Forex Trading UK Guide 2020

The forex market is one of the largest financial markets in the world. Every single day, more than £5 trillion in currency changes hands.

If you’re considering jumping into currency trading, this forex trading for beginners guide will cover everything you need to know.

We’ll explain how forex trading in the UK works, highlight the benefits of trading forex, and offer strategies and tips to help you get started. Plus, we’ll review five of the best UK forex brokers you can trade with today.

What is Forex Trading?

Forex trading UKForex trading involves exchanging one currency for another. If you’ve ever exchanged pounds for dollars or euros while on vacation outside the UK, you’ve taken part in forex trading. Of course, when we talk about forex trading in the UK we’re specifically talking about exchanging currencies with the intent to profit off changes in their value.

One of the exciting things about trading forex is that the market is global. That’s a big difference from stock trading, where individual exchanges typically only host shares of companies from a single country. When you trade forex, you’re involved in a market that’s used by governments, banks, and traders around the world.

The forex market is also enormous, with more than £5 trillion in currency exchanged each day. The size of this market comes from the fact that it’s essential not just to forex traders, but to the flow of the global economy. If you want to purchase clothing that’s made in Italy, say, you’ll pay an import company in pounds that in turn pays the Italian manufacturer in euros. Currencies are constantly exchanged by major banks as well.

Forex trading hours are 24 hours a day, five days a week – from 9pm on Sunday night to 9 pm on Friday night. When you trade forex, there isn’t a central exchange like for buying stocks. Instead, a forex order is placed onto a global computer network and can be fulfilled by a forex broker, a bank, or anyone else trading on the global network. Since online forex trading takes place around the world, the market can be very active at any time of day.

Forex Trading Pairs

One of the key things beginners need to know about UK forex trading is that all currencies are valued relative to one another. This is another key difference from buying shares.

The pound doesn’t have a set value all to itself. Instead, the value of the pound is measured relative to, say, the dollar or the euro. The value of the pound can rise in value relative to the dollar and the euro by different amounts, or it could rise relative to the dollar and fall relative to the euro at the same time.

As a result, all forex trading in the UK takes place through currency pairs. There are three types of forex trading pairs:

Major Pairs

Major forex pairs There are seven major forex trading pairs that all involve the US dollar:

  • EUR/USD
  • GBP/USD
  • USD/JPY
  • USD/CHF
  • USD/CAD
  • AUD/USD
  • NZD/USD

These seven pairs make up the majority of forex trading on a daily basis, in the UK and around the world. Beginner forex traders should start out trading these major currency pairs since they are always available to buy and sell and typically entail lower fees than less common forex pairs.

Minor Pairs

There are more than 20 different minor currency pairs. These either pair the non-USD currencies from the major pairs or pair the US dollar with other global currencies. For example, JPY/AUD and GBP/EUR are considered minor currency pairs.

Exotics

The exotics involve pairs of currencies that aren’t frequently traded. For example, JPY/ZAR and EUR/HUF are considered exotic forex pairs. Exotics can be very illiquid – that is, there aren’t many people buying or selling them at any given time – so they’re generally best for more advanced forex traders.

Why Trade Forex?

The forex market has several characteristics that make online forex trading for beginners particularly suitable. Let’s take a look at some of the top reasons to trade forex in the UK.

Accessibility

For many traders, the main attraction of the forex market is that it’s extremely accessible. Few other markets enable you to jump on your computer at any time and start trading. But since forex markets operate 24 hours a day, you can do just that. There are also very few limits to what currencies you can trade, especially compared to the stock market – where most stock brokers only carry shares from one or two countries.

On top of that, it doesn’t take much money to get started with forex trading in the UK. Many top forex brokers only require you to trade £50 at a time. So, you can begin buying and selling currency pairs with just a tiny initial investment.

Liquidity

Since so much currency is traded every single day, it’s almost a guarantee that you’ll find a buyer for currency you want to sell at any time. This is known as liquidity – there is a constant flow of currency pairs around the world.

Liquidity is a good thing because it means there’s little chance you’ll get stuck in a trade, unable to sell your position when you want. High liquidity is also important because it helps keep the price of your trades low. We’ll cover forex trading fees and how they’re impacted by liquidity in more detail below.

