Forex trading UK - The Ultimate Beginner’s Guide to Trading Forex Online
Forex Trading UK Guide
How to Begin Trading Forex in the UK
Want to dive into forex trading in the UK? FX trading UK guide will cover everything you need to know to get started.
If you are based in the UK and interested in buying and selling currencies - you’re not alone. The forex trading scene is now worth billions in the UK - and trillions globally.
The main concept is that you will be looking to trade popular currency pairs like GBP/USD or EUR/USD - with the view of predicting whether the exchange rate will go up or down. By making the right prediction you will close the trade with more than you originally started with.
But, take it from us - forex trading is not an easy investment arena to conquer. In fact, most forex traders in the UK that are new to the space end up losing money. This is why we have put together the Ultimate Guide to Forex Trading UK.
Within it, we cover the ins and outs of what forex trading is - covering the likes of currency pairs, spreads, long/short orders, leverage, and more. We’ll also discuss how you can make money, what strategies are worth considering, and which UK forex brokers stand out from the crowd.
Note: Did you know that by using a forex signal service you can avoid the need to research currency charts? This is because the provider will send you forex trading suggestions in real-time.
What is Forex Trading UK?
The foreign exchange (forex) market is the largest trading industry globally, with an estimated $6.6 trillion changing hands each and every day. While much of this figure is contributed by large banks, hedge funds, and financial institutions - the retail trading scene has never been stronger.
In other words, anyone from the UK can now trade forex from the comfort of their home. In fact, the best forex trading sites active in the UK market now offer a fully-fledged mobile app. This means that you can buy and sell currencies irrespective of where you are.
As we cover in much greater detail further down, the main idea with forex trading is that you will be looking to predict whether the exchange rate of a ‘pair’ will go up or down. For example, EUR/USD - which consists of the Euro and US dollar, is priced at 1.17 at the time of writing this guide.
Your job as a UK forex trading pro is to speculate whether the exchange rate will go up or down. By making the right prediction, you will make a profit. The best thing about forex trading is that there are so many ways in which you can approach the market.
For example, while some traders like to follow trends over several days or weeks, others look to make quick profits by opening and closing a position in minutes or hours. All in all, forex trading can be a highly lucrative financial arena if you know what you are doing. But, it can take some time before you are skilled enough to make consistent gains.
Part 1: The Basics of Forex Trading in the UK
The UK forex trading scene can appear somewhat imitating if you’re new to the space. Crucially, before you even think about making a deposit into your chosen broker, you need to have a firm grasp of some key terms.
- Currency Pairs (Majors, Minors, Exotics)
- Trading Orders
- Market Hours
We are now going to elaborate on each of the above terms so that you don’t go into the UK forex trading scene in the dark.
All forex trading activity centres on currency pairs. As the name implies, a currency pair consists of two competing currencies.
Either way, each currency pair will have an exchange rate that is determined by market forces. Don’t worry, we explain how currency pair prices are influenced by demand and supply later in this guide.
So, taking GBP/AUD as a prime example, the currency on the left (GBP) is the ‘base’ currency. The currency on the right (AUD) is the ‘quote’ currency. As such, if GBP/AUD is priced at 1.81 on your chosen UK forex trading platform, this means that the markets are prepared to pay AU$1.81 for each pound that they receive.
It goes without saying that this exchange rate will change on a second-by-second basis. But, as we cover shortly, the exchange rate will move by micro-amounts in the forex scene - otherwise known as Pips (percentage in points).
As such, your chosen forex broker will display the value of GBP/AUD like this: 1.8108 or this: 1.8120. In other words, with the exception of pairs containing the Japanese yen, there are usually four digits after the decimal point.
Majors, Minors, and Exotics Pairs
There are well over a hundred currency pairs in the UK forex trading scene. Some are more popular than others, albeit, it’s always good to have a wide selection of markets to choose from.
With that being said, currency pairs can be split into three main categories - majors, minors, and exotics.
Major pairs are by the far the most popular forex pairs to trade online. This is because they contain the most liquidity, largest trading volumes, and most competitive spreads. The key point with major pairs is that they must contain the US dollar. Along with the dollar will be a strong currency like the British pound, Canadian dollar, or Euro.
To give you an idea of the best major pairs to trade online, check out the list below:
- EUR/USD: Euro / US Dollar
- GBP/USD: British Pound / US Dollar
- USD/CAD: US Dollar / Canadian dollar
- AUD/USD: Australian Dollar / US Dollar
- USD/JPY: US Dollar / Japanese Yen
- USD/CHF: US Dollar / Swiss Franc
- NZD/USD: New Zealand Dollar / US Dollar
Because the above currency pairs are in such high demand, volatility levels are typically very low. In fact, the exchange rate of these pairs will typically move in smooth and steady trends, making them ideal for newbie forex traders.
