This introduction on how to trade forex was created by our trading experts for beginners to mid-level traders.
Our goal is to help UK-based forex traders ̣– both beginners and more advanced traders – find the most reliable trading software for their specific needs. Besides recommending brokers and trading apps, our work includes educating our readers on all things trading.
Now, if you’re new to forex trading and want to learn the basics, this is the perfect guide for you. However, if you already have experience in forex trading and only need a new broker, we suggest you check out our list of the platforms for forex trading in the UK.
The Foreign Exchange Market
To understand forex trading, one first has to understand the foreign exchange market. As you might have guessed, forex is short for foreign exchange and also often abbreviated as just FX.
Subsequently, the forex market is the market where currencies are traded and it is also, in fact, the biggest market in the world with an average daily turnover of $6.6 billion in 2019.
The reason for this is that central banks and governments trade currencies on the foreign exchange market as it helps them stabilize and control their own currency. Naturally, a central bank has the capacity to trade currencies for millions of dollars at the time, thus the high daily turnover.
Since every currency in the world is included in the foreign exchange market, there is no trading floor or official foreign exchange location. Thus the foreign exchange market is a decentralized market, unlike the stock market that is traded on physical exchanges.
Besides, the forex market is one of the most exciting and popular markets for online traders ranging from professional day traders to hobby traders that just got started.
Understanding Exchange Rates and Currency Pairs
Unlike stocks, where you buy a stock for a certain price and then sell that same stock for (hopefully) a higher value down the road, forex trading is based on exchange rates.
An exchange rate is a value used to explain how much one currency is worth in another currency and vice versa. In other words, when trading forex, you’re actually trading the correlation between two currencies, called a currency pair.
Now currency pairs are always written using the official currency abbreviation, for example, a currency pair where the American Dollar (USD) is weighed against the British Pound (GBP) is written as USD/GBP.
What’s more, those two currencies can also be traded the other way around, ie. as GBP/USD but then you’re weighing the British Pound against the American Dollar. Furthermore, all currencies can be traded in pairs with other currencies, but more about that shortly.
Lastly, you need to know that the currency written to the left in a currency pair is called the base currency. For instance, in EUR/USD, the euro is the base currency. The second (right) currency is called a quote currency.
What’s the Goal of Forex Trading?
To break it down, the goal when trading forex is to determine whether one currency will increase or decrease in value compared to another currency.
But it’s not really that simple.
You see, every currency in the world is technically available on the foreign exchange market. (We say technically because many currencies are so volatile that they’re rarely traded.)
This means that events around the globe can affect the market. From local elections in Japan to natural disasters in the United States or a major event like Brexit. That requires a lot from every trader as well as an in-depth understanding of international relations.
With that being said, no forex trader trades every currency in the world. In fact, most limit themselves to a handful of currency pairs. Moreover, currency pairs are categorized into three groups ranked after how stable they are as well as their international influence.
Three Main Groups of Currency Pairs
There are three different currency groups that are organized after the currencies’ international importance and market cap. You must understand the differences between these categories as well as their characteristics.
Major Pairs
The main group of currency pairs on the forex market are the major pairs. Officially, there are four major pairs:
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CHF
Although some people claim that USD/CAD, AUD/USD, and NZD/USD (commodity pairs) should also be included in the major category.
Out of these currency pairs, EUR/USD is, by far, the most traded with the biggest daily turnover, making it an attractive choice for both institutional and online traders. For people in Europe and the United States, EUR/USD is also one of the easiest pairs to analyze since they’re locally connected.
You can also note that all the major currency pairs are traded against the U.S. dollar.
Minor Pairs
Minor currency pairs include all the main currency pairs that do not include the U.S. dollar. Therefore, the GBP and EUR are among the most common minor currencies, however, any currency pair created from the following currencies are considered a minor:
- Euro (EUR)
- Japanese Yen (JPY)
- British Pound (GBP)
- Swiss Franc (CHF)
- Canadian Dollar (CAD)
- Australian Dollar (AUD)
- New Zealand Dollar (NZD)
Exotic Pairs
All other currencies are considered exotic currency pairs, meaning that this is by far the largest category of currency pairs, but also the most complicated to trade. For example, analyzing the Turkish Lira (TRY) or the Swedish Krona (SEK) is much more difficult than analyzing the U.S dollar.
