Forex is the basis for the single largest trading market in the world. More than £4 trillion in currency changes hands every day thanks to governments, banks, businesses, and individuals.
So, what exactly is forex and how can you trade it in the UK? In this guide, we’ll explain everything you need to know about forex in the UK and highlight top brokers you can use to start trading forex today.
What is Forex UK?
Forex, shorthand for foreign exchange, is the trading of currencies from different countries. For example, if you exchange pounds for euros or dollars, that is a forex transaction.
Forex transactions happen for several different reasons. First, many businesses simply need foreign currencies to pay for goods and services. For example, a UK retailer that is importing clothes from Italy needs to pay the supplier in euros, not pounds. So, that retailer would have to exchange pounds for euros through a bank or another financial institution.
Banks and governments also need forex, and they make up a large portion of the £4 trillion worth of currency traded daily. International banking runs on US dollars and many governments pay debts to one another in dollars. So, there must be a constant flow between national currencies and dollars.
Individuals contribute to the forex market, too. If you have ever gone on vacation in another country and exchanged pounds for the local currency, you have taken part in a forex transaction.
Importantly, the price of one currency relative to another isn’t fixed. Rather, the pound can increase or decrease in value relative to, say, the US dollar at any time. That creates opportunities for forex trading.
With forex trading, you can speculate on the future value of a currency by simultaneously buying that currency and selling another. If the value of the currency you purchased increases, you can then reverse your trade and turn a profit.
The best way to understand how UK forex trading works is with an example. Let’s say you want to bet on strength in the euro and a drop in the Australian dollar. In that case, you can buy euros and sell Australian dollars. If the price difference between them goes up, you can sell your euro position and buy a greater number of Australian dollars than you initially sold. Those additional Australian dollars represent your profit on the trade.
Most forex trading in the UK happens through CFDs, or contracts for difference. With CFD trading, you can speculate on the direction of a currency’s value without actually taking ownership of it.
So, in the example above, you could buy a CFD for the euro/Australian dollar currency pair instead of buying euros and selling Australian dollars. You would make the same profit if the value of the euro goes up. However, you wouldn’t have to worry about converting between pounds, euros, and Australian dollars, which can be expensive.
As our example illustrates, UK forex transactions always happen in pairs. That’s because currencies don’t rise or fall in value in a bubble. Instead, they rise or fall in value relative to all the other currencies in the world.
Forex pairs can be divided into three groups: major pairs, minor pairs, and exotics.
The major forex pairs include the US dollar and the seven next most commonly traded currencies. These pairs are:
Together, the major forex pairs constitute nearly 85% of all forex transactions. The EUR/USD pair alone, which is the most commonly traded pair in the world, makes up nearly 30% of trades each day.
The minor forex pairs involve crosses between the US dollar and less common currencies as well as crosses between the non-dollar members of the major pairs. For example, the GBP/EUR and AUD/NZD are both minor forex pairs. These are generally easy to trade and are offered by most UK forex brokers, but they come with higher fees than major pairs.
Exotic pairs are much less commonly traded than either major or minor pairs. They include crosses like USD/HKD (Hong Kong dollar) and EUR/TRY (Turkish lira). Which exotics, if any, are offered for trading varies widely between brokers and the trading fees can be steep.
Forex Market Opening Times
Since the forex market operates over the entire globe, it is almost always active. In fact, the forex market is open 24 hours a day, five days a week. You can trade currencies starting at 10 pm on Sunday night all the way until 9 pm on Friday night.
The reason that the forex market has such expansive hours is that markets in different parts of the world are operating at different times. For example, trading in the UK and Europe is open and active during daylight hours in the UK. But if you want to trade in the evening, forex exchanges in the US are open. In the middle of the night in the UK, exchanges in Australia and Japan are open, allowing anyone in the world to continue placing trades.
So, the trading week starts off with market open in Australia on Monday morning (Sunday night in the UK). It ends with the close of markets in the US on Friday afternoon (Friday evening in the UK).
UK forex traders should always keep one eye on a forex calendar. This is simply a calendar of important economic events around the world, like government-sponsored economic reports, government debt sales, and debt payment dates.
These events are important because they can have a big impact on the price of different currencies. For example, a national report that includes an updated economic forecast could point to the direction of the country’s economy in the future. That in turn informs whether its currency might be more or less valuable relative to its neighbors’ in several months or years.
The good news is that forex calendars are easy to find. Many forex brokers offer one with their trading platforms. Alternatively, there are plenty of free calendars and forex news sites online where you can stay up to date with global economic events.
Having the right forex software is key to successfully and consistently turning a profit from the forex market. Forex trading has many tools in common with stock trading and commodity trading, including price charts and technical indicators. However, there are also two software tools that are specific to forex: forex signals and forex robots.
