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Forex Trading UK Guide 2020

Want to jump into forex trading in the UK? This guide will cover everything you need to know to get started.
Michael Graw
Author: Michael Graw

Last Updated: October 12, 2020

Currencies are constantly being exchanged around the world, to the tune of £5 trillion per day. All that money flows in order to facilitate global trade, tourism, and banking.

But the global flow of currency also provides an opportunity for traders. With forex trading, you can take advantage of changes in exchange rates between pairs of currencies to try to profit. Forex trading is extremely popular since it offers a fast-moving, volatile market that operates 24 hours a day all around the world.

If you’re thinking about jumping into forex trading in the UK, this guide will cover everything you need to know. We’ll explain forex trading for beginners, plus offer insight into tips and strategies you can use to succeed as a forex trader. We’ll also highlight four of the best UK forex brokers and walk you through how to place your first forex trade.

Table of Contents

    How to Trade Forex in 3 Steps

    Step 1: Open a Trading Account

    Open an account with a top commission-free forex broker.

    Step 2: Fund Your Account

    Deposit funds by credit or debit card, e-wallet, or bank transfer.

    Step 3: Demo and Live Trading

    Practice forex trading with a demo account, then place your first trade.

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

    What is Forex Trading?

    Forex trading involves exchanging one currency for another. It’s differentiated from simply exchanging currency, like you might on a foreign vacation, by the fact that forex traders aim to profit off of the exchange. Typically, a forex trade ends with a return to your original currency so that you can realize a return.

    What is forex trading?The best way to understand forex trading is with an example. Let’s say you have £100, which you exchange for US dollars at the current exchange rate of 1 to 1.33 – netting you $133. Now, the exchange rate can change while you’re holding dollars. If it falls to 1 to 1.20, say, meaning that the value of the pound has fallen relative to the dollar, then your $133 is worth £110 at the new exchange rate. You can exchange from dollars back to pounds to realize a tidy profit of £10.

    The exciting thing about forex trading in the UK is that there are dozens of currencies to trade. Plus, the forex market is somewhat volatile, so these small exchange rate fluctuations happen all the time. For forex traders, that means that there are plenty of opportunities to jump into the market.

    Forex Trading Pairs

    One of the important things for beginners to know about forex trading is that every forex trade involves a pair of currencies. This makes sense – you have to start from one currency and exchange into another.

    However, the fact that forex trades in pairs also has important implications for how you can trade currencies. A currency doesn’t gain or lose value in a vacuum. Rather, it always gains or loses value relative to another currency.

    For example, it is possible for the pound to gain value against the dollar but to lose value against the euro at the same time. When trading forex, it’s important to think about how the relative value of two currencies will change instead of just thinking about what might happen to a single currency.

    Forex pairs are generally subdivided into three categories:

    Major Pairs: These seven currency pairs involving the US dollar make up the majority of forex trading. Examples include the USD/GPB, UDS/EUR, and USD/JPY pairs. Price changes within these currency pairs are generally small, but so are the fees for trading major pairs. If you want to try out forex trading for beginners, the major pairs are a good place to start.

    Minor currency pairsMinor Pairs: There are more than 20 minor forex pairs, some involving the US dollar and some that cross the other currencies of the major pairs. Some examples are EUR/GBP, GBP/CAD, and AUD/JPY. Minor forex pairs are also very popular among forex traders, and they typically experience slightly more volatility than major pairs.

    Exotics: Exotic forex pairs are pairs of currencies that aren’t frequently traded. Examples include USD/NOK, EUR/TRY, and USD/ZAR. Exotic forex pairs can be very volatile since trading volumes are typically low. As a result of the low trading volume, brokers typically charge relatively high fees for trading exotic pairs.

    Forex Trading Times

    One major difference between trading forex and trading stocks is when you can do it. Whereas stock markets are typically country-specific, the forex market is global. As a result, it operates 24 hours a day, five days a week. You can trade any forex pair from 9pm Sunday night to 9pm Friday night.

    Forex Trading Fees

    For the most part, UK forex trading is commission-free. That means you won’t have to pay a flat commission of several pounds every time you place a trade, as is often the case when you buy shares.

