1.3700. Now suppose, after six months, the value of one dollar drops to 1.3800. That means the importer will benefit by USD 0.01 per unit of the exchanged currency. Now reverse the situation, the price of one dollar increases to 1.36.
In this case, company X (exporter) will benefit from the forward contract to hedge their risk. The vital thing to note is that currency value can move in any direction, either up or down. Who benefits from a forward contract depends upon the value of one currency against the other after six months.
A future agreement is similar to a forward contract; the only difference is that latter is a standardized contract. The futures contract is a standard contract that specifies the quantity of a particular asset at a pre-determined price and delivery date.
For example, suppose Indian Oil signs a future contract to import 1 million barrels of oil with an oil producer based in Saudi Arabia. The oil producer promises to deliver the specified quantity in twelve months at a pre-agreed price of $75 per barrel.
So even when the price of one barrel falls to $70, the importer is obligated to pay the premium. The same is true when the price reaches $80; the oil producer will deliver the quantity despite the changes in the spot price.
You must have exchanged your national currency with a foreign currency if you have visited abroad. It is the simplest example of how forex trading occurs. In forex trading, you buy one currency and sell another while the exchange rate fluctuates based on several factors, but mostly supply and demand.
A significant portion of trades in the forex market occurs between financial institutions. These institutional traders such as investment bankers, wealth managers, and others speculate or hedge against deviations from future exchange rates.
For instance, a fund manager can exchange euros for dollars if he thinks the dollars will strengthen in the coming days. On the other hand, a European company can hedge against the price fluctuations in the event if the Euro weakens.
All currencies are represented with a three-letter symbol—Euro as EUR and American dollar as USD. Forex trading always involves a currency pair, such as EUR/USD or USD/GBP.
The most traded currency pairs accounting for 75% of total forex volume are:
As you can see, every major currency pair involves the US dollar; that is the reason why American dollars are called ‘Global Currency’. The US dollars account for roughly 88% of the global trade payment as per BIS Report in April 2019.
Let’s take an example to understand how currency pairs are quoted in forex trading. You can apply this understanding to every currency pair. We will take USD/GBP for our example.
As shown in the above example, forex trading always involves two currencies. Generally, the currency pairs are divided into three categories: major, minor, and exotic.
There are seven major currency pairs, including EUR/USD and USD/JPY. They are the most traded currencies on the exchange.
Those currency pairs that don’t involve US dollars are known as minor pairs. For example, EUR/GBP, EUR/AUD, and GBP/JPY are some of the most traded minor currency pairs in forex trading. Japanese yen, Euro, and British Pound hold the most significant chunk of minor pair trading.
Lastly, when a major currency is paired with a currency from developing countries, it is called exotic currency pairs. Examples are EUR/Turkish Lira, USD/Hong Kong Dollars, and others. If you’re new to forex trading, stick with major and minor currency pairs.
Pip is the standard measurement of changes in the value of a currency pair. This is the most basic mathematical measure you must understand before trading. A pip represents the last decimal of the quote currency. By convention, every quote currency is expressed as four decimal points. However, there are exceptions like JPY which is quoted with just two decimals.
For example, if the value of 1 EUR changes from 1.3455 to 1.3456 USD, that means one pip change in the currency pair. A pip is the smallest possible change in the price of a currency pair.
The difference between the buying and selling price of a currency offered by a dealer is called the bid-ask spread or simply a spread. The bid is the price a broker is willing to pay for a currency, while the asking price represents the broker’s maximum selling price of the same currency. Wider spreads mean higher profits for the broker and lesser gains for the traders. Spreads are commonly represented in pips.
Suppose EUR/USD is trading at 1.2100/1.2102. In this example the spread or the difference between the bid and ask price of the EUR/USD currency pair is $0.0002 or 2 pips. This means that on every unit of EUR traded in return for USD, the broker or the liquidity provider will earn a revenue of $o.0002.
The spreads are variable and depend on the liquidity and market conditions. However, some brokers may offer fixed spreads. Each forex pair can have different spreads at different times of the day. Traders should look out for regulated brokers that offer low or narrow spreads.