Minor pairs are also worth considering as an inexperienced UK forex trader. After all, they will contain two strong currencies. The key differentiator is that minor pairs never contain the US dollar. As such, although liquidity levels are slightly smaller in comparison to majors, minors still facilitate heaps of trading activity.
To give you an idea of the best minor pairs to trade online, check out the list below:
- EUR/AUD: Euro / Australian Dollar
- AUD/CAD: Australian Dollar / Canadian Dollar
- EUR/NZD: Euro / New Zealand Dollar
- EUR/GBP: Euro / British Pound
- GBP/JPY: British Pound / Japanese Yen
- EUR/CAD: Euro / Canadian dollar
- EUR/JPY: Euro / Japanese Yen
The best UK forex trading sites will often give you access to all major and minor pairs.
As the name suggests, exotic pairs are much more volatile than majors and minors. They possess much less in the way of liquidity and trading volume, meaning that exchange rates can move in a parabolic manner.
Ultimately, this is because exotic pairs often contain a currency from an emerging economy. This might include the Mexican peso, the Kenyan shilling, or the Chilean peso.
In other cases, exotic pairs might contain a currency from a strong economy, albeit, the currency in question doesn’t have much demand on the global scale. Examples would include the Danish krone or Singaporean dollar.
To give you an idea of the best exotic pairs to trade online, check out the list below:
- CHF/ZAR: Swiss Franc / Rand
- CHF/RUB: Swiss Franc / Russian Ruble
- TRY/JPY: Turkish Lira / Japanese Yen
- USD/CZK: US Dollar / Czech Koruna
- USD/DKK: US Dollar / Danish Krone
- USD/HKD: US Dollar / Hong Kong Dollar
On the one hand, the volatility levels associated with exotic currency pairs does pave the wave for more lucrative trading opportunities. However, you are best advised to stick with majors and minors until you get used to how exotic pairs work.
By this point of our Forex Trading UK Guide, you should have a firm understanding of what currency pairs are. As such, we now need to move on to ‘pips’.
So, when you search the exchange rate of a currency pair on Google, you will be shown a simplified result. That is to say, by searching for ‘GBP/NZD’ right now - we are shown an exchange rate of 1.91. Once again, as GBP is the base currency, this means that you will get 1.91 New Zealand dollar for 1 pound.
However, when you use a UK forex trading platform, you will see currency pair prices with four (or even five) digits after the decimal. As such, the price of GBP/NZD might look like this: 1.9107.
The last digit of the above example - 7, is the smallest unit in which the currency pair can change in value. This is known as a pip. In other words, if GBP/NZD moves from 1.9107 to 1.9108, this is a movement of 1 pip.
As you can image, a movement of a single pip is a micro amount in percentage terms. However, you need to remember that trillions of pounds worth of currencies change hands throughout a trading day - which is why the movement is so small.
We should note that the currency pairs containing the Japanese yen will usually only have two digits after the decimal. For example, the price of USD/JPY might look like this: 104.30 and GBP/JPY like this: 135.22.
Once again, some UK forex trading platforms add an extra digit at the end, which paves the way for small stake sizes. In this scenario, the above Japanese yen pairs would have three digits after the decimal.
Forex Trading Orders
When you trade forex in the UK, you need to use a suitable broker. In turn, your broker needs to know what trade you want to place.
Not only does this include the direction of the market you think the pair will take, but other metrics like stakes and leverage. As such, you will need to place a series of forex trading orders so that your chosen broker can execute your request.
The most important orders that you need to be aware of are listed below.
Buy and Sell Orders
While some orders in the UK forex trading scene are optional, buy and sell orders are a minimum requirement. This is because these orders tell the broker whether you think the currency pair will increase or decrease in value.
- Buy Orders: Place a buy order if you think the currency pair will increase in value
- Sell Orders: Place a sell order if you think the currency pair will decrease in value
As a basic example, if you placed a buy order or GBP/USD at 1.3050 and then closed the position at 1.3060, you would make a profit. This is because you sold the pair for more than you originally paid. The same works for sell orders but in reverse.
It is important to note that each forex trade that you place will always contain both a buy and sell order.
For example, if you enter the trade with a sell order, you will need to place a buy order to close it. Similarly, if you enter with a buy order then you will need to exit your position with a sell order.
Market and Limit Orders
Once you have determined whether you want to place a buy or sell order, next up is a market or limit order. Put simply, this lets your broker know when you want to enter the market.