    However, forex trading isn’t completely free. Forex brokers make money through the spread, which is the difference between the buy and sell prices for a forex pair. Typically, the spread is just a fraction of a percent. In fact, you’ll often see spreads measured in pips, where a pip is one one-hundredth of a percent. Many brokers charge spreads of 1 pip (0.01%) for trading a major forex pair.

     

    Forex Broker  Charge Per Trade Annual Fee EUR/USD Spread Inactivity Fee
    eToro Free None 0.8 pips $10 per month after one year
    Plus500 Free None 0.6 pips £10 per quarter after 3 months
    FinmaxFX Free None 3 pips $80 after 3 months, $120 after 3 months
    Forex.com Free or £4 None 1 pip or 0.2 pips £12 per month after one year

    Keep in mind that your forex broker might charge additional fees. If you borrow money from your broker, for example, you’ll have to pay interest on that amount. Some brokers also charge account fees that can add up over time.

    Benefits of Forex Trading in the UK

    Why trade forex? There are several key reasons that forex trading in the UK is exploding in popularity.

    To start, the global, always-on nature of the forex market appeals to many traders. When trading forex, you’re not limited to your own country’s currency. You can trade any forex pair, regardless of whether it includes the pound. In addition, since a currency is most volatile when the country it belongs to is awake, different forex pairs are more active at different times of the day.

    Another benefit of forex trading for beginners is that the barriers to entry are low. There are no commissions and the fees for trading forex are typically around 0.01% of your total trade size. In addition, the minimum amount of forex you can trade is often low. Some brokers don’t require any trade minimum, while at others the minimum trade size is just £40.

    It’s also nice that forex trading hours are 24 hours a day. You get to choose when you want to trade, whether it’s for a few hours every evening or as a full-time job.

    Leverage in forex tradingOne particularly important advantage to UK forex trading is that you can leverage your trades. With leverage, you borrow money from your broker to multiply the effective size of your trade. If you have £100 in your trading account, 10:1 leverage allows you to take a forex position of up to £1,000.

    That’s a big deal because it means you can see significant returns with just a small initial investment. So, you don’t have to commit a lot of money to any one trade. You can either keep your account small or diversify your positions by trading several different forex pairs at the same time.

    Is Forex Trading Profitable?

    Forex trading can be profitable. However, it’s important to realize that profiting consistently takes time and practice. You need to have a clearly defined trading strategy and practice good risk management techniques. We’ll offer some tips on how to improve your profitability below.

    Generally, the price changes within forex pairs are small. For example, a variation of 0.01% in the exchange rate between the dollar and pound is considered large. In order to capitalize on these small price changes, you’ll need to establish relatively sizable positions.

    This is where leverage comes in again. With 10:1 leverage, a 0.01% change in the price of a currency pair translates to a 1% change in the value of your forex position. You can use leverage to magnify small price changes and increase your potential profit or loss from a trade.

    How Much Money Can You Make Forex Trading?

    The amount of money you can make forex trading depends on how much you’re willing to risk. The best way to understand profits in forex trading is to look at a real-world example.

    Let’s say you have £100 in your trading account. You can buy the EUR/USD currency pair with 100:1 leverage, effectively giving you a £10,000 position. If the value of the EUR rises by 0.5% relative to USD within a day, you can exit your position for a 50% gain or £50.

    The next day, you can start compounding your account. You now have £150 to trade, so you can take a £15,000 position in EUR/USD. If it again rises by 0.5%, you earn a profit of £75.

    Keep in mind that these positions were only held for a few hours to avoid overnight leverage fees, which can eat away some of your profits. It’s also important to remember that not every trade will be a winning one. It’s important to minimize your losses so that they don’t wipe away your earnings from forex trading.

    Forex Trading Risks

    Of course, forex trading carries risks just like all types of trading. There’s always a possibility that a trade goes against you and the value of your forex position falls. In that case, you could be forced to exit your forex trade for a loss.

    Also keep in mind that leverage is a double-edged sword. Let’s use the example of trading with 10:1 leverage again. If the value of a currency pair falls by 0.01% instead of rising by that amount, the value of your forex position will fall by 1%. Leverage multiples your potential risk as well as your potential profit.

