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Forex Trading in the UK

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The Bank of International Settlements (BIS) reports the U.K. is the world’s No. 1 forex trading hub, accounting for over 43% of global activity in the market. Its Triennial Central Bank Survey puts the volume of spot trades in the total market at $2 trillion per day. 

In short, people around the world are finding their way into the forex market, and the U.K. is taking full advantage of it. Here is your short introduction to the basics of forex trading in the U.K.

Get Started with Forex in the UK

Trading forex is easier than ever. If you want to get connected to the largest, most liquid financial market in the world, follow these steps:

  1. Connect to the internet. You can trade forex using your preferred device, from multiple screens to your smartphone. Sophisticated trading requires taking in a great deal of information at once, so it’s usually better to trade on a desktop. Your system should have an up-to-date OS with minimal latency for fast trade execution.
  2. Choose your online forex broker. You have so many choices in a forex broker. Before you decide, test the platform using virtual accounts (accounts that trade with fake money). Keep in mind that you may want more than 1 platform for more than 1 kind of trading.
  3. Open your forex account. Once you choose your platform(s), follow the process to open your account. Opening an account will set you up with money transfer options to and from your bank and verify your identity.
  4. Fund your account. When you are ready to trade with real money, transfer it in from your bank account. The leverage your account receives depends on the amount of money you deposit. Margin also depends on where your chosen broker is located. Most brokers allow deposits from checks, debit cards or bank accounts.
  5. Download your trading platform. Your chosen broker either connects you to a trading platform or provides its own proprietary platform. Trades should be easy to make and facilitate error-free input. Don’t commit to a platform that seems to argue with your fingers.
  6. Trade. Take your time here — don’t overtrade. Use the virtual account first to acclimate yourself to the platform and study forex trading strategies to improve your odds of success.

UK Forex Trading Strategies

There’s plenty of money flowing through the U.K. forex market, but successful trading is more likely with a proven strategy. Take a look at some of the ways that people trade forex.

Using Momentum

Momentum indicators are very popular because they indicate the possibility of a trend. Crossover lines on a momentum indicator provide entry and exit guidance. Momentum is considered a lagging indicator. You’ll enter a trade after a trend begins, but there is less chance of being wrong about the trend. 

Attribution: Forex Training Group

Trading Breakouts

When a price breaks away from a previous range, moving past the extremes of that range, it’s a breakout. Investors who move on this pattern hope that the price will continue to move in the breakout direction because it has broken the resistance of the previous range.

Attribution: Wikimedia

Return to Mean Strategy

If you notice a currency pair is trading in a range around a certain price, you may employ a return to mean strategy to pull a profit from your investment. When the product moves away from the mean, you make a trade that assumes it will return to that mean at some point.

Attribution: IG

Retracement: Even during a strong trend, prices hardly ever move up or down in a straight line. At some point in a rally, investors will take profits. The stock will experience a retracement, also known as a pullback. Retracement investors look to make money from the pullback rather than the rally.

Attribution: Flickr

Reversal

If you think that a price is rising or falling on fake news or people are overreacting to something, you may invest in a reversal. Reversal traders want to be ahead of the market and they make use of momentum indicators and technical cues like double tops or the head and shoulders pattern.

Attribution: Wikimedia

Attribution: Wikimedia

Carry Trading

A carry trade is a trade augment, meaning that it usually isn’t a primary strategy. If you hold a trade overnight, you can take advantage of the interbank interest rate of the currency you purchased. Also, if you buy a high-interest currency with a low interest one, you pocket the difference.

Attribution: About Currency

Pivot Points

You can trade off of the highs, lows and price reversals during the day if you’re good at determining support and resistance levels in a trading range. These pivot points are important points where people expect price action to change. As a result, those price points often become self-fulfilling prophecies.

Attribution: Wikimedia

Forex Trading Example in the UK

Let’s say EUR/GBP is trading at 0.85060/0.85080 and you think the price will rise. The margin rate of this currency pair is 3.23% and you want to purchase €10,000. You will only need £274.78 in your account.

Keep in mind that it is possible to lose more than £274.78 because you are leveraging with margin (borrowed money from your forex broker).

The EUR/GBP price does actually move up. In 2 hours, it’s trading at 0.86130/0.85150. This is a move of 105 points, and your profit is (€10,000*0.86130)-(€10,000*0.85080), or £105.

Making Money with Forex in the UK

Picking the correct direction of a trade is the first way most people learn to make money in forex, but it’s not the only way. Here are some other winning trades you can also take advantage of:

  • Shorting currency pairs: Instead of buying a currency pair at a low price and selling it at a higher price later, shorting involves selling a currency pair first and buying it back at a lower price later.
  • Contract for differences (CFDs): CFDs track the price of forex currency pairs. When you trade CFDs, you never actually own any currency. They are traded with margin, which offers leverage for investors without the cash to cover a full trading position.
  • Binary options: These all-or-nothing options allow investors to speculate on the future price of a currency pair. They are called fixed-return options because the amount of money you gain or lose is fixed, not tracked to the movement of the currency pair.

Best Online Forex Brokers in the UK

The broker you choose will likely have an impact on your execution and trading style. Have a close look at this list of forex brokers.