- Market Orders: By placing a market order, your chosen forex broker will execute the trade instantly. You will get the next available market price. As currency pairs move on a second-by-second basis, the price you get might be slightly above or below the price you see on your trading screen.
- Limit Orders: Limit orders allow you to choose the price that you want your broker to execute your trade. For example, GBP/AUD might be priced at 1.8105. But, you don’t want to enter the market until the price drops to 1.8100. As such, you would need to place a limit order at 1.8100. Your limit order will remain pending until this price is matched by the markets.
In most cases, seasoned traders will always utilize a limit order. This ensures that they get to enter the market at the most favourable price possible. On the flip side, market orders are also used from time to time, especially when the trader wishes to jump on a profit-making opportunity instantly.
Stop-Loss and Take-Profit Orders
Unlike buy/sell and market/limit orders, stop-loss and take-profit orders are not compulsory. However, we would suggest that you get in the habit of placing both of these orders every time you enter a new trade. In doing so, you will be trading in a risk-averse manner.
As the name suggests, stop-loss orders allow you to mitigate your losses. For example, let’s suppose that you enter a sell order of GBP/USD at 1.3001. Although you feel confident about your trade, you don’t want to lose more than 1% of your trading capital.
With this in mind, you place a stop-loss order at a price that is 1% above 1.3001. If the trade then goes against you, your stop-loss order ensures that you don’t lose more than 1%. If you entered the market with a buy order, then your stop-loss price would need to be 1% below 1.3001.
We should stress that stop-loss orders aren’t always guaranteed. This is because the order must be matched by another trader at your chosen forex broker. While in the vast majority of cases this will happen, super-volatile market conditions might prevent this.
For example, if you were trading GBP during the day of the Brexit referendum or USD in the midst of the presidential election, your stop-loss order might not get honoured.
The good news is that the best UK forex trading sites offer something called a ‘Guaranteed Stop-Loss Order’. This will cost you a bit more in the way of commission, but, you have a 100% guarantee that the stop-loss order will be matched.
We don’t need to go into too much detail about take-profit orders, not least because they work in the same way as stop-loss orders. But, while stop-loss orders mitigate your losses, take-profit orders lock in your gains.
This means that you can set realistic profit targets without needing to sit at your computer for hours and hours waiting to close the trade manually.
Here’s a quick example of how your take-profit order works:
- You have already placed a stop-loss order on your GBP/USD sell position. This amounted to 1% above 1.3001, meaning that you are not risking more than 1% of your balance
- You want to make gains of 3% of this trade
- As such, you enter your take-profit order at 3% below 1.3001
As per the above, there are now only one of the two things that will happen.
- If your prediction is correct and the price of GBP/USD falls by 3%, your chosen forex trading site will automatically close the position. This means that you locked in your 3% gains without needing to sit at your device.
- If your prediction is incorrect and GBP/USD rises by 1%, the broker will automatically close the position. Although not ideal, this means that you were able to limit your losses to just 1%.
Now that you have mastered the most important order types that you will be placing when trading forex online, we now need to discuss the spread. This isn’t something unique to just forex. On the contrary, the spread is something that you will come across with all asset classes.
So what is the spread? Well, when you use an online forex broker to trade currencies, you will always see two prices on the respective pair. There is a ‘buy price’ for those wanting to go long, and a ‘sell price’ for those that wish to go short.
The gap between these two prices is known as the spread. Seasoned pros in the UK forex trading scene will usually view the spread in pips. We discussed pips extensively earlier so hopefully, you now know how this works.
Nevertheless, here are a couple of examples of how to calculate the spread:
- GBP/USD - Buy Price: 1.3009, Sell Price 1.3008
As per the above, the difference between the two prices is 1 pip. This means that the spread on GBP/USD is 1 pip.
With that being said, UK forex trading platforms that offer the most competitive spreads will typically use five digits after the decimal. In doing so, this allows them to offer a spread of below 1 pip.
- EUR/USD - Buy Price: 1.17508, Sell Price 1.17500
As per the above, the difference between the two prices is 0.8 pips. This means that the spread on EUR/USD is 0.8 pip.
So why does it matter what the spread amounts to on your chosen forex pair? Well, the spread is an indirect fee that you pay to the broker. This is because before you can make a profit on your trade, you first need to cover the spread.
For example, if the spread amounts to 1 pip, this means that as soon as your trade is executed by the broker, you will immediately be 1 pip in the red. In other words, you first need to grow your position by 1 pip just to break even. Anything after this is pure profit.
Have you considered trading Forex?