Trade in Either Direction

Another nice thing about trading forex is that you can bet that a currency’s value will fall (relative to another currency) just as easily as you can bet that it will rise. When you short sell a currency, you profit when it loses value. This gives you more flexibility to hedge your forex trading positions and to create more complex forex trading strategies.

Leverage

A key part of UK forex trading is the ability to leverage your trades. With leverage, you can borrow money from your forex broker to increase the effective size of your trade. For example, if you open a position with 10:1 leverage, you can buy £1,000 worth of a currency with just £100 in your trading account.

The benefit of using leverage is that it multiplies your return. Let’s say you purchase GBP/USD at 10:1 leverage. If the value of the dollar rises by 1% relative to the pound, your position would jump in value by 10%.

With leverage, you can make significant profits off of even small changes in the value of forex pairs. In addition, it’s possible to invest in several different forex pairs to hedge your positions since you only need a small investment to open large positions.

Forex Trading Fees

One of the best things about forex trading in the UK is that it is almost always commission-free. Instead of charging a flat fee of several pounds per trade, most forex brokers charge what’s known as a spread.

The spread is the difference between what you can buy a currency pair for and what you can sell it for at the same time. Spreads vary by forex pair and by broker, and they can range from as low as 0.05% to as high as 1% or more. Generally, you’ll find the lowest spreads on major currency pairs and the highest spreads on exotics.What is the spread in forex trading?

One important thing to keep in mind is that if you trade with leverage, you’ll likely have to pay additional fees. Most forex brokers charge overnight interest rates if you hold a leveraged forex position after the close of business in the UK, even though the forex market never sleeps. As a result, if you leverage forex trades, it’s best to only keep your positions open for several hours at a time.

UK Taxes on Forex Trading

When thinking about forex trading fees, it’s also worth thinking about your tax liability. Unfortunately, figuring out what you’ll be taxed for forex trading in the UK can be complicated.

If you trade forex through spread betting, your profits will be completely tax-free. With spread betting, you simply speculate on the direction of the change in value of a currency pair.

Most forex trading in the UK takes places as CFD trading, though. With CFD trading, you purchase a contract with your broker that changes in value at the same rate as the underlying currency pair. Importantly, CFD trades are subject to capital gains taxes in the UK. So, you could end up paying a tax rate as high as 20% on your profits depending on your individual tax situation.

Forex Trading UK Risks

Forex trading, like all types of trading, comes with risk. There is always a chance that a trade will go against you and the value of your position will drop. If that happens, you can sell your forex position for a loss. Alternatively, you can hold the position in the hope that it will rise in value – but there’s no guarantee that will happen, and you could end up taking a greater loss.

It’s important to keep in mind that using leverage greatly increases your risk when forex trading in the UK. First, any losses are multiplied. Just as a 1% gain in a currency pair’s value translates to a 10% return when trading with 10:1 leverage, a 1% loss in value will mean a 10% drop in the value of your position.

On top of that, you’re borrowing money from your broker when trading with leverage. Most forex brokers require that you cover more of your position’s value with cash in your account if it starts to lose value. So, you may be forced to add money to your account quickly or else your broker will sell your position for a loss.

Given these added risks, beginner forex traders should be very careful about using leverage.

Forex Trading Strategies

If you want any chance of getting rich by trading forex, it’s vital to have a sound forex trading strategy.

There are as many forex trading strategies as there are forex traders. Every trader has to develop their own personalized strategy that matches their goals, risk tolerance, and trading style. This process takes time and practice, so we recommend that you start out trading with a demo account to see what works for you.

With that in mind, let’s take a closer look at three forex day trading strategies you can try.

Scalping

Scalping is a very short-term trading strategy that involves buying and selling a currency pair throughout the day. The goal of scalping is to profit off of very small price changes that happen on the scale of a few seconds to minutes. Scalpers closely follow technical indicators to identify potential entry and exit points.

The price changes involved in scalping are small, so the returns from any individual trade may be just a fraction of a percent. But if you place enough winning trades in a day, those small returns can add up.

