Forex UK – An Exciting Way to Play the Money Market
So what is forex trading exactly? Basically it’s the buying and selling of a range of different currencies. The main aim is to make money but there are other reasons such as needing to transfer a large sum of cash abroad or regular trading with another company in another currency. In the UK forex trading has become a popular pastime for many people who are looking to invest their time as well as their money and come out on top with a generous profit. Forex is actually a quick way of saying foreign exchange. And describes the process when investors and speculators buy and sell currencies in the foreign exchange market. Currency values are constantly changing, on a daily and even hourly basis, they go up but they also go down. The UK forex trader can take advantage of these fluctuations by selling and buying at the right time. Let’s imagine what happens: take the American dollar and the British pound. If the dollar’s value goes up, when compared with the pound, a sensible investor will try and sell any dollars they have and buy British pounds. If the value of the pound then rises this investor will now be in a position to buy more dollars than they started with at the beginning. And make that all important profit.
Top Forex Brokers in the UK
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What’s on Offer in the UK Forex Trading Market?
Forex trading UK has become an attractive method of playing the money markets for both business and private individuals and transactions can range from values as small as a few hundred currency units to millions. But why do forex traders like it so much? It has some qualities that are particularly attractive. Greater market liquidity, it’s more likely you’ll make a profit and the spreads are very low. In forex trading a spread is quite simply the difference between the price a currency is sold and bought at.
To make forex trading even more attractive many different UK forex trading brokers offer incentives in the form of bonuses. These bonuses are to entice new customers into the forex trading market and make use of the trading services they offer.
Exchange Rates Lead Trading in Forex UK
As we’ve already said forex trading UK involves the buying and selling of a range of different currencies. Any profit made will depend on the exchange rate in place at the time of the transaction, in the foreign exchange market. Business in this market isn’t done at a central deposit or exchange but is undertaken by players in the foreign exchange market. And these participants can be in various locations all round the globe.
It’s very rare for a currency to keep a relative value for any length of time and two currency values are rarely the same. This fluctuation is what makes forex trading such an interesting way of making money. Exchange rates are always changing, so you need to keep an eye on those markets and understand what is happening in many different countries. Watching and understanding world politics and business developments can help you predict currency fluctuations, influence your trades and hopefully improve your success.
Basic Terms Explained in our 1st Forex Trading Guide
Before you get too involved in forex trading it’s a good idea to understand some of the jargon used. This first part of our forex trading guide will introduce you to some common forex terms.
Transactions are made using units of currency, the smallest obviously being one. Standard lot size is 1000 currency units but trades can be done in a variety of sizes, as long as they’re in increments of 1000 e.g. 2000 or 10000.
Leverage is a way for investors to use borrowed money when trading in the forex market. Different brokers have different leverage levels and they’re usually expressed as a ratio. 50:1 leverage for example means you only have to deposit $20 but leverage allows you to trade up to $1000. You’ll be in a better position to take advantage of the tiniest fluctuations in exchange rates because you can trade more money than you have in your account. There is a down-side however. Investing more means you also stand to increase your losses by a substantial amount.
Pips are units that measure profit and loss. When a pair of currency rates are given they’re quoted to four decimal places. If we look again at USD and GBP (US dollars and British pounds) a quote for the pair could be given as GBP/USD at 1.67. If at a later date this rises to 1.73 then the GBP has risen in value by 5 pips.
Understanding a Quote
Trading in forex is always done in currency pairs. In the example above the British pound would be worth 1.67 and then 1.73 US dollars.
How Much Will Forex Trading UK Cost?
When you work with a broker they make their profit in the spread. There are no fees or commission. The spread, which is measured in pips, could be a profit or loss. The most popular currency pairs are USD/EUR, EUR/GBP and GBP/USD and so have the lowest spreads.
A Few Fascinating Forex UK Facts
As you’re already looking at this website we know that you’re seriously considering investing some of your own time and money in the foreign exchange market but may have heard a few things on the grapevine that are holding you back from a commitment. To help we’re going to lay some of these myths and untruths to rest so you can forge ahead, confident you’ve made the right decision.
- There is little regulation but control is through the forces of supply and demand. There is no trading floor like the stock exchange, which makes trading accessible for the average person
- You don’t need to have a complicated strategy, simple is best. Think how you would explain your strategy and if it’s too difficult to put into words you’ve made your trading system far too complex. The simpler your strategy, the easier it will be for you to stick to it, and it’ll be more effective
- Don’t be tempted to overtrade. You don’t need to be on it 24/7 and multiple trades don’t translate to multiple profits
- All bar 15% of currency movements are done using only 7 currency pairs. These pairs will include one of the following currencies: British pounds, dollars from the US, Australia, Canada and New Zealand, Japanese yen, the Euro and Swiss francs
- 50% of forex trading takes place in the UK or the United States. Of that 50%, one third is undertaken in the UK, with 16% of participants being in the US
- Keep careful records of all your transactions and try and keep a journal. There’s no guaranteed instant win like a lottery. You need to keep an eye on what you’ve done to help you in future trading transactions
- Except for the weekend, trading takes place 24 hours a day
- Don’t think you’re dabbling in something new. Trading in currency has been going on since biblical times.
Some UK Forex Offers Certainly Worth Considering
When you’ve decided to enter the world of forex trading you’re going to be looking for some help. The best place to go is a forex broker and there are certainly plenty about. Most have an awful lot in common but the devils in the details and these little details could make all the difference.