UK Forex Market Hours
On the one hand, forex can be traded 24 hours a day, 7 days per week. However, the vast majority of trading activity occurs between Sunday evening and Friday night - UK times. On Sunday evening, this when the Asian markets open for the week. On Friday evening, this is when the US markets close for the week.
Crucially, you are free to trade whenever you see fit, but we would suggest staying within the aforementioned period. This is because you will benefit from large liquidity and trading volumes and lower volatile levels. In turn, this means that you will benefit from the tightest spreads.
To clarify, most UK forex trading sites do permit 24/7 trading, but over the weekend conditions are not really conducive for newbies.
Part 2: Learn How Forex Prices Work
So, by making it this far you should now have a good understanding of currency pairs, trading orders, pips, spreads, and market hours. Great! If you think that you are now ready to start making a full-time living from your forex endeavours - think again.
After all, you need to know how to determine whether or not a currency pair is likely to go up or down. If you’re not planning to flip a coin, then you need to have a firm grasp of how to perform research and analysis. Put simply, this sits at the core of being a successful forex trader.
Think of it like this. Would you invest in a stock without first performing some background research on the company in question? Of course not. Instead, you would likely look at recent earnings reports, past performance, dividend policies, industry news, and more. Only then would you proceed to buy your chosen stocks.
This sentiment remains constant in the UK forex trading scene. In other words, you need to perform lots of homework on your chosen currency pair in an attempt to determine which way its price is likely to go in the short-term.
In order to do this - you’ll need to cover two key areas of research - fundamental analysis and technical analysis.
Let’s start with fundamental analysis, not least because this segment of the forex research journey is a lot easier to understand than its technical counterpart. In a nutshell, fundamental analysis looks at real-world news events and these events can influence the value of a currency.
In its most basic form, a good example of how to utilize fundamental analysis is to look at what happened to the pound during and after the Brexit referendum.
- At the start of 2016, GBP/USD was priced at 1.44
- On the day of the referendum, GBP/USD was priced at 1.47 - so not too much in the way of change
- However, once it was confirmed that the UK population has voted to leave the European Union, GBP/USD begun to plummet
- In fact, by July 9th - a mere 16 days after the vote took place, GBP/USD was worth just 1.29
- This means that in just over two weeks, the value of the British pound - in relation to the US dollar, had dropped by 12%
- In the world of forex trading, for GBP/USD to lose this much value in such a short amount of time is unprecedented
So, how does this relate to fundamental analysis? Crucially, it was pretty obvious that the uncertainties of a Brexit would see investors offload their exposure to the British pound. This mass sell-off is what resulted in the pound losing so much value.
As such, had you placed a sell order the very second that it was confirmed that the ‘No Vote’ had won, you would have made some very nice profits. In fact, had you held your GBP/USD sell order open until January 2017 - you would have been able to exit your position at just over 1.20.
It must be noted that the Brexit saga discussed above is somewhat of an uncanny example to give in the context of fundamental research. Nevertheless, it highlights how real-world events can play a major part in how a forex trading pair is valued.
Other key events that you should be looking out for include:
- Central Bank interest rates
- The strength or weakness of the wider economy
- Inflation levels
- Government bonds yields
- Economic uncertainties
- Important elections and referendums
- Political unrest and war
- Import/export levels
As you can imagine, there is a lot to look out for when performing fundamental research. The good news is that there are heaps of websites and even mobile apps that can alert you when important news developments break.
In fact, by using a top-rated UK forex trading site like eToro, you can take things to the next level by opting to receive mobile notifications when your chosen currency pair is experiencing above-average volatility.
This could indicate that an important news development has just been made and thus - is having a major impact on the pair in question.
While fundamental research is super-important in the world of forex trading, technical analysis is even more crucial. This is because most forex traders will speculate on the value of a currency in the short-term.
For example, day traders might open and close a position within minutes or hours. Swing traders might keep a position open for just days, but equally, this can also be weeks.
Nevertheless, in order to determine the short-term direction of a currency pair, you must be able to read, understand, and interpret charts. These are charts that show us the historical price action of a forex pair.
As a newbie trader, you will likely look at a forex chart without having the faintest idea of what anything means. Don’t worry, this is normal. As you continue to improve your forex trading knowledge, you’ll be able to evaluate currency charts with ease.
The overarching concept here is that you will be looking to find historical pricing trends, and then assess how these trends might influence the pair’s future direction. After all, whether it's forex, stocks, or commodities - most asset classes move in trends.
To help you identify trends that are potentially in the making, you will need to make use of technical indicators. There are dozens of popular indicators used by seasoned traders - each of which focuses on specific metrics.
This might be market volatility, support and resistance levels, or whether a pair is in overbought or underbought terrorism.