Forex signals are automated alerts that help you spot trading opportunities as they happen. The alert might be triggered by something as simple as a specific currency pair reaching a specific price, or by something as complex as a multi-part technical setup. In any case, forex signals should be based on an existing trading strategy.
The alerts generated by forex signals are particularly important for day trading, when missing a sudden price change can make the difference between a profit and a loss. However, they can also be extremely helpful if you want to jump into the forex market but aren’t able to watch the markets on your computer for most of the day.
Forex robots take forex signals to the next level. Signals are simply alerts – it’s still up to you to make a trading decision once you receive the signal. With robots, a forex signal is accompanied by a specific trading action that happens automatically when the signal is triggered. For example, with forex robots, you could automatically trigger a trade when a currency pair reaches a set price level, and then trigger the position to be closed when it reaches another price level.
It’s important to be cautious when using forex robots since automated trading can happen fast. You should receive alerts when trades are triggered, but it’s possible for positions to be opened and closed before you can even get to your computer. Make sure to test a forex robot extensively with a paper trading account before deploying it for live trading.
There are a number of different strategies for trading forex in the UK. Which one is best for you depends on your goals and risk tolerance. In any case, it’s a good idea to practice your forex strategy with a demo account before committing real money to trading.
With that in mind, let’s take a look at three forex strategies you can try today:
Scalping trading is a form of day trading that relies on quick trades with small margins. While the profit from any individual trade might be just a fraction of a percent, scalping traders will typically make dozens of trades in a single day. Small profits can compound over the course of a day to produce a significant return.
When scalping, it’s important to look for high-probability trading setups and to minimize risk. Use stop losses to ensure that a single bad trade cannot wipe out a whole day’s worth of profits.
Forex swing trading is a multi-day trading strategy that aims to profit off of changes in price momentum. A swing trade may be opened in response to strong momentum or around a price reversal. Your profits can increase as the price continues to move over the course of several days or weeks. Then a swing trade is closed once momentum begins to fade.
Price Action Trading
Price action trading looks at price changes, as opposed to technical indicators, to determine the future price of a forex pair. Using price as your primary indicator can be helpful because it represents the leading edge of market conditions.
However, price-based setups can also be subjective and they don’t lend themselves well to forex signals. It’s important to practice forex price action trading to make sure that you can consistently and accurately identity profitable setups.
Best Forex UK Brokers
Choosing the right UK forex broker is a critical part of trading. Your broker will determine what currency pairs you can access and how much you’ll pay for every forex trade. In addition, your trading platform will play a big role in allowing you to develop, practice, and execute forex strategies.
There are dozens of online brokers in the UK that offer forex. Let’s take a closer look at three of the top forex brokers that you can get started with today:
1. eToro – 0% Commission Trading with an In-depth Social Network
eToro is our all-around favourite UK broker for trading forex. This capable platform offers 0% trading commissions and low spreads on dozens of forex pairs. All forex transactions are through CFDs, meaning that you don’t have to worry about currency conversions. Plus, you can trade with leverage up to 30:1.
The best thing about eToro is that it offers an advanced social trading network. You can start discussions with other forex traders and easily see what currency pairs they’re holding in their portfolios. Through the network, you can also see what forex pairs are popular and quickly gauge market sentiment to find out whether traders are bullish or bearish about a particular currency.
eToro’s trading platform doesn’t offer forex signals. However, the social network does support copy trading, through which you can automatically mimic the trades of professional forex traders. This makes it easy to automate some or all of your portfolio and take the work out of trading.
- 0% commission forex trades
- Includes social trading network
- Quickly gauge market sentiment
- Supports copy trading
- Leverage up to 30:1 for major pairs
- Doesn’t support forex signals
67% of retail investor accounts lose money when trading CFDs with this provider.
2. Plus500 – Forex CFD Trading with High Leverage
Plus500 is an impressively inexpensive broker for trading forex CFDs in the UK. This platform doesn’t charge any trade commissions, and you’ll find transaction fees as low as 0.006% for some forex pairs. Even better, Plus500 allows you to use leverage to a far greater degree than many of its UK competitors. When trading major currency pairs, for example, you can apply leverage of up to 300:1 to your trades.
Despite being inexpensive, Plus500 doesn’t skimp when it comes to trading tools. The platform comes with a handy forex calendar and a web-based charting interface that includes more than 90 technical indicators. Plus500 also has a very capable mobile forex app that includes all the same charting tools, but adapted for a touchscreen.
Unfortunately, Plus500 doesn’t allow you to set up full-fledged forex signals. But you do get access to advanced price alerts that accomplish much of the same purpose. We especially like that price alerts created on your computer can be pushed to your smartphone and vice versa.