Therefore, forex brokers often offer a large number of exotic pairs, although it’s recommended that you stick with majors and minors unless you feel comfortable with your ability to trade smaller, local currencies.
What does Spread Mean?
Spread is perhaps one of the most important concepts to understand when trading forex. You see, a spread is the difference between the bid price (sell) and the ask price (buy).
When trading forex, the buy price will always be higher than the ask price, and the currency pairs’ actual market value is somewhere between the two prices.
The reason why spread is so important to understand is that it’s the method forex brokers use to charge their customers. By controlling the spread, a broker can ensure that they will make a profit on every position you open.
Moreover, almost all forex and CFD brokers are commission-free, meaning they make their money from the spread and spread alone, with the exception of certain non-trading fees such as withdrawal fees.
Naturally, this means that you want to find a forex broker that offers fair and competitive spread on all the forex pairs you’re looking to trade.
What is Leverage and Margin?
Leverage and margin are two other very important concepts in forex trading.
Since most currencies don’t make massive market movements on a day to day basis, traders have to optimize their exposure for each trade. This is done by using leverage.
Leverage is, technically, a loan issued by a broker to improve your exposure and produce a bigger potential profit for each trade. Margin is simply the term used to explain the amount that was issued to you as a loan.
Leverage Limits in Europe
Since leveraged trading increases the potential risks of trading, the European Union has introduced several limitations to leverage in Europe. For example, there is negative balance protection that ensures that traders can’t lose more money than they can afford. (This does not apply to spread betting in the UK!)
Furthermore, strict limits to leverage levels were put in place in 2018. These new rules limit leverage trading to a maximum of 30:1 for major currency pairs, 20:1 for minor currencies, major stocks, and gold, 5:1 for individual stocks.
This was an important change for the industry that greatly helped increase trading safety, thus making the entire industry safer.
How do You Start Trading Forex?
Engaging in forex trading necessitates a firm grasp of its dynamic nature, which involves trading currency pairs and substantial market volatility, leading to potential gains as well as losses. Before entering the forex market, crafting a well-defined trading strategy and establishing a robust risk management plan to safeguard your investments is essential.
Moreover, exercising caution is imperative, as there is a risk of encountering forex broker scams and unregulated platforms. Since this market operates 24/7, always invest with what you can afford to lose. Plus, stay informed about market developments and continuously educate yourself to make well-informed trading decisions.
Remember that past performance does not indicate future results, and there are no guarantees of profit in forex trading.
To start trading forex, you first need to find a forex broker. However, before picking your broker, you need to decide how you want to trade forex. There are a few ways that one can benefit from the FX market and the best brokers tend to specialize in certain ways of trading.
These are the most common methods used to trade forex:
This is the traditional way of trading currencies as explained in this guide. To trade forex, you need a broker who can act as an intermediary between the decentralized forex market and you, the trader.
Forex is also available as derivative trading, i.e. using instruments based on underlying assets. Contracts for Differences (CFDs) are currently the most common and are offered by most of the brokers we recommend on TradingGuide.co.uk.
Spread is also a form of derivative forex trading that is best described as a combination of CFD trading and betting. Your job is to bet on whether you think the value of a currency pair will increase or decrease in a specific time period.
Due to forex spread betting being similar to regular sports betting, all forms of spread betting is tax-free in the UK.
Finding a Forex Brokers
As a novice trading, the most important task you have to perform before you can start trading is picking a forex broker.
Luckily, we’re here to help you!
This site was created with one goal: to help UK traders find the best online brokers for their specific needs. Therefore, we’ve created in-depth broker reviews of all the top FCA regulated brokers, as well as guides to the best brokers in several categories.
For example, we’ve recommended the best forex brokers in the UK, forex trading apps, etc. Moreover, we want to provide you with a quick introduction to the most important factors to consider when looking for a new broker.
- Safety & Availability
Safety should always be your main concern when trading. Now, some risks cannot be avoided, for example, the risk of losing the money you invest.