When considering various brokers keep in mind the trading costs and on a lesser note the different pairs they’ll allow you to trade in. Many brokers will also allow you to trade in shares, indices or commodities and CFD’s (contracts for difference), if you fancy a change. As with forex trading, costs are low because of low spreads. Take into consideration the complexity and swiftness of their trading platforms too.
And now it’s Time for a bit of a History Lesson
It’s always good to know the origin of something you’re considering investing some of your hard earned money in so let’s look at how forex began, in the hope we’ll be able to fuel your enthusiasm further.
The modern foreign exchange market only goes back a few decades. However money has been around for much longer than this. The Pharaoh’s were the first to use it and it’s been around in one form or another ever since then. In the Middle Ages money changers came into existence and they started the whole system of exchanging coins from different cultures. Around that time another form of currency was introduced in the form of paper money.
Right up until World War I everything stayed pretty much the same and little speculation occurred. After World War I the forex market underwent significant change due to the volatility of various currency markets. It wasn’t viewed very positively though, by either business or the general public. In 1931 the Gold Standard was removed but this just led to an easing off in the activity of the forex market. After 1931 a number of changes took place, giving the forex market the position it holds today.
The Current Situation of the Foreign Exchange Market Nowadays, modern currencies are totally independent of one another and anyone can trade in them. Anyone who wants to take part in the forex trading market is able to do so and stand to make a good profit too. Supply and demand is the most important factor although Central Banks do occasionally become involved in getting a currency back to a desirable level.
UK Forex Regulation
Foreign exchange trading in the UK is regulated by the Financial Conduct Authority (FCA). As the regulatory body it maintains a registry of Authorised and EEA Authorised brokers. An Authorised broker is one whose base is in the UK and has been given permission to carry out forex transactions. An EEA Authorised broker is one that has been registered with the FCA but is regulated in its own country. The EEA status is given to firms in another European Economic Area country and involves being issued a “passport” to deliver cross border services to residents of the UK. Although regulated in their home country and not subject to FCA they are still required to comply with agreed EEA standards.
Because of the UK’s standards for regulation it’s seen as a very stable environment in which to do business. The FSA strives to provide fair relationships between forex brokers and their investors. There is also an investor compensation scheme in place.
Required Standards for an FCA Regulated Forex Broker. There are a number of requirements and standards that have to be met if a company is to become a FCA regulated forex broker. These include monitoring the quality of the bank where the investors funds will be held, that clients funds are kept separate from the company’s. As well as having to regularly submit financial reports and undergo detailed annual audits.
When you’re looking to start forex trading you need to make sure that the broker you’re using is registered and authorised by the FCA. If the broker is currently “passported” to do business in the UK you’d be wise to contact them and ask for further details about their procedure for complaints and compensation arrangements, before you invest any of your money.
Interesting Forex Facts and Figures
- Since 2004, forex trading has more than doubled
- Between April 2007 and 2010 forex trading increased by 20%
- The largest forex trading centre is London
- In 2010 London’s forex trading turnover was nearly 40% of global forex trading figures
- A currency’s quoted price is usually the London market price
- The US dollar is the most widely traded currency. The Euro comes in second followed by the Japanese Yen, the British pound and the Swiss franc
- The largest traders are banks and other financial concerns
- EUR/USD is the most popular currency pair
- Forex market trading figures are 4 times that of the world’s GDP
Who are the Players in the Forex World?
Although Banks are the biggest, many other kinds of business and individuals dabble in the forex trading market. Commercial companies use foreign exchange transactions when they want to pay for goods or services. This kind of exchange has little impact on market rates because they are often of minimal amounts.
As we’ve already said, Central banks play a very important role. Because they can influence and ultimately control interest and inflation rates and the supply of money. Although they may not admit it they do in fact have targets for the value of their currency and hold large reserves of foreign currencies which when used correctly can influence the market. National banks of a country also have a part to play. On a daily basis they fix the rates for monetary exchanges and these rates are often used to indicate future trends and used by other banks, traders and dealers.
Hedge Fund companies are very aggressive currency speculators. Their transactions are on the whole speculative and they have no real desire to keep hold of any currency they buy. These companies control billions of equity dollars and hold enormous speculative power. Companies who manage pension and endowment funds for other companies also use the foreign exchange market to help in the progression of foreign currency transactions.
Retail foreign exchange traders are also known as brokers and dealers. Brokers work for a client and aim to get them the best price possible, using the spread to cover the costs. Dealers work only for themselves.
Two further players are foreign exchange companies and money transfer/ remittance companies. You’ll find these on your high street or when you travel abroad. They aren’t traders as such but offer currency exchange or payment to another country.
We think we’ve answered the question “What is forex trading?” and hopefully you’re now a bit more clued up on the forex market and are itching to get things underway. The best advice we can give is do your research and get as much help as you can. Finding the right trading platform, software, systems and using the right strategy will be much easier if you get some help from a trustworthy, knowledgeable and experienced forex broker. Take full advantage of any free demos and tutorials before you take the plunge and start investing real money. Just like any market, prices can go up but they can also come down. Be sensible, don’t get carried away and you should be successful without too much risk involved.
It’s really up to you how much time, money and effort you dedicate to this new form of investment but we hope you find the right balance and enjoy watching and playing the market as much as we do. Almost $5 trillion are traded, invested and speculated with on the forex market but it’s important to remember there’s always a risk. Being disciplined and working to a clear strategy will certainly help to keep this risk to a minimum.