Currency pairs are always traded in lots. In forex trading, one Standard lot equals 100,000 units of a currency. Additionally, there are also Micro Lot – 1000 units and Mini – 10,000 units of lot sizes.
If you are trading 10 Standard Lot, it means that you are trading 1,000,000 units of the currency. Similarly, if you are trading 5 Mini Lots, you are trading 50,000 units of a currency.
Leverage enables you to trade in large volumes with minimal marginal money. In simple terms, a forex broker provides a certain amount of money if you fulfill the initial margin requirement. For instance, if a dealer offers 10:1 leverage, you can trade ten times each deposited dollar in your trading account. Forex traders use leverage to place large orders and profit from small price changes in a currency pair.
For example, if you intend to place a trading order for one standard lot of USD/EUR using the 10:1 leverage. That means if you deposit $1000 in your trading account, you can open trading positions worth $10,000. Beginners should tread the leverage water very carefully because it can amplify both profits and losses. That’s why experts call leverage a double-edged sword.
It must be noted that the majority of the retail forex traders lose money. All the FCA regulated forex brokers are required to mention on their website the exact percentage of retail traders who lose money with that broker while trading CFDs.
The amount you put in your trading account to use leverage is called margin. Suppose if your broker offers a leverage of 1:10, you need to have $1 in your account to open a position worth $10 at a given leverage ratio.
Forex trading allows clients to make profits or losses on bullish as well as bearish market trends. Going long means traders will earn a profit when the price of quote currency increases while short means profit on bearish trends.
Suppose a long and short position on EUR/USD is opened at 1.2000. Traders with a long (short) position will earn a profit if the price of 1 EUR moves above (below) $1.2000 USD.
Now when you know about the basics of forex trading, we will delve into how to get started with forex trading. Before you place your first order, follow these steps:
Anything you learn requires knowing a little about the subject. The same is true about currency trading. Beginners may be tempted to start trading with anything that moves. Using leverage unwisely and random trading are the two trading traits you must avoid.
Spend time educating yourself about the currencies you are going to trade. Understanding the currency pairs can have a significant impact on your earnings. For example, the Japanese currency is moving upwards after a large fall. Or, a currency is falling rapidly due to bad economic reports over the months. These are typical examples of how underlying causes can cause currency movements.
To better understand, pick just a few major currency pairs and see how they perform over a few days. Meanwhile, keep an eye on the financial news for the countries involved. You can develop a good sense of currency movements.
A trading platform enables you to place trading orders, track their performance, and monitor your trading account offered by a broker.
Every trading software comes with basic features like real-time quotes, charting tools, and others. Some premium software may offer a tailored trading solution for customers. The ideal platform will offer efficiency, confidentiality, and timely execution.
Each trading software has different qualities suitable for the individual trading style and level of expertise. Here are the three most popular software:
It is compatible with various operating systems, including Windows, Android, Mac, and Linux. It also offers a demo account for new traders and supports automated trading. Users can customize its API to create their unique strategies.
It is perhaps the best all-in-all software that allows trading in forex, stocks, and futures. Beginners can start with MT5 mobile, which is free and suitable for most new traders. However, the desktop software is much better in terms of features and effectiveness.
However, it has a friendly interface. Anyone can learn to trade within one or two days. The integrated platform enhances the trading experience by combining mobile trading, trading signals, and market analysis. MT4 Mobile is ideal for new traders as it provides a multilingual interface, newsfeed, and technical analysis and is compatible with Android and iPhone.
Every successful athlete spends more time in training than participating in a competition. Similarly, if you want to be a successful trader, you need to practice your strategies before risking your money. Many brokers offer a demo account to let you familiarize yourself with the ins and outs of their trading platform.
The best part is that you don’t have to put any real money in your trading account. It would help if you continued trading with a demo account until you develop an excellent winning strategy and become comfortable with the platform.