To give you an idea of some of the most widely used technical indicators in the UK forex trading space, check out the list below:
The Relative Strength Index (RSI) tells us whether a currency pair is potentially under and overbought. If it’s the latter, this indicates that a temporary downward trend might be in the making.
This is because a currency pair can’t move in the same direction indefinitely. At some point, a market correction will need to take place. This usually occurs when institutional investors look to cash in your profits.
- If your RSI indicator is showing a figure of 70 or more, this means that the pair is overbought. In this instance, you should think about placing a sell order.
- If it is below 30, then this means that the pair is underbought. In this instance, you should think about placing a buy order.
It is important to note that the RSI alone won’t be enough to determine whether a buy or sell order should be placed. Instead, you should look to use other technical indicators to support your findings.
Moving averages are a must in the world of forex trading indicators. They give us a clear image of the pair’s historical price action over a set period of time. The most important moving averages to focus on are the 50-day, 100-day, and 200-day moving average.
Although not an exact science, if the current price of a currency pair is below both the 100-day and 200-day moving average, this means that the markets are bearish on the pair. In other words, there is every chance that the value of the currency pair will continue to decrease - at least in the short run.
At the other end of the spectrum, if the current price of the pair is above both the 100-day and 200-day moving averages, this would indicate that the pair is in a bull market. Put simply, market sentiment on the pair is positive, meaning that a continued upward trend is likely.
Once again, the moving averages will not be enough to determine which way a currency pair is likely to move. As such, you need to combine your findings with other technical indicators.
The Fibonacci retracement helps us understand key support and resistance levels. For those unaware, a support level is a specific price area that typically protects a currency pair from falling any lower.
Similarly, resistance levels illustrate specific price points that prevent a currency pair from going any higher. This is important in the world of forex trading, as historical support and resistance levels allow us to determine how high or low a currency pair is likely to go in the short-term.
With that said, currency pairs can and will break through support and resistance levels. When they do, this typically results in the currency pair starting a new upward or downward trend.
Crucially, the Fibonacci retracement tool is one of the best technical indicators available to us when evaluating potential support and resistance levels. Put simply, if a currency pair is on an upward swing, temporally retracts downward to the 61.8% level, but then continues to rise - the Fibonacci retracement would indicate that we should place a buy order.
Ready to dive into forex market?
Part 3: UK Forex Trading Strategies
It doesn’t matter what financial asset you are looking to trade, it is imperative that you have some sort of a strategy in place. This will ensure that you set yourself clear goals - both in terms of risk and potential rewards.
To help point you in the right direction, below you will find a range of factors that you need to consider in your hunt for a forex trading strategy that meets your financial goals.
Forex trading strategies to consider:
1. Risk vs Reward Ratio
First and foremost, it is wise to set yourself a risk vs reward ratio target - especially if you are looking to day trade. This simply refers to the amount of profit you are looking to target from a trade, against the amount of risk you are happy to take.
For example, a lot of newbie day traders take a 1:3 approach. This means that by risking 1%, you will look to make 3% in gains. This ties back to our previous discussion on deploying stop-loss and take-profit orders.
For example, by utilizing a 1:3 strategy, your stop-loss order would be set at 1%, and your taker-profit at 3%. This ensures that no matter what happens - you have a clear entry and exit plan. In other words, you will either make 3% or lose 1% - with no in betweens.
2. Day Trading or Swing Trading
As we briefly mentioned earlier, some forex traders in the UK like to day trade. This means that in all but a few cases, you will close a position before the end of the trading day. In doing so, your average trade duration will be in the minutes or hours - but never days.
By taking a day trading strategy, this means that you will be looking to make smaller profit margins. After all, forex pairs can only move by so much in a single day of trading - especially in the case of majors.
To help counter this lower profit margin target, day traders will often place lots of orders throughout the day. This allows small individual profits to turn into larger, consistent gains.
On the other hand, some forex traders in the UK like to take a swing trading strategy. This means that you will likely have an average trade duration that runs into the days or weeks, but never months.
This type of trading strategy is arguably more suited for newbies. This is because you will have more time to analyze the markets and subsequently decide which way you think the trend will go.
The main concept with forex swing trading is that you are looking to follow short-term trends. We have a great example of this earlier when we discussed the Brexit referendum. We noted that as soon as it was confirmed the UK had voted to leave the European Union, an ongoing downward trend on GBP/USD began.
By placing a sell order on this pair, you could have kept your position open for a considerable amount of time. After all, it wasn’t until the pair hit 1.20 in January 2017 that the trend began to reverse.