    Forex Trading Strategies

    Approaching forex trading with a well-defined and proven strategy is key to making consistent profits. There are many different ways that you can go about trading forex. To help you get started, let’s take a closer look at some popular forex trading strategies.

    Forex Day Trading

    Forex day trading isn’t so much a single strategy as a general approach to forex trading in the UK. When day trading, the goal is to keep positions open only for a few minutes to a few hours. Day traders always exit all positions before signing off for the day.

    Typically, forex day trading is a full-time job. You need to continuously monitor the market in order to stay ahead of price changes. Some of the other strategies that we’ll cover can be incorporated into day trading.

    Swing Trading

    Swing trading is a strategy that can be used by both day traders and forex traders operating on weekly timescales. With swing trading, your goal is to find periods when the price of a forex pair is trending strongly up or down. Enter the trade when the trend starts, and then exit it as soon as there are signs of a reversal. If a reversal happens and the currency pair starts trending in the opposite direction, you can open another trade to capitalize on the swing.

    Range-based Trading

    Range-based forex trading strategyFor a range-based forex trading strategy to work, you need to identify a forex pair that is trending sideways. Ideally, clear areas of support and resistance will have been established, and the price will simply bounce between these two areas. You can trade the forex pair when it’s moving from support to resistance or vice versa. Just be careful around the support and resistance levels since there’s always a chance the price will break out of its pattern.

    Automated Forex Trading

    Many forex traders take some of the effort out of trading by setting up automated trading systems. Automation is helpful because it reduces the amount of time you have to spend watching price action develop. In addition, having an automated forex trading system can help take some of the emotions out of trading.

    There are two different types of automated forex trading systems: forex signals and forex robots.

    Forex Trading Signals

    Forex trading signals are sets of technical indicators that trigger an alert. For example, you could set up a trading signal that looks at popular indicators like MACD, RSI, and a moving average. If the three parameters align, your system will pop up an alert on your screen or your smartphone giving you the information you need to make a trading decision.

    Forex Robots

    Forex robots operate just like forex signals, except that they’ll actually place trades on your behalf instead of just sending you an alert. Even better, many forex robots will manage your trades for you. They can continue to watch price changes and automatically exit your position when another set of conditions is reached.

    Of course, it’s important to be cautious when trading forex with robots. Since the trades are automated, you’ll want to be sure that your robot has strict limitations on when it can and cannot place trades.

    Forex Trading Tax UK

    Forex trading in the UK is subject to taxes under some conditions, but not others. If you trade forex through spread betting, you are not subject to capital gains taxes or any other tax unless trading is your primary source of income.

    If you trade forex through CFD trading, though, you are subject to capital gains taxes. Capital gains tax in the UK can be up to 20% of your entire profit from forex trading.

    Forex Trading Tips

    Before you dive into forex trading, it’s important to make sure you’re prepared. Here are five tips you can use to set yourself up for success with trading forex.

    1. Read the best forex trading books

    This guide is a great place to learn about forex trading for beginners. But if you want to learn more about strategies and best practices, consider a forex trading book. We recommend ‘Forex Trading: The Basics Explained in Simple Terms’ by Jim Brown and ‘The Black Book of Forex Trading: A Proven Method to Become a Profitable Trader in Four Months and Reach Your Financial Freedom by Doing It’ by Paul Langer.

    1. Take a forex trading course

    You can go even deeper into learning about forex trading in the UK by taking a dedicated course. Many brokers and professional traders offer online forex trading courses to demonstrate techniques and help you develop a trading strategy.

    1. Try a forex demo account

    Most top forex brokers offer demo accounts alongside their live trading accounts. With a forex demo account, you can practice trading in a safe environment with simulated money. Get familiar with your broker’s forex trading platform, try out a new strategy, and track your performance all without risking real money.

    1. Practice good risk management

    Stop loss orderA key part of succeeding as a forex trader is limiting your losses. You don’t have to win every trade, but your winning trades do have to be bigger than your losing trade. We recommend placing a stop loss with every forex trade, which will automatically exit your position if a trade goes against you.