You don’t want to put your hard-earned money with an unscrupulous broker. Choose a forex dealer who is regulated by a trusted authority. It’s ideal if your national regulator regulates the broker; if not, choose a currency dealer with Tier I and Tier licenses from ASIC, FCA, or CySEC.
For traders based in the UK, you must only trade with forex brokers that are licensed by Financial Conduct Authority (FCA). You can search for the broker’s license no. i.e. the ‘Firm Reference Number’ (FRN) on the FCA’s public search page.
On the page, you can search the brokers by their Entity Name or their Reference Number. The FRN number of the registered brokers is generally mentioned in the footnote of their official website. If you cannot find it, you can ask for the regulation details through customer support services.
For ex. XTB has a firm name of XTB Limited & Reference Number is 522157.
You first need to make sure that you ask the broker for their FCA Reference Number. Once you have that, you can then search if that broker is actually licensed or not from FCA’s search. Everything the broker is authorised to do in the UK can be checked through the FCA website.
Another important thing to note is that brokers may falsely claim to be licensed while they are not. They may target clients of genuine brokers by using their license numbers as their own. So, it is really important to check the ‘Authorized Website’ of the broker for the public search & avoid the clones of fake brokers.
After ensuring the safety and FCA regulation of the brokers, clients must check and compare the fees and other trading conditions that can affect the trading experience. The chosen broker must accept preferred deposit and withdrawal methods and offer good support services. The trading platforms and available instruments must also be checked before opening the account.
Traders must do their own research to choose the best-suited brokers for themselves. Reviews from experts and existing clients can be useful but the final decision should be based on your convenience, preference, trust, and user-friendliness.
Please make yourself aware of trading software and how they function. The trading platform is where traders spend most of the time and they must be comfortable with the trading platform. MetaTrader and cTrader are the most commonly chosen forex trading platforms but some brokers offer their proprietary trading platforms. The most common trading tools you should know are:
Contract for differences (CFD) is a derivative instrument that is widely used in online trading of financial instruments. Most of the retail forex trading with leverage are done in the spot market as CFD. Forex, commodities, energies, metals, indices, stocks, cryptocurrencies, etc are commonly traded through CFD.
When trading via CFD, only the price difference between opening and closing of the position is speculated to book profits. There is no physical buying and selling of the underlying assets. Most of the brokers that offer online forex trading in the UK use CFD for forex trading.
Trading without strategy is like sailing without a compass. The sailor has no idea about the wind speed neither the direction. That’s why the practice of forex analysis plays a vital role in currency trading. You look at the changes in values of currency pairs and forces that are influencing those price movements.
Traders use both fundamental and technical analysis for creating a profitable strategy. Many expert traders combine both techniques to take a hybrid approach. In short, the knowledge of technical analysis will tell you when (to buy or sell) and fundamental analysis tells you why (the price movements). Both are indispensable weapons for a successful forex trader.
Let’s deconstruct both methods one by one.
What economic factors will impact the demand and supply of a currency? Welcome to Macroeconomics 101, the law of demand and supply. If the demand for a currency is increasing, the trader may assume the prices will rise. On the other hand, a demand reduction may be an indication of an eventual fall.
However, it’s not that simple! There are many factors such as economic health, political stability, global events, and others that influence the expansion and contraction of a particular currency. For instance, the US Sub-Prime Lending Crisis in 2008 caused a massive breakdown of financial systems worldwide.
The fundamental analysis generally involves the following economic indicators:
In addition to global economic events, the localized changes in a national economy can also influence the currency prices of that country. For instance, the increased commodity prices globally can strengthen the Canadian dollars.
Although government changes are not a frequent affair, currency prices can be affected during a transition period. The developed countries have relatively stable regimes in comparison to developing countries. Political instability is the main reason why the currencies of many African countries are so unpredictable.
Central banks use monetary policy as an effective tool to control the demand and supply of a currency. They can reduce the interest rate in an economic slowdown and can increase to curb the inflation caused by economic growth. The fiscal policy entails taxation and government spending. Higher taxes can drive slower credit and economic development. Both government policies can have a significant impact on the national currency.