- Extremely low spreads for forex CFDs
- Leverage up to 300:1 for major forex pairs
- Very capable charting software
- Includes forex calendar
- Mobile forex app available
- Cannot create setup-based trading signals
There is no guarantee you will make money when trading CFDs with this provider.
3. Capital.com – Commission-free Trading with Education and AI Insights
Capital.com has a massive selection of forex CFDs for trading. The broker offers more than 120 currency pairs in all, including more than 50 different exotic pairs. Major pairs can be traded with leverage up to 30:1, and the transaction fees for trading exotics are reasonable if not cheap.
This broker stands out for more than just its range of currency pairs. We particularly like that Capital.com has a mobile app specifically dedicated to trader education. The app offers an interactive experience that helps new traders learn the ins and outs of forex as well as practice strategies. In some ways, the app is like getting a free forex course from your broker.
Capital.com also has an artificial intelligence-based trading assistant that helps set its trading platform apart. The AI assistant will spot trading setups and bring them to your attention, taking the place of fixed forex signals. It will also analyze your trades to spot patterns and then make suggestions about how you could improve your profitability.
- Offers CFDs for 120+ forex pairs
- 0% commission trading
- Mobile app dedicated to trader education
- AI-based trade assistant
- Leverage up to 30:1 for major pairs
- Charting software isn’t the most advanced we’ve seen
80.5% of retail investor accounts lose money when trading CFDs with this provider.
How to Trade Forex on eToro
Ready to jump into trading forex in the UK? We’ll show you how to get started with eToro, our top-rated forex broker, in just three steps.
Step 1: Open a Forex Account
In order to access eToro’s forex platform, you’ll need to open a new account with the broker. Head to eToro’s homepage and click ‘Join Now.’ Then enter a username and password, plus personal information like your name, email, and phone number.
eToro is regulated by the UK’s Financial Conduct Authority, which requires that you verify your identity before you start trading. You can complete this step online during registration by uploading a copy of your driver’s license or passport and a copy of a recent utility bill or financial statement.
Step 2: Fund Your Account
Whether you’re diving straight into live trading or starting out with a demo account, eToro requires you to deposit a minimum of £140. The platform makes this easy with several ways to deposit funds:
- Debit or credit card
- Bank transfer
- Wire transfer
Step 3: Place Your First Forex Trade
With a funded account, you’re ready to place your first trade. Select ‘Top Markets’ and then ‘Currencies’ to see eToro’s forex dashboard, which displays the most popular currencies being traded on the platform right now. Click on a currency pair to open a new order form.
In the order form, you can specify how much money you’d like to trade and whether you want to apply leverage to your trade. You can also choose a stop loss price or take profit level if it makes sense for your trading strategy. When you’re ready, click ‘Open Trade’ to place your first forex trade.
Forex is widely traded in the UK and around the world, with more than £4 trillion flowing every single day. Currency trading forms the basis of the global economy, allowing governments, banks, businesses, and individuals to seamlessly swap currencies for trade, tourism, and more. With online forex trading, it’s also easy for UK traders to speculate on the forex market for potential profit.
Ready to start trading forex? Sign up for an eToro account today!
eToro – Best UK Forex Broker with 0% Commissions
67% of retail investor accounts lose money when trading CFDs with this provider.
What is a pip in forex?
A pip is one one-hundredth of a percentage point, or 0.01%. It is commonly used to quantify the spread for a forex trade, which is the difference between the bid and ask price for a currency pair. For example, if the EUR/USD pair is trading with a spread of 8 pips, you would pay a fee of 0.08% to trade.
What is leverage in forex?
Leverage allows you to borrow money from your broker to increase the size of your trading position. If you use 10:1 leverage, for example, you can purchase £1,000 worth of forex with just £100 in your trading account. Note that leverage typically comes with additional fees and risk.
What is margin in forex?
Margin comes into play when you apply leverage to a forex trade. Margin is the minimum amount of money you must have in your trading account as a portion of your trade size. If your trade begins to lose money, you may be required to add more money to your trading account as margin.
What is spread betting forex?
Spread betting on forex is an alternative to trading CFDs. In the UK, spread betting can be advantageous because profits from spread bets are not subject to capital gains taxes.
What is equity in forex?
Equity in forex is simply the total value of your trading account. If you don’t have any open trades, your equity is equal to your account balance. If you do have open trades, your equity is equal to your principal plus cash in your account.
How much money can you make trading forex?
There isn’t a limit to how much money you can make by trading forex. However, in order to make consistent profits, you’ll need to have a well-defined and proven trading strategy. We recommend practicing with a demo account before diving into trading forex with real money.