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Forex trading is quickly becoming one of the most popular forms of trading for UK investors seeking to diversify their portfolio. If you are new to this process, it is best to look for Forex brokers regulated by FCA in the United Kingdom, as they are more highly regulated than offshore traders.
This means that you, the consumer, are more protected. For example, FCA regulated brokers are required to have lower leverage and higher liquidity, plus the FCA provides insurance coverage in the case that a broker goes bust.
How to Start FX Trading in the UK?
If you are interested in forex trading and you want to get started with a UK brokerage, there are a few simple steps you can take. The first step, of course, is to find a brokerage that suits your risk tolerance and budget, so that you can set up an account. When choosing a brokerage you should consider their account minimums, typical spread, fees, and which regulatory bodies they adhere to.
Once you have chosen a brokerage that suits your trading strategy, you can begin the process of planning and undertaking your first trade by following these six steps:
1. Choose a Currency Pair
The currency pair you choose is the foundation of every trade you will make. Most new traders pick one of the major pairs, such as USD/GBP. You should start with currencies that you have a basic knowledge of before moving on to more exotic pairs.
2. Pick a Trade Type
There are a number of trade types, but the most common are CFD trading and spread betting. CFD trading is when you trade a certain number of contracts in base currency units (for example, GBP/EU).
Spread betting is when you trade pairs for every point movement. This is generally the fourth decimal point, but it can vary.
3. Decide on Buying Vs Selling
Once you have chosen your market, you need to determine the current trading price and then decide whether you think that price is going to increase or decrease. You must do so in relation to the position of your base currency. For example, if you are trading USD/EU and you bet that the price will increase, you are betting that the dollar will strengthen against the euro.
4. Set Orders
Orders are the automatic trade instructions set at a future time based on triggers, such as exchange rates. Stop loss and limitation orders are placed to lock in profit and minimize losses.
5. Monitor Your Position
While your trade is open every fluctuation in the trade price will impact your profit or loss. This is why it is incredibly important to monitor the situation while you have an open position.
6. Close Your Position
When you feel you are ready to finalize your trade, you must close your position in order to liquidate your trade and either withdraw your fund or invest them in a new bet or commodity
These six simple steps are all you need to complete your very first forex trade, and no matter how complex your future trades become, this progression will remain the same.
In UK spread betting, the spread represents the difference between the buy and sell prices, and your profit or loss is determined by the extent to which your prediction is correct.