Swing Trading

Swing trading is a medium-term forex trading strategy. Typically, swing traders look for momentum in the value of a currency pair. Ideally, you’ll enter a forex trade after a strong reversal as the value starts to rise or fall on high trading volume. Stick with the trade for as long as the forex pair keeps trending in a specific direction, and then sell as soon as the trend starts to falter. Aggressive swing traders can then speculate on a trend in the reverse direction if one develops.Day trading vs Swing trading forex

Trading the News

Much of the volatility in the forex market is driven by news. Global events, politics, weather, trade agreements, and economic reports can all cause the value of a currency to go up or down. One powerful forex trading strategy is to watch market news to see gauge whether a country’s currency is poised to gain or lose value in the short-term or long-term. Then, open a forex trade based on the news and your own analysis.

Automating Your Forex Trades

Many intermediate and advanced forex traders choose to automate their forex trading. Automating your trades can not only take some of the work out of day trading, but also remove the psychological element of trading that often leads to poor decision-making.

There are two main methods you can use to automate your forex trading: forex signals and forex robots.

Forex Trading Signals

Forex signals are sets of technical indicators and news scanners. With forex signals, you receive an alert on your computer or smartphone when a specific set of parameters are met. For example, if several indicators align, you can receive an alert on your phone that offers information about the forex pair, the current price, and potential entry and exit points.

Forex signals can either be created manually, or they can leverage artificial intelligence to improve over time. You can also purchase professionally made forex signals through your broker or another online forex trading platform.

Forex Trading Robots

Forex robots take trading signals to the next level by fully automating your trades. These bots use forex signals to not just identify and alert you to potential forex trading opportunities, but to also trade on your behalf. Trading robots can operate 24/7, which makes them particularly suitable for automated forex trading.

Forex Trading Tips

UK forex trading is accessible, but it’s important to know what you’re doing before you dive in. So, let’s take a look at five tips you can use to prepare yourself for the currency market.

  1. Take a forex trading course

Our guide is a great place to start to learn forex trading. But before you commit money to your trades, it’s a good idea to take a full forex trading course. You can find a high-quality trading course through your broker or by finding professional trading services online.

  1. Read the best forex trading books

Professional traders have spent years honing their strategies and techniques for trading forex. By picking up a book, you can learn some of their most useful tricks. We recommend ‘Forex for Beginners: What You Need to Know to Get Started, and Everything in Between’ by Anna Coulling and ‘How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life’ by Courtney Smith.

  1. Try a forex demo account

Another way to ease into forex trading is to start out with a forex demo account. With a demo account, you can practice with your broker’s forex trading platform, access live price data, and monitor your trading performance over time without risking real money.

  1. Start small

When you do start trading in a live account, it’s a good idea to start out with just a small investment. Focus on one or two currency pairs rather than trying to trade everything at once. In addition, try trading without leverage or with only low levels of leverage to limit your risk.

  1. Use stop losses

One of the best things you can do to limit your risk when trading forex is to use stop losses. With a stop loss, your broker will automatically sell your position if its value drops below a preset level. Stop losses are especially important for forex trading since the market is active 24/7 and you can’t always monitor your trades.

Best Forex Trading Platforms

In order to start trading forex in the UK, you’ll need a top forex trading platform. Look for one that offers low spreads, high leverage, and access to a wide range of currency pairs. Here are five of our favourites:

1. eToro – Overll Best Forex Trading Platform UK

etoro logoeToro offers one of the best forex trading platforms in the UK. This forex broker has a social trading network where you can interact with thousands of other traders from around the world. With that, you can see what currencies others are buying, start discussions, and gauge market sentiment. Even better, you can set up copy trading to automatically mirror the forex positions of expert traders.

eToro also has a powerful charting platform with dozens of technical studies built in. You can also monitor market news through the platform, which makes it easier to stay on top of breaking developments. The only downside is that you can’t set up forex signals through eToro’s platform.

All forex trading on eToro is commission-free, and you’ll find spreads as low as 0.008% for major currency pairs. eToro does charge some account fees, including withdrawal fees, but they’re relatively inexpensive and easy to avoid. We also like that you can trade major forex pairs with leverage up to 30:1.