3. Forex Signals, Robots, and Copy Trading
As you’ve likely guessed, being able to perform fundamental and technical analysis effectively is no easy feat. You then need to factor in the amount of time you’ll need to spend perfecting your chosen forex trading strategy.
All in all, it can take many years before you are skilled enough to outperform the forex markets on a consistent basis. This shouldn’t dishearten you, as there are many tools and approaches that you can take to actively trade forex without needing to perform in-depth research.
This includes forex signals, automated robots, and copy trading.
UK Forex Trading Signals
Forex trading signals are getting more and more popular in the UK. For those unaware, your chosen signal provider will send you trading tips. These tips will be based on human analysis from an experienced forex trader, or from an advanced algorithmic.
Either way, the forex trading signal will tell you which pair to trade and whether it’s a buy or sell. You should also receive the suggested entry price to place your limit order, as well as the required stop-loss and take-profit points.
The overarching attraction with UK forex trading signals is that you don’t need to perform any research of your own. Instead, you simply need to place the suggested orders that the signal provider sends you.
Take note, there are a lot of forex trading signal providers out there that make really bold claims. More often than not, these claims are nothing more than an aggressive market ploy.
This is why you should perform lots of research on the signal provider before parting with any money. In fact, even if you do take the plunge and sign up to the signal service, you should test the signals via a demo trading account to ensure they are credible.
Forex Trading Robots
Otherwise referred to as forex EAs (Expert Advisors), you might be surprised to learn that some traders allow an automated robot to buy and sell currency pairs on their behalf. This allows them to enjoy the fruits of passive income, insofar that the robot will determine what trades to make.
While this might sound somewhat far-fetched, the best forex trading robots are backed by highly advanced algorithms. These algorithms are programmed to operate 24 hours per day, 7 days per week.
During which, the algorithm is constantly looking for potential trading opportunities. When it finds one, the robot will proceed to place a series of market orders. In order to benefit from an automated forex trading robot, you first need to find a provider that you like the look of.
Much like in the case of forex signal providers, there are a lot of unsavoury characters in the trading robot space. This means that you need to explore the credentials of the provider before making a purchase.
Nevertheless, once you have found a forex trading robot and downloaded the software to your desktop computer, you then need to install the file into MT4.
This is a third-party trading platform that sits between you and your broker. It is also preferred by expert traders as the platform comes jam-packed with tools and features - including the ability to install forex robots.
The key problem with both forex signals and robots is that the industry is dominated by scam artists. That is to say, you’ll find hundreds upon hundreds of such providers in the online space promising guaranteed double-digit monthly returns.
When in truth, rarely do these promises come to fruition. The key problem here is that it’s super easy to set up a flashy website offering signal/robot services. Subsequently, those looking for a quick and easy cash are often lured in.
The good news is that there is a third option at your disposal if you are looking to actively trade forex but you don’t have any understanding of technical and fundamental analysis. This comes in the shape of Copy Trading.
This innovative feature is often eToro - an online broker that is regulated on three fronts. This includes that all-important FCA license, alongside ASIC and CySEC of Australia and Cyprus, respectively.
In its most basic form, the eToro Copy Trading feature allows you to browse thousands of expert traders that use the platform. You’ll get to view a full range of transparent data about the trader - such as their average monthly return since joining eToro, average trade duration, favoured asset class, and risk rating.
Once you have found a trader that you wish to copy, you then need to decide how much you wish to invest. This can be any amount as long as you meet a $200 minimum (about £160). After that, each and every forex order that the trader makes will be mirrored in your personal eToro portfolio.
You can exit your position at any given time and even add or remove orders at the click of a button. Ultimately, there is no room for unsavoury activity with the Copy Trading feature as everything is 100% above board. As an additional safeguard, not only is eToro FCA-regulated but it is covered by the FSCS.
Part 4: Understand UK Forex Trading Fees, Leverage, and Profit Margins
By this point of our Forex Trading UK Guide, you should have a clear set of goals and financial objectives. This should include the types of currencies you wish to trade, which strategies you are interested in exploring, and whether or not you want to make use of signals, robots, or Copy Trading.
Taking all of this into account, we now need to discuss the financials. Not only does this include the types of fees that you need to consider when using a UK forex trading platform, but also some tips on how to approach profits and losses.
Forex Trading UK Fees and Commissions
UK forex trading platforms are in the business of making money. This means that the more traders that they attract to their platform, the more money they make. You, as a trader of the platform, will therefore be required to pay a range of fees in order to access your desired forex market.
At the forefront of this is trading commission. This is usually charged as a variable fee, meaning that you pay a percentage of your total order size.
- For example, if the forex trading platform charges 0.3% and you risk £100, then you will pay a commission of £0.90.