However, other risks can be avoided, such as being scammed, robbed or having your personal information stolen. The only way to avoid this is to only use forex brokers that are tightly regulated and have a great reputation.
Every broker mentioned on this site is regulated by the Financial Conduct Authority (FCA), which is a requirement to offer trading services in the UK. Most of our recommended brokers are also licensed and regulated by other global governing bodies such as the CySEC, ASIC, and the SEC.
- Selection & Platforms
Obviously, you also want to find a broker that offers the assets you’re planning on trading. In this case, your forex broker should have a satisfying selection of currency pairs.
In addition, we suggest that you pick a forex broker that also offers CFD trading or spread betting on other markets. That way, you can also trade stocks, commodities, and more using the same broker.
- Spread & Fees
There is no such thing as a completely free forex broker since brokerage companies have to make money from something.
This is done by charging spread on every forex position opened on their platforms. Every broker can set their own spread, which is why you must find a broker that offers fair and competitive spread.
What’s more, brokers charge on-trading fees for transactions, inactivity, etc. Although, you typically do not pay commission when trading forex.
Our point is that you want to find a forex broker that isn’t expensive and suits your budget.
- Reviews & User Recommendations
Lastly, we have to strictly advise against picking a broker solely based on your own research, especially as a beginner to a mid-level trader.
Instead, you should refer to broker reviews created by trading experts as well as the reviews of actual users. To help you get started, we provide both broker reviews and collect user reviews on this site.
That means that our team of trading experts have created in-depth broker reviews and guide and that we collect millions of users reviews from Trustpilot, Google Play, the App Store, etc.
This also helps us ensure that our reviews are, in fact, accurate and that they reflect the opinion of professionals as well as hobby traders alike.
Learn what are options trading in our other article.
Opening a Forex Broker Trading Account – Step by Step
At this point, you should have a better idea of what forex trading is and how it works. You also know how to find a forex broker and that the easiest way is to use our recommendations and comparison guides.
And before we offer you an introduction to basic forex trading strategies, we want to explain how you register an account with your chosen broker. The following step-by-step guide is universal since the registration process is regulated by the FCA, meaning it can be applied to all forex brokers.
Your first task is to find the forex broker that you want to use and then – preferably by using links on this website – you visit the broker to start the process. Our links redirect you to the registration page to help you get started faster.
After this, the process is very similar to registering any other form of online accounts, such as an online bank account or a social media account.
Now you’ll be asked to provide basic information about yourself. This will be used as the foundation for your account and will have to be verified in the next step, so do not provide false or inaccurate information.
Information that you have to provide includes your full name, date of birth, address, phone number, and email. You will also have to provide financial information regarding your income and previous experience from trading.
As mentioned, you also need to verify your identity and residence. This is to comply with international Know Your Customer (KYC) guidelines as well as the rules and regulations enforced by the Financial Conduct Authority (FCA).
To do this, you need to submit two documents: a copy of your ID as proof of identity and a copy of a recent utility bill (or bank statement). Once submitted, the documents will be reviewed and verified.
All online forex brokers implement a minimum deposit level that you have to meet in order to activate your account. Although, today, many brokers allow you to use a demo account without making an initial deposit.
The minimum deposit level is individually set by each broker and, therefore, varies from £0 to several hundred pounds. Therefore, you need to choose a broker that fits your budget.
Once your transaction has been completed and you have funds on your trading account, you can start trading forex.
Remember that Forex trading is complex and involves financial risks, so please take the necessary time and effort to learn the basics before risking your hard-earned money.
Basic Forex Trading Strategies
Before we send you off so you can start trading forex, we want to share a few basic tips on forex trading strategies. These are not so many specific strategies, but rather methods of trading that can be incorporated with a range of strategies.
Day Trading
Day trading – an often misunderstood concept that people associate with immense riches and success. In reality, day trading is just a way to trade instruments such as forex and stocks.
As the name entails, day trading involves opening and closing positions within the same day, thus benefiting from small but volatile market movements. In most cases, a day trader won’t hold a position open for more than a few minutes at the most.