Main participants such as banks, financial institutions, or hedge funds may buy or sell a specific currency to up or down the prices. You will be in much better positions if you have an idea about the main speculators of the forex market.
Main participants such as banks, financial institutions, or hedge funds may buy or World governments publish statistical data and reports that reveal the economic health and performance over a period. Many financial reports like employment data, inflation rate, GDP, and foreign exchange reserve can indicate the regional economic conditions, which can dramatically impact the local currency. A forex dealer can use an economic calendar to avoid unwanted surprises from the release of new data.
Charts and graphs are the primary tools of technical analysis. Charts help traders identify historical performance, ongoing trends, price movements and calculate risk to maximize gains from currency trading.
Understanding different charting formats such as line, bar chart, and candlestick is essential to develop a solid trading strategy for beginners.
It is the most basic charting which helps users select a currency and its performance for a fixed period. The bar chart shows the highest and lowest currency price points and average performance over the period chosen.
It also displays the same information: open, low, high, and close. However, the representation of data is very different from the bar chart. It becomes easier for users to see the highest and lowest peaks of the currency movements with thin vertical lines.
Experienced traders often use technical analysis in combination with fundamental analysis to understand why the value of a currency rises or falls for the selected period. For example, if the fundamentals indicate that the US Dollar will strengthen against the Euro due to policy divergence, and the technical analysis also indicates the same, then it is much more likely that your strategy may be successful as compared to incomplete research.
You can use simple mathematical tools such as moving averages, trend lines, and others for technical analysis. You can learn about more advanced concepts like Elliott Wave Theory, Fibonacci Studies, and Pivot Points as you progress.
Retail Traders choose to trade in currencies for profit. But almost 70% of them lose money trading forex & CFDs. How so? Well, there are plenty of reasons, from dealing with unreliable brokers to unwise use of leverage (trading with very high leverage). Beginners are advised to heed caution when they start currency trading.
Forex market works around the 24-hour clock, but it doesn’t mean you should trade the whole day. There are only a few peak hours, which are considered worth trading. With competition from market makers and large financial institutions with their trained workforce and advanced automated Trading Bots, beginners can get overwhelmed when the price movements don’t confer with their prediction. Another risk factor is leverage. Brokers give you very high leverage on your initial margin money, but that doesn’t mean you should use it every time.
Online forex trading has attracted thousands of retail investors in the UJ. Trading with a trusted and well-regulated broker ensures your funds are in safe hands. If something goes wrong, there is a security mechanism that comes into play to protect your investments.
National, as well as major Tier-1 Forex Broker regulators, ensure that brokers offer fair and transparent trading environments. They set standard criteria and reporting requirements for a forex dealer before providing services to its clients. They also continue to monitor the broker’s trading practices and in case of wrongdoing, the financial regulator can cancel the broker’s license.
Before choosing, ensure that your broker is well regulated and trusted. Don’t get persuaded by Pyramid schemes offering unbelievable returns. There are plenty of examples of when retail investors lost their money.
The best way to avoid this risk is by selecting a broker having Tier I or Tier II licenses. Tier I indicates the highest level of trust, and Tier II has a low level of confidence. UK, European, American, Australian, and Canadian regulators score well on their trust level and are called Tier I regulators. On the other hand, CySEC is considered a Tier II regulator.
Traders based in the UK must only trade with forex brokers that are regulated by FCA. You must check the products for which the forex broker/firm has been Authorised, verify the Firm’s Reference No. and their website from FCA’s Register. Only this will ensure that you are trading with an authorized firm.
Below is an example of City Index CFD broker that is licensed with the FCA with FRN 446717.
|Tier I & II Regulators Country Global Services||Country||Tier I & II Regulators Country Global Services|
|FCA||United Kingdom||Europe & other regions|
|CySEC||Cyprus||Europe & other regions|
|ASIC||Australia||Australia and Asia|
For UK Based traders, you must only trade via a FCA regulated forex broker. If your country lacks a local regulation, choose a broker with a license from these Tier I or Tier II regulators. It is best if the forex broker/dealer has multiple regulatory permits i.e. it is licensed under multiple Top-tier regulations.