- You will again need to pay a 0.3% commission when you get around to closing your position.
With that being said, popular UK forex trading site eToro does not charge any commissions. Instead, everything is built into the spread. We discussed the spread extensively earlier in this guide, so feel free to scroll back up for a quick recap.
Overnight Financing (Swap-Fees)
In addition to trading commissions, it is crucial that you also factor in overnight financing fees. Also referred to as swap-fees, this is a fee that you pay for keeping your position open overnight.
This is because, in the world of forex, currencies are traded in ‘lot sizes’. Each lot is usually 100,000 units of the base currency - for example £100,000 or $100,000.
As you can imagine, very few UK traders will be looking to trade 6-figure sums. Instead, they are trading with leverage. This simply means that you are trading with more than you have in your account - a loan from your chosen broker so to speak.
Although we cover the ins and outs of leverage shortly, we should note that all forex positions held overnight will incur a daily fee. The specific fee will vary depending on the pair you are trading, alongside the size of your stake.
A lot of brokers in the online space fail to make this information readily accessible. With that said, eToro lists the daily overnight financing fee in dollars and cents. This gives you a 100% transparent understanding of how this will impact your potential trading profits.
Profit and Loss When Trading Forex Online
A lot of newbie forex traders decide to enter the space because they want to make a full-time living. After all, the most talented forex traders in the UK typically attract an above-average income.
They are able to do this anywhere they see fit as long as they have a laptop and internet connection. It goes without saying that this is an attractive lifestyle for many.
With that said being, you first need to understand how to calculate profits and losses. In doing so, you can set yourself some realistic targets to make your dream of becoming a full-time forex trader a reality.
Pips vs Stake
Some traders in the UK forex scene will base everything on pips. That is to say, if they stake £10 per pip and the trade returns gains of 100 pips, that’s £1,000 of profit.
The key problem with calculating your profits and losses in pips is that you will not get a true reflection of your current financial position.
This is because you might place 10 trades at £10 per pip, 20 trades at £30 per pip, and 2 trades at £100 per pip.
In other words, if the value of your stake per pip changes throughout the month, it can be complex to understand how successful or successful your trading endeavours are.
This is why we always suggest taking a percentage-based approach to profit and loss calculations.
Working out how much you are making or losing is super-easy when basing everything on percentages. This will then leave you with a profit or loss figure that is displayed in pounds and pence.
Let’s look at a couple of examples of how this works in practice.
Example 1: Going Long on GBP/AUD
In this example, we are going long on GBP/AUD - meaning that we think the pair will increase in value.
- You decide to stake £200 on your GBP/AUD buy order
- The current price of the pair is 1.8190
- A few hours later, GBP/AUD is trading 2.5% higher
- You are happy with your gains, so you place a sell order
- On a stake of £200, you made gains of £5 (£200 x 2.5%)
Example 2: Going Short on GBP/USD
In this example, we are going long on GBP/USD - meaning that we think the pair will decrease in value.
- You decide to stake £500 on your GBP/USD sell order
- The current price of the pair is 1.2970
- A few days later, GBP/USD is trading 4% lower
- You are happy with your gains, so you place a buy order
- On a stake of £500, you made gains of £20 (£500 x 4%)
As you can see from the above two examples, all you need to do is multiply your stake by the percentage increase or decrease of your trade.
Using Leverage to Boost Trading Capital
In the two examples above, your percentage gains of 2.5% and 4% are nothing short of superb. Why? Well, you could leave your money in a UK bank account for several years and still fail to earn this much. In the case of the above two trades, you made these gains in a matter of days.
However - and this is a big however, you are not going to be able to make a full-time living with such small stakes. That is to say, it is also good and well making 4% in a few days, but at a stake of £500 this will make you just £20!
The good news is that UK forex trading platforms allow you to apply leverage on your positions. As per UK/Europe regulations, you can apply up to 1:30 on major forex pairs and 1:20 on minors/exotics.
- For example, if you were to stake £100 on GBP/USD with leverage of 1:30, this would mean that you are boosting your trading capital to £3,000.
- If you were to make a percentage gain of 4% on your position, this would mean that you would yield £120 in profit as opposed to the £4 you would have made without applying leverage.
Ultimately, leverage makes it possible to target a full-time income even if you don’t have a huge amount of capital available. On the other hand, we should note that leverage can also be highly risky.
This is because not only will it amplify your gains, but your losses, too. For example, if you lost £50 from a trade with leverage of 1:30, you would actually be looking at losses of £1,500. This is why you must always ensure you have a stop-loss order in place. In doing so, you can make sure that you never lose more than you had anticipated.