Pros:

  • Social trading network
  • Supports copy trading
  • Excellent charting platform
  • Very low spreads
  • Excellent forex trading app
  • Leverage up to 30:1

Cons:

  • No forex signals
  • Charges a withdrawal fee

75% of retail investor accounts lose money when trading CFDs with this provider.

2. Plus500 – UK Forex Broker with Low Spreads

Plus500 LogoPlus500 is the forex CFD broker of choice if you’re looking for the lowest possible spreads. For the popular USD/EUR trading pair, for example, you’ll find a spread of just 0.006%. That’s incredibly cheap, so Plus500 is a great option for forex traders that trade with high volume. Even better, you can trade major forex pairs with leverage of up to 300:1.

You wouldn’t think Plus500 is a discount broker based on the quality of its trading platform. The proprietary charting software includes more than 90 technical studies and plenty of drawing tools. On top of that, Plus500 offers an economic calendar, a powerful forex trading app, and price alerts that can be pushed to your mobile device.

The only thing we found ourselves missing at Plus500 was the ability to create trading signals. Unfortunately, Plus500’s forex trading platform doesn’t allow for custom indicators.

Pros:

  • Extremely low forex spreads
  • Trade with leverage up to 300:1
  • Includes a forex trading app with price alerts
  • Versatile charting software

Cons:

  • Doesn’t support custom indicators

80.5% of retail investor accounts lose money when trading CFDs with this provider.

3. Capital.com – New Forex Broker with Exotic Trading Pairs

Capital.com logoCapital.com is another low-cost forex broker, with spreads that rival those at Plus500. This broker stands out for offering more than 120 forex pairs, including a massive selection of exotics. If you’re looking to trade forex pairs that don’t see much trading and have potentially high volatility, Capital.com is the broker of choice.

On top of that, Capital.com stands out for its use of artificial intelligence. While this broker doesn’t offer forex signals as part of its trading platform, it does serve up trade ideas using a built-in algorithm. Capital.com’s AI system can also analyze your trades to help you spot trends and improve your win rate.

Capital.com also places a heavy emphasis on trader education. In addition to a mobile investment app, Capital.com has a standalone app that offers an interactive forex trading course. This is a great tool for beginners, and it’s available whether or not you ultimately decide to trade with Capital.com.

Pros:

  • CFD trading for 120+ forex pairs
  • Extremely low spreads
  • AI-based trade ideas and analysis
  • Trader education app

Cons:

  • Doesn’t include forex signals

There is no guarantee you will make money when trading CFDs with this provider.

4. IG – Established UK Forex Trading Platform

IG logoIG is one of the more expensive forex brokers in the UK, with spreads that are somewhat higher than the industry average. However, it more than makes up for its above-average fees with trading tools that simply blow away the competition.

IG offers traders two options for forex trading: ProRealTime and MetaTrader 4. Both charting platforms are highly customizable and enable you to create your own personalized technical studies. MetaTrader 4 also comes with a marketplace where you can purchase forex signals or forex robots from professional traders.

Another benefit to IG is that your brokerage account comes with access to market news feeds and expert analysis. The broker offers webinars, podcasts, and strategy sessions so that you can constantly improve your approach to forex trading.

Pros:

  • Includes access to MetaTrader 4
  • Excellent support for forex signals
  • Highly customizable ProRealTime dashboard
  • Includes market news and analysis

Cons:

  • Relatively expensive spreads

There is no guarantee you will make money when trading CFDs with this provider.

5. FXCM – Popular Broker with MT4

FXCM offers trading on 39 major and minor forex pairs along with a handful of exotics. What helps this broker differentiate itself, though, is that it also offers forex baskets. With FXCM’s forex baskets, you can trade a bundle of currencies at once instead of just a single pair. That opens up plenty of possibilities for hedging and protects you against a drop in any one currency.

FXCM also stands out for offering a wide selection of trading platforms. You get access to MetaTrader 4 and NinjaTrader, both of which are top forex trading platforms that offer custom indicators and forex signals. You can also access ZuluTrade through your FXCM account, which offers social trading.