Leverage is the same as you borrowing money from a bank which ultimately needs to be repaid. Let’s take an example of how leverage can pose a risk for beginners.
Suppose your broker offers a 1:10 leverage, which means you can place a trading order worth USD 10,000 by depositing USD 1000 as margin money in your trading account if you use leverage to place an order on EUR/USD when 1 EUR is equal to 1.1100 USD. The market gains by 100 pips, and it changes to 1.1200 USD; you profited 10% or USD 100 on your invested capital. But if the trade doesn’t go in your favor, and the market dips by USD 1.1000, you lose USD 100 or 10% of initial capital.
In sum, there is a possibility of significant profit with low capital, but there is also an equal chance of losing. Profit is possible in forex trading but not guaranteed. Beginners should begin with no leverage or a maximum 1:3 leverage ratio. Once you become experienced in having solid risk management, you can opt for higher leverage.
It is a fact that most Retail traders lose money while trading CFDs. So, it is really important that you avoid the use of leverage or not use more than 1:3 leverage for trading forex. In the UK, FCA-regulated Forex brokers offer max. leverage of 1:30 for trading forex, and leverage is lower for other CFD instruments.
Any significant political, social, financial, or natural disaster news can impact the currency within a country. The forex market is very volatile, and every major event happening around you can influence currency trade. Market sentiments can also cause movements in a currency pair. For instance, if too many traders start to convert US dollars into Japanese Yen, the former’s value would fall.
Staying updated with current events is the only way to avoid volatility risks. Act fast during volatile currency price movements. However, know that unforeseen circumstances such as COVID-19 or the end of Swiss France capping may still cause changes in the foreign exchange. During these events, withdraw your money quickly to prevent further losses.
It’s a simple macroeconomic concept—the higher the interest rate, the higher the investment in a country.
A country’s interest rate influences the exchange rate of its national currency. When the central bank increases the interest rate, investment increases; on the other hand, a falling interest rate can cause disinvestment and lower currency value. Forex traders are expected to pay close attention to the intricate relationship between the currency and interest rate before opening or closing a trading order.
Global investors and companies often access a country’s fundamentals before investing their capital. Some countries, mainly developed ones, have a stable government and are relatively stable. USA, Western Europe, Japan, Australia, and a few other countries are considered safe for foreign investments. On the other hand, political instabilities in some countries often result in unpredictable currency inflation or deflation. Nobody wants to invest in a country where the value of the currency is volatile.
Similarly, if your investments are in an unstable country’s currency, you may lose money. It happens because investors lose confidence in the economy and start withdrawing their capital. Taking clues from prominent investors, even traders sell out their currency investments.
Some countries deliberately devalue their currencies to increase exports. It poses a risk for your forex investments in that country. That’s why trade experts advise investing in major currency pairs and avoiding exotic pairs.
Forex CFD trading is done online through trading platforms on electronic devices. The devices used for trading need an active internet connection without lags and glitches. The network must be safe from hacks and external attacks.
The device used for trading must be in good condition. Any lags or hanging of the device may lead to missing out on the trading opportunities. The use of public wifi should be avoided for trading. The passwords and login credentials should not be compromised.
There are some pros for traders trading in the forex market over other financial markets. But you must understand all the risks before making a decision whether to trade forex & CFDs or not..
You invest in the world’s largest financial market. With daily transactions crossing over USD 5 trillion, the sheer size of the forex market makes it truly a global marketplace with several profit opportunities.
The forex market operates around the clock so that you will find a trading opportunity any time of the day in at least one global time zone. As the forex market is a decentralized OTC market, its working hours are not subject to any centralized exchange system. For instance, trading hours begin at 5 PM EST in the USA on Sunday and rolls continuously with other markets until Friday at 5 PM. Note that even though currency trading is restricted for retail traders on weekends, the exchange rate keeps moving.