Due to the high pace and associated risk, day trading is not an easy forex trading strategy to master. In fact, most retail day traders lose money in the long run.
- No overnight risks: Most forex day traders try as much as possible to not have overnight positions since they don’t have control over what happens when they are away. Not having positions open overnight can reduce the level of risk to which the trader is open.
- Plenty of opportunities: The forex market is more volatile than most markets. This volatility provides day traders with a great opportunity to act fast and immediately on potentially rewarding price fluctuations that occur.
- Quick trades: Forex day trades are settled quickly, which is an advantage to traders who don’t want to wait a long time to sell and instead prefer to take advantage of volatility and short-term trends.
- Time commitment: Forex day trading requires plenty of concentration and attention, as you sit in front of a computer, tracking the prices of different currency pairs. It also requires training and practice, research into different methods, and ongoing learning. This can be stressful, especially if you don’t immediately see success in your trades.
- Overtrading can lead to losses: Day traders typically open a lot of trades every day in the forex market. While overtrading can make you a lot of money, it can also expose you to huge losses in a trading session.
How Day Traders Make Money
As mentioned above, day traders aim to profit from short-term price movements by buying and selling securities within a single day. To succeed in day trading, you need to have a sufficient amount of liquid capital. Losses are a natural part of trading, and being prepared for the same always counts.
In addition to capital, you need to use an effective strategy and pay close attention to market trends to profit as a day trader. Moreover, you need to be disciplined and stay up to date with all current news or events that may impact the securities you trade.
Swing Trading
Swing trading is technically an extended version of day trading, ie. a method of trading where you keep positions open for longer than a few minutes.
In swing trading, you typically keep each position open for a few days or weeks at a time. That means that your analytic work has to be focused on longer market trends.
Some claim that swing trading is easier to master than day trading, and we’re prepared to agree. However, forex swing trading is far from risk-free and you’ll be charged an overnight fee every time you keep a forex position opened around the clock.
Long vs Short Trading
Lastly, we want to remind you that the forex market – just like the stock market – supports both long and short trading.
For inexperienced traders, long trading is when you buy a currency pair hoping that it will increase in value. Short trading, on the other hand, is a position that you open hoping that the underlying asset will decrease in value.
Short trading does provide its own difficulties and it requires a different strategy and mindset than regular long trading. Because of this, not everyone is suitable for short trade on the forex market.
FAQs
There are trading opportunities at all times in the forex market since the market runs 24 hours a day except for weekends. However, after analysing market action during all sessions, most analysts believe that trading at around 8 a.m. (UK time) offers some of the best opportunities. This is an excellent time to trade forex because there is high volume and a lot of volatility.
You can make $100 a day trading forex, but you should have a large amount of capital, a well-researched trading strategy, and be able to enter and exit multiple profitable trades in one day.
Forex is considered more risky than stocks because it is highly volatile and offers higher leverage ratios. However, implementing an effective risk management strategy can help you deal with the risks associated with forex.
The time it takes to learn forex trading can vary significantly from person to person. Some people may be able to grasp the basics quickly and begin trading within a few weeks, while others may take several months to fully understand the fundamentals.
However, even after understanding the basics, it can take years of practice and dedication to become an expert forex trader. To accelerate the learning process, you can read relevant books, attend forex courses, and practice using a demo account.
The amount of money needed to start forex trading can vary depending on the broker you choose. Some brokers allow traders to open an account with as little as $100, while others require a deposit of $500 or more. That being said, many traders can start with as little as $100.
If you are interested in becoming a forex trader, the first thing you should learn is how trading works, trading terminology, concepts and how to use trading platforms. Thereafter, it is essential to learn about trading strategies, risk management, and traders’ psychology.
The goal when trading forex is to determine whether one currency will increase or decrease in value compared to another currency.
Spread is the difference between the bid price (sell) and the ask price (buy).
Leverage is, technically, a loan issued by a broker to improve your exposure and produce a bigger potential profit for each trade. Margin is simply the term used to explain the amount that was issued to you as a loan.
To start trading forex, you first need to find a forex broker. However, before picking your broker, you need to decide how you want to trade forex. There are a few ways that one can benefit from the FX market and the best brokers tend to specialize in certain ways of trading.