Leverage at FXCM is somewhat limited, to just 30:1 for major currency pairs and 20:1 for all other pairs. However, spreads are relatively low for most pairs, which is nice given the wealth of trading tools.

Pros:

  • Unique forex baskets
  • Includes MetaTrader 4 and NinjaTrader
  • Social trading through ZuluTrade
  • Supports forex signals and trading bots

Cons:

  • Limited leverage for forex trading

There is no guarantee you will make money when trading CFDs with this provider.

How to Begin Forex Trading UK – eToro Forex Trading Tutorial

Ready to start trading forex? We’ll show you how to place your first trade using eToro.

Step 1: Open a Forex Trading Account

Head to eToro’s homepage and click ‘Join Now’ to open a new account. You will need to enter a new username and password, along with details like your name, birth date, email, and phone number.Click Join Now to open a new eToro account

To comply with government regulations, eToro also requires you to verify your identity. Upload a copy of your driver’s license or passport, plus a copy of a recent utility bill or bank statement to confirm your address.

Step 2: Deposit Funds

Now it’s time to fund your account. eToro accepts a wide range of payment options, including debit or credit card, e-wallet, or bank transfer. The first time you deposit funds into your account, you’ll need to deposit at least £140.

eToro deposit

Step 3: Place a Forex Trade

With a funded account, you’re ready to open your first forex trade. Search for a currency pair like ‘GBP/USD’ in the eToro dashboard, then click ‘Trade’ when it appears in the menu to open a new order form.

In the order form, specify how much money you’d like to trade (you must trade at least £50) and choose whether to buy or sell the currency pair. If you want to apply leverage to your trade or set a stop loss, you can set those options here as well. Once your trade is ready, click ‘Trade’ to complete your forex trade.Trade forex on eToro

Conclusion

Forex trading gives you access to a fast-moving, global market that operates 24 hours a day. With forex trading, you can speculate on the price of one currency relative to another. The forex market is widely accessible since it’s global in nature and only requires a small initial investment.

If you’re ready to trade forex in the UK, sign up for an eToro account today. Just click the link below to get started!

eToro – Best Forex Trading Platform in the UK

75% of retail investor accounts lose money when trading CFDs with this provider.

FAQs

How does forex trading work?

When you trade forex with CFDs, you own a contract that changes in value as the underlying currency pair’s value changes. You never actually own foreign currency directly. You can sell your position at any time to realize a profit or loss.

What are pips in forex trading?

The spread – the difference between what you can buy and sell a currency pair for – is typically measured in pips. A pip is one one-thousandth of a percent. So, a 0.006% spread is 6 pips.

How does margin work when trading forex?

When you trade with leverage, you are trading on margin. Margin is the amount of money you are required to have in your trading account for a position. So, if you open a £1,000 position at 10:1 leverage, the required margin would be £100.

Is forex trading considered halal?

Standard forex trading accounts are not halal since they entail interest payments. However, many forex brokers offer swap-free Islamic accounts that are considered halal. These accounts remove all interest payments, but charge higher spreads or commissions.

What is the best forex trading app?

Which forex trading app is best for you depends on your trading goals and strategy. Look for features like price alerts, advanced charts, and a social network. We think the eToro forex trading app is one of the best platforms available.

Is forex trading profitable?

There isn’t an upper limit to how much you can make while trading forex. Your profitability will depend on having a strong trading strategy and choosing your trades carefully. There is no guarantee you will make money when trading forex.

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Michael Graw

About Michael Graw

Michael Graw is a freelance journalist based in Bellingham, Washington. He covers finance, trading, and technology. His work has been published on numerous high-profile websites that cover the intersection of markets, global news, and emerging tech. In addition to covering financial markets, Michael’s work focuses on science, the environment, and global change. He holds a Ph.D. in Oceanography from Oregon State University and worked with environmental non-profits across the US to bridge the gap between scientific research and coastal communities. Michael’s science journalism has been featured in high-profile online publications such as Salon and Pacific Standard as well as numerous print magazines over the course of his six-year career as a writer. He has also won accolades as a photographer and videographer for his work covering communities on both coasts of the US. Michael has been a member of the LearnBonds team since March 2020.