In addition to very low investment requirements, even the transaction cost of trading forex is relatively lower. For instance, you can start dealing in currencies with just USD 100 or even lower. The main earning of a broker comes from the bid-ask spread. Spread is measured in pips, the difference between the sell and buy price of a currency. However, some brokers do charge a commission or flat fees per transaction. You should factor in commission and spread while choosing a broker to lower your overall trading cost.
The availability of high leverage is perhaps the main reason why forex trading appeals to so many people. It enables you to place a higher trading order with minimum capital.
Almost all the forex brokers offer leverage where you can borrow against deposited money in your trading account. It’s similar to taking a mortgage against your property; the only difference is that the margin requirement is very low. For instance, you can place a USD 100 order with just 3.33 US Dollar if your broker offers a 1:30 leverage ratio. However, leverage is a double-edged sword. It can amplify your losses, so heed caution when trading forex with leverage. You should avoid using high leverage.
Forex market is also the world’s most liquid market. Liquidity refers to how quickly an asset can be sold or bought without affecting its value. Major currency pairs such as EUR/USD or USD/JPY are considered most liquid than exotic currency pairs.
This means that you can enter & exit trading positions.
The same volatility, which makes it riskier for traders, can also present ample profit opportunities. Volatile market conditions cause rapid changes in the value of currency pairs, thus, increasing your chances of gains from the trade.
But this is also a big risk. If a currency pair changes in its value by a lot then it is considered volatile and can be a risk for investors as you can lose big if you are on the opposite side. For example, USD/TRY is considered a very volatile currency pair. You may lose quickly if you are in the wrong position, also you must consider the Swap Rates when trading such currency pairs.
Scalable means you can trade in mini, micro, or standard lots, making it easier for traders to control investment size and capital exposure.
You don’t have to spend money on acquiring expensive hardware and software to start with forex trading. All you need is a computing device or a smartphone with a reliable internet connection. Your broker will provide charting and trading technologies at no cost once you subscribe.
Forex trading is completely legal in UK & is regulated by FCA. If you’re choosing an online broker, ensure that it is authorized by FCA. You can check the broker’s Reference No. and they verify it from FCA’s public Register. Also verify the broker’s website before signing up.
Profit is possible but not guaranteed in currency trading. You may profit if you adhere to good forex risk management, keep yourself updated with current events, and develop a good trading strategy. But it is important to note that nearly 70% of the retail traders lose money in Forex & CFD trading. You must understand the risks before your trade forex.
Forex brokers in UK offer a trading account as low as GBP 100, while others require at least GBP 1000 to open trading account. However, you should start with a demo account and educate yourself about forex fundamentals before investing any real money.
You can start educating yourself, learning about currency pairs, demo account, fundamental and technical analysis, trading platforms, and strategies. Once you understand the basics, you can find a reliable broker for your trading.
Forex market is a decentralized, over-the-counter market operating 24-hours five times a week. There is no centralized exchange system. Many countries regulate Retail Forex trading & CFD brokers. For instance, FCA in the United Kingdom, ASIC for Australia, BaFin for Germany, FSCA for South Africa are the regulatory bodies for the respective countries. If your country lacks a forex regulator, choose a broker with multiple regulatory licenses from ASIC, FCA, or CySEC.
It takes considerable time to hone your trading skills. Forex trading is risky, and almost 70% of the retail traders lose money. To make money with trading, it generally takes six months to a year of practice every day, and you need to learn as much a possible. Note, even after that there is no guarantee that you will make money with Forex trading.
Wealthy individuals and hedge fund managers with deep pockets & more access to data/information are more likely to get richer with forex trading. However, profit opportunities do exist for retail investors too. But it is a known fact that most of the retail traders lose money with forex trading.
Generally, major currency pairs such as EUR/USD or USD/JPY are considered stable and safe for beginners. Exotic currency pairs like the USD/Turkish Lira are very volatile. In sum, only trade major currency pairs, including EUR/USD, USD/JPY, USD/CAD, EUR/GBP, and others.