    1. Don’t get greedy

    It’s easy to justify continuing to hold a position when things are going well. But it’s better to capture profits while things are good as opposed to waiting too long and seeing your unrealized gains disappear. If you do want to leave room for more upside, consider selling 75% of a position instead of the whole thing.

    Best Forex Trading Platforms

    In order to start trading forex, you’ll need a top UK forex trading platform. There are plenty of options for a UK forex broker, but they vary widely in terms of pricing, quality, and analysis tools. To make your search easier, we’ll highlight four of the best forex trading platforms.

    1. eToro - All-Round Best Forex Trading Platform UK

    eToro brings a lot to the table for forex traders. To start, you can trade any of 47 currency pairs commission-free. Spreads on major forex pairs are typically less than 1 pip, and you can trade with leverage up to 30:1.

    What really sets this broker apart, though, is its support for social trading. You can interact with thousands of other forex traders from around the world on eToro and easily gauge market sentiment. Plus, eToro supports copy trading, which allows you to automate your portfolio based on the positions of professional forex traders.

    eToro also has one of the best forex trading platforms we’ve seen. The charting interface is easy to use and packed with technical indicators. Plus, eToro is one of the best trading apps that you can use to monitor the forex market from anywhere.

    Our Rating

    • Low forex trading spreads
    • Built-in social trading network
    • Supports copy portfolios
    • Mobile trading app
    • Charges withdrawal fee (only £4)
    75% of investors lose money when trading CFDs.

    2. Plus500 - Forex Broker with Tight Spreads

    Plus500 is one of the most cost-effective forex brokers around. At Plus500, you’ll find spreads as low as 0.6 pips for popular major currency pairs like USD/EUR. Even better, you can access leverage up to 300:1. So, this broker is suitable for aggressive traders who want to take big forex stakes.

    One of the things we like best about Plus500 is its mobile forex trading app. You get access to Plus500’s advanced charting platform and dozens of technical indicators through the smartphone app. Even better, you can set price alerts from your desktop or phone and have them pushed to your smartphone’s lock screen.

    Plus500’s web interface is nice, but it doesn’t offer a ton of features that help distinguish it from what other brokers offer. There are more than 90 technical studies, but you cannot create your own indicators or forex signals. Plus500 also doesn’t support social trading or copy trading.

    Our Rating

    • Leverage up to 300:1
    • Extremely low spreads on major pairs
    • Advanced mobile forex trading app
    • Price alerts for desktop and mobile
    • Doesn’t offer custom indicators or forex signals
    80.5% of investors lose money when trading CFDs.

    3. FinmaxFX - High Leverage and MT5 Forex Trading Platform

    FinmaxFX is a capable forex broker with more than 45 currency pairs available for trading. You can trade with leverage up to 200:1, which is a plus for aggressive traders. Just note that spreads for major pairs start at 3 pips, which is rather high.

    Our favourite thing about FinmaxFX is that instead of offering its own trading platform, all account holders get access to MetaTrader 5. MetaTrader is one of the best forex trading platforms available today. It comes with customizable dashboards, dozens of technical analysis tools, and custom indicators and alerts. Even better, you can easily create your own forex trading signals or buy pre-made signals from expert traders.

    FinmaxFX also offers a few other basic features that can help you succeed. The broker has a built-in market news service and offers insights from its own analysts. Every account also comes with negative balance protection, so you can never lose more than your initial deposit when trading with leverage.

    Our Rating

    • Uses the MetaTrader 5 platform
    • Create or buy forex trading signals
    • Negative balance protection
    • Leverage up to 200:1
    • Relatively expensive spreads
    There is no guarantee you will make money with this provider.

    4. Forex.com - Established Broker with Many Exotic Pairs

    Forex.com blows away the competition when it comes to the sheer number of forex pairs on offer. With this forex CFD broker, you can trade more than 80 different forex pairs. That includes a ton of exotics that most brokers don’t carry, like HKD/MXP and NZD/RUB.

    One thing to note about Forex.com is that it offers two different types of trading accounts. With a Standard account, you get commission-free trades and spreads that start at 1 pip for popular major forex pairs. With a Commission account, you get much lower spreads – down to 0.2 pips for major pairs – but pay a fixed commission of £4 for every trade.

