The UK has a large and rapidly growing community of traders. Since the beginning of the pandemic, the financial world has seen an online trading boom, with stocks and forex at the forefront. The global currency exchange is the largest market, and accessing it is easier than ever. Here are the basics of forex in the UK in 2022.
Online trading does not require a PhD in economics, but it has a learning curve. Your first step is choosing the best forex broker for beginners UK, as retail traders cannot enter this market directly. Find a licensed company with a positive track record. Top brokers are also excellent educators, so you should get an ample starter pack.
Basics of Trading
Traders profit from the difference between prices for the same asset at different times. All currencies are traded in pairs, as they are always valued against each other. The fundamental principle is simple: buy low, sell high.
Suppose you choose EUR/USD. The Ask price for the pair (for example, 1.13188) shows how many US dollars you will spend to purchase one euro. The Bid price shows how much the seller will get.
Every instrument in the forex market has these two prices, and the difference between them is the “spread”. For brokers that work as market makers, it constitutes profit. Some companies offer “zero spread” accounts, which means that you pay a commission per trade instead.
What Moves the Rates
All currency rates are constantly changing, as they are driven by a plethora of factors. Some of the most salient drivers include:
- Geopolitical events;
- Oil prices;
- Interest rates set by central banks;
- Economic measures;
- International trade.
Basically, the price for any pair reflects the health of the two economies it represents. If the US system suffers a shock or the EU appreciates, the price of EUR/USD rises.
Fortunately, you do not have to keep track of all political and economic changes. Fundamental analysis is not the only method. Technical traders focus on price patterns instead. To predict the best entry and exit points, they look for specific movements on the charts.
Read more about forex trading signals
Your broker will provide you with a software package, which usually includes a desktop system, a web-based terminal, and a mobile app. These could be proprietary or generic tools. All of them connect to the same servers and offer a demo mode, so you can practice safely.
How to Choose a Strategy
Forex lets you make money through short-term and long-term strategies. For example, scalpers make short-lived trades throughout the day, which is quite stressful. Swing traders focus on longer trends, so they may be content with a few large trades per week. In day trading, you open and close positions within the same day. What matters is not the style per se, but your ability to implement it and stick to it regardless of emotions.