13 Replies to “How to Trade on Forex in the UK: A Guide for Beginners”
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25,000 hours of testing 70+ brokers. Our recommended broker is Plus500.
Our recommended broker is Plus500.
After your guide, I really became interested in forex trading. Never thought that this topic would be interesting to me. Thank you! I recommend reading the article to all newbies.
FX trading is a more advanced type of investment that is best suited for experienced traders.
what is the best way to learn forex trading? some websites or blogs?
Forex and crypto trades are volatile, and it took me time to get a working forex strategy. You need practice
I also lost money,thats part of trading
According to my, forex trading is the no option for beginners
There are many aspects to look for when choosing a forex broker, my main ones are as follows:
- choose a broker that has the very best spreads. You will have more chance of profiting quicker with better spreads.
- customer service with many options available such as Live Chat, Telephone, and email.
For forex, be it any trading style, the first thing that you’ve to check is regulation.
Do not go for non-regulated brokers, they might cause issues in the long run. The best is to choose a trusted broker, regulated with reliable authorities.
For this particular trading style, don’t miss to check on the broker’s spreads, commissions, slippage and the overall order executions. For me, fxview is one broker doing good as far as day trading conditions are concerned. The broker is multi-regulated, so the first norm is fulfilled.
Talking about the spreads, they are tight, even on exotic currency pairs, plus slippage is minimum. Have hardly faced any latency issue. The best part is their commission is low, paying just $2/lot RT for pretty good trading conditions is worth it according to me.
Overall, a thumbs up to fxview. I haven’t faced any issue so far and am hoping the same for the future as well.
Learning how to become a successful forex trader with the best forex tools can be difficult for beginners. Forex investing tips and stock market advice is a great place to start and can help you avoid losses. Many people want to get rich quickly or make dung money quickly and easily, although this is not always possible.
The world of online investing is not easy and playing on the stock market is no easy task.
Even if you have some experience with currency-free fx tools For trading, it is always a good idea to learn how to trade or find quality stock advice. Once you are comfortable and confident with the basics, how to trade forex will become easier for you.
Sometimes beginners are being fooled by some quick random wins, feel themselves like they are forex-guru already, start risking, make mistakes and as a result blow an account. You should have a strategy, move step by step slowly, be consistent in profitable trading and analyze and learn from your mistakes.
In order to determine who the best Forex broker in the UK is, one has to do some research. There are two options: either you do your own research and find it out by yourself, or you rely on industry professionals who do (or did) the research for you, which would obviously save you a lot of time in the process. The first thing you should focus on is if the broker is regulated by a local authority. In England, this would be the Financial Conduct Authority (FCA).
Before start Forex teding you can choose brokers with relaible platforms. It is MetaTrader 4 or MetaTrader 5 platfroms.
You can see a few differences:
-MetaTrader 5 has more indicators and timeframes (21). That allows more better market analysis. When MetaTrader 4 has 9 timeframe options. This also allows you to better analyze the market, and also here you can see the depth of the market more.
- Despite the fact that MetaTrader 5 has more indicators and other features, Metatrader 4 still remains the market leader.
Regardless of which trading platform you choose, you will still get good Trading conditions and enjoy trading!
Control is perhaps the main difference between Forex and the stock market. But it would be more correct to say that lack of control. The entire foreign exchange market is decentralized, it is not regulated and various kinds of fraud are not so rare. At the same time, brokers that give access to the stock exchange usually have a license from the state, they are closely watched and in the event of a situation prescribed in the rules as the broker's fault, you may not even file a complaint - they will do everything themselves, as they are afraid of losing the license. Of course, you will need to choose where to trade.
For example, forex is larger than the stock market. If you are interested in a particular company or several companies, then the stock market is for you. If you do not have a clear desire for what to trade, then choose forex. If we talk about which program is better than MT4 or MT5, then as you probably know, the industry is slowly but steadily moving to MT5. MT5 is the future of trading. In this updated platform: hedging is allowed, no FIFO rule, fundamental calendar, Commerce integration, the ability to multiple market orders and much more...