Ready to start trading forex?
Part 5: Choosing a Suitable UK Forex Trading Platform
Make no mistake about - choosing a UK forex trading platform that meets your financial goals is crucial. At the time of writing, there are over 1,000 forex brokers in the online space that accept UK clients. Some have the legal remit to do so, while others don’t.
With this in mind, below you will find a range of factors that you need to consider in finding the best forex trading platform in the UK.
1. FCA License
The most important thing to check is whether or not the forex trading site is licensed by the FCA. This will ensure that you are able to trade in a fair and transparent environment, and that your funds are protected.
In the case of our top-rated broker eToro, the platform is licensed by the FCA, ASIC, and Cysec. In addition to this, if the unlikely happened and eToro no longer existed, your funds would be protected by the FSCS. This covers you up to the first £85,000 held at the platform.
Nevertheless, by opting for a forex trading site that isn’t licensed by the FCA - you’re taking a huge risk.
2. Low Fees
We don’t need to go too in-depth about fees here, as we covered this earlier. With that said, you need to check how much your chosen forex trading site charges before signing up.
This should include commissions, spreads, and overnight financing fees. You should also check whether fees apply to deposits and withdrawals. Once again, eToro allows you to trade forex in the UK commission-free and with tight spreads.
3. Supported Forex Trading Pairs
If you’ve got a specific forex trading pair in mind, you need to check whether or not your chosen broker supports it. We usually find that online brokers support all majors and minors, as these are the most demanded currencies in the space.
However, brokers can be a bit hit or miss when it comes to exotics. In other words, if you're looking to gain exposure to emerging currencies like South African rand or Mexican peso - make sure your chosen forex trading site offers a market.
4. Deposits and Withdraws
If you’re looking to trade forex in the UK, you will first need to deposit some funds. The best brokers active in this arena allow you to make an instant, fee-free deposit with a debit/credit card. Some platforms also support e-wallets like Paypal and Skrill.
You might want to avoid opting for a broker that only supports bank transfers. This is because you will need to wait 3-5 working days for the funds to arrive and be credited to your account.
5. Other Considerations
On top of the core metrics discussed above, there are several other things that you need to look out for when choosing a UK forex trading site.
- Top-rated customer support
- Research and analysis tools
- Support for MT4 (If you’re looking to use forex robots)
- Educational materials
- Mobile trading app
- Copy trading features
- User-friendly platform
eToro – Best Forex Trading Platform in the UK
Sign up for eToro and start trading forex or copying top traders at no extra charge. There are no management fees or other hidden costs involved.
75% of retail investor accounts lose money when trading CFDs with this provider.
Forex Trading UK: The Bottom Line
If you’ve managed to read through this highly comprehensive guide - you should know now the basics of what it takes to start trading forex in the UK.
We have covered each and every core point that we think you should know before getting started - from currency pairs and spreads, to leverage and strategies.
If you're ready to move to the next level by trading the multi-trillion dollar forex markets right now - eToro is the best option available to UK residents.
Not only can you get started with a small deposit of just $200 - but this FCA broker allows you to instantly fund your account with a debit/credit card or e-wallet.
We also like the fact that this commission-free broker offers all UK clients a demo account facility. You can therefore trade 100% risk-free until you get more comfortable with how the forex scene works.
If you liked our article Forex trading UK - The Ultimate Beginner’s Guide to Trading Forex Online, please share with your fellow forex traders.
What is forex trading in the UK?
Forex trading is the process of trading currency pairs. For example, if the exchange rate between the British pound and the Canadian dollar is 1.7050 - you need to speculate whether you think this will increase or decrease.
Is forex trading illegal in the UK?
No, forex trading is not illegal in the UK. On the contrary, there are millions of traders in the UK that buy and sell currency pairs online. Crucially, as the largest trading scene globally, forex is heavily regulated in the UK by the FCA.
How does forex trading work in the UK?
The way forex trading in the UK works is simple. Once you have decided which currency pair you wish to trade, you then need to determine which way you think the exchange rate will move in the short-term. If you think it will increase, then you need to place a ‘buy order’. If you think the opposite, then you need to place a ‘sell order’.
How do I start forex trading in the UK?
If you want to start trading forex in the UK, you will first need to open an account with an online forex broker. After that, it’s just a case of meeting the broker's minimum deposit and that's it - you can start trading forex straight away.
Do I pay tax on forex trading in the UK?
Yes, when you trade forex online you will need to pay capital gains tax on your profits. With that said, by opting for an online broker that offers spread betting facilities, you can avoid the need to pay tax on your profits. This is because spread betting is classed as gambling in the UK and thus - no tax comes into play.