    Forex.com uses MetaTrader 4 as its standard trading platform, so you get access to advanced charting features and forex signals. You can also access the MetaTrader 4 mobile app for trading currencies on the go.

    Our Rating

    • More than 80 forex pairs to trade
    • Two account types available
    • Includes MetaTrader 4
    • Relatively tight spreads
    • Doesn’t offer many assets other than forex
    There is no guarantee you will make money with this provider.

    Forex Trading Pros & Cons

    Pros:

    • 24/5 market
    • Extremely high liquidity
    • Low initial investment required
    • Multiply your positions with leverage
    • Commission-free trading with low spreads
    • Supports trading signals and automation

    Cons:

    • Leveraged trades can be risky
    • Spreads vary between forex pairs
    • Exchange rates can vary between brokers

    How to Start Forex Trading on eToro

    Ready to start trading forex? We’ll walk you through how to set up an account and place your first trade using eToro.

    Step 1: Open a forex trading account

    The first thing you need to do to start trading forex is to open a new brokerage account. Navigate to eToro’s home page and click the ‘Join Now’ button.Sign up for an eToro account

    You’ll need to create a new username and password for your account, then enter details like your name, email, phone number, and birth date. Since eToro is regulated by the UK’s Financial Conduct Authority, you’ll also need to verify your identity. You can do this by uploading a copy of your passport or driver’s license and a copy of a recent financial statement or utility bill.

    Step 2: Fund your account

    Now you can fund your new account. eToro accepts a wide range of payment methods including credit or debit card, e-wallet, and bank transfer. Just note that you must deposit at least £150 in order to start trading with your account.Deposit funds in your eToro account

    Step 3: Place a forex trade

    From eToro’s dashboard, search for a currency pair like ‘USD/EUR’. When the pair appears in the drop-down menu, click ‘Trade’ to open a new order form.

    In the order form, first specify how much money you’d like to trade. eToro requires that you trade at least £40 at a time. You can also decide whether you want to leverage your trade up to 30:1 for major forex pairs. If you want to enter a stop loss or take profit price, you can do that in the order form as well.Place a CFD order with eToro

    Once your order is ready, click ‘Trade’ to place your first forex trade.

    Conclusion

    Forex trading offers the potential for profit while giving you exposure to a global, 24-hour-a-day market. The best way to approach forex trading is with a clear strategy in mind. Start small and practice with your broker’s demo account before moving on to live trading. With practice, it’s possible to manage your risk and make a profit from trading forex.

    eToro: Best Forex Trading Platform UK

    Our Rating

    • Wide range of currency pairs
    • Low spreads
    • Social and copy trading
    • Accepts PayPal
    • Strictly regulated
    75% of retail investor accounts lose money when trading CFDs with this provider.

    FAQs

    How does forex trading work?

    Forex trading works by exchanging one currency for another. If the exchange rate changes, you can then convert your currency back to realize a profit or loss. Most forex trading takes place through spread betting or CFDs, so you never actually own the underlying currency.

    What is margin in forex trading?

    You use margin when trading forex with leverage. Margin is the amount of money that you’re required to have as part of your leveraged trade. If you buy £1,000 of currency at 10:1 leverage, your required margin would be £100.

    What are pips in forex trading?

    A pip is one one-hundredth of a percent, or 0.01%. The typical spread for a major forex pair is around 1 pip, meaning that you pay 0.01% of your trade value when you enter and when you exit a forex trade.

    Is forex trading halal?

    Standard forex trading accounts are not considered halal, but many brokers offer Islamic trading accounts that are. These halal forex trading accounts don’t charge interest, but the spreads and commissions are higher.

    What is the best forex trading app?

    The best forex trading app for you depends on what features you need. Look for price alerts, technical charts, and social trading networks. We recommend eToro’s forex trading app, which offers all of these features plus a news feed and copy portfolios.

    How much money can you make in forex trading?

    There isn’t a limit to how much money you can make from forex trading. However, it’s up to you to make sure that you turn a profit rather than a loss. You must carefully manage risk and approach every trade with a clearly defined plan.

    All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
    Michael Graw

    Michael is a writer covering finance, new markets, and business services in the US and UK. His work has been published in leading online outlets and magazines.