Forex trading is rapidly becoming a popular way to play the markets, but what exactly does it involve?
Forex trading is another way to describe the exchange of foreign currencies, and is a way of making a profit by buying and selling foreign currencies. Although some people need to transfer sums from one currency to another as part of their travel plans or as part of a business transaction, other people regularly speculate and invest in the Forex market as a way of generating an income.
It is possible to make good returns from investing in foreign currencies as the exchange rate is in a constant state of fluctuation, with the rate going up or down constantly. Wise investors who keep an eye on the state of the market can achieve great success by purchasing when a currency’s value is low and then selling once its value rises, and the greatest profits can be achieved by those traders who take the time to develop a deeper understanding of political climates and business developments around the world so that they can confidently predict which way the exchange rates are likely to swing.
Thanks to the popularity of using the internet for online transactions, foreign exchange trading has seen double the number of people playing the market since 2004.
Why is Forex Trading Through Top Forex Brokers UK so Popular?
Forex trading is often seen as a more flexible and easy to access way to play the money market than traditional stocks and shares trading. This is because there is a lot more liquidity in the market, which allows for investors to enjoy bigger profits in a relatively short space of time. In Forex trading, the spreads are also much lower than in traditional stock market trading, meaning that there is less difference between the buying and selling values of currencies.
Top Forex brokers UK also add to the appeal of Forex trading by offering investors bonuses and incentives to encourage them to enter the market and take advantage of their expert brokering services.
Another advantage of Forex trading is that it is open for business 24/7. Exchange rates are in constant fluctuation throughout the day, and with traders located all over the globe, there is never a time when the markets are closed. A keen Forex trader can participate in his pastime at any time of the day or night, thus maximizing his profits.
There is also less risk involved in trading in foreign currencies when compared to the traditional stocks and shares market. This is because the market price is reliant upon supply and demand, and with such vast amounts of money flowing every day through the system, it is impossible for a single trader, no matter how influential, to make any impact on the