Account Minimum
$100 USD (or equivalent)
Pairs Offered
69
Get started securely through HYCM’s website
Account Minimum
$100 USD (or equivalent)
Pairs Offered
69
1 Minute Review

HYCM is 1 of the world’s leading forex brokers, offering investors access to over 69 unique currency pairs. However, forex isn’t the only thing the broker offers — HYCM also offers high rates of leverage, stock and ETF trading, commodity investing and much more. Getting started with HYCM is quick and easy, and most investors can open an account in as little as 10 minutes.

HYCM offers a varying fee structure, which allows investors to choose the spread option that’s best for them. A wide range of educational and investing tools are available, which can be equally beneficial to both experienced and novice traders. Though HYCM isn’t currently available in the United States, it can be a great choice for residents of the other 140 countries where it offers service. 

Best For
  • Investors who want a customizable fee schedule
  • Traders comfortable using the MetaTrader platform
  • Islamic traders who need swap-free accounts that don’t build interest
Pros
  • Wide range of currency pairs available
  • Excellent selection of educational tools
  • $0 deposit and withdrawal fees
Cons
  • Not currently available to traders based in the U.S.
Account Minimum
100 of your selected base currency
Pairs Offered
80+
Get started securely through FOREX.com’s website
Account Minimum
100 of your selected base currency
Pairs Offered
80+
1 Minute Review

FOREX.com is a one-stop-shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker. You can’t invest in the stock or bond market through your FOREX.com and you cannot open an account with tax advantages. The confusing pricing and margin structures may also be overwhelming for new forex traders.

Best For
  • MetaTrader 4 users
  • Beginner forex traders
  • Active forex traders
Pros
  • Impressive, easy-to-navigate platform
  • Wide range of education and research tools
  • Access to over 80 currencies to buy and sell
  • Leverage available up to 50:1
Cons
  • Cannot buy and sell other securities (like stocks and bonds)
  • Confusing margin requirements that vary by currency
  • Limited customer support options
  • Cannot open an IRA or other retirement account
Account Minimum
$50 USD
Pairs Offered
47
Get started securely through eToro’s website
Account Minimum
$50 USD
Pairs Offered
47
1 Minute Review

Though Australian and British traders might know eToro for its easy stock and mobile trading, the broker is now expanding into the United States with cryptocurrency trading. U.S. traders can begin buying and selling both major cryptocurrencies (like Bitcoin and Ethereum) as well as smaller names (like Tron Coin and Stellar Lumens).

eToro offers traders the opportunity to invest their assets into premade portfolios or cryptocurrencies, similar to services offered by robo-advisors through traditional brokers. Though eToro isn’t a one-stop-shop for everything an investor needs, its easy-to-use platform and low spreads is a great way to enter the cryptocurrency market.

Best For
  • International Forex/CFD Traders
  • New cryptocurrency traders looking for an easy-to-use platform
  • Traders who want to buy and sell cryptocurrencies on-the-go
Pros
  • Simple platform that is easy to master
  • CopyTrader feature that allows new traders to copy the same strategies used by professionals
  • Virtual dummy account that gives you $100,000 to practice trades
Cons
  • U.S. traders currently limited to cryptocurrencies
  • Only 15 major coins available to trade
Account Minimum
100 EURO
Pairs Offered
50+
Get started securely through AvaTrade’s website
Account Minimum
100 EURO
Pairs Offered
50+
1 Minute Review

A fully regulated broker with a presence in Europe, South Africa, the Middle East, British Virgin Islands, Australia and Japan, Avatrade deals with mainly forex and CFDs on stocks, commodities, indexes, forex, cryptocurrencies, etc. This brokerage is headquartered in Dublin, Ireland and began offering its services in 2006. It offers multiple trading platforms and earns mainly through spreads.

Best For
  • Beginners
  • Advanced traders
  • Traders looking for a well-diversified portfolio
Pros
  • Controlled by regulatory agencies of multiple countries
  • Choice offered in terms of trading platforms
  • Support available in 14 languages and trading platforms in 20 languages
  • Practice/demo account available for trying out
  • Breadth of trading assets
Cons
  • Does not accept customers from the U.S. as it isn’t regulated in the U.S.
  • Transferring funds to the account may take up to five days; withdrawals could take up to 10 days

Forex Terminology

If you want to research forex on your own or converse with other U.K. investors about strategy, you should know these basic terms.

  • Pip: The standard unit of the forex market, representative of the smallest allowable change in a currency price — usually U.S. $0.0001.
  • Lot size: A unit of currency — the standard lot size in forex trading is 100,000 units.
  • Orders: The strategy you use to enter or exit a trade in forex.
  • Calls: A currency derivative contract — buying a call option gives the buyer the right to buy a currency pair on or before a certain date at a certain strike price.

Money in its Rawest Form

The world of forex is exciting and can be dangerous for an untrained investor. This is literally the market that is moving money around the world. It’s quite easy to get started but hard to master.

It’s quite easy to get started and it’s even easier to lose money. Take the time to learn the trade before you trade.

Bookmark this page for updates and be sure to check back with our blog for the latest tips about how to trade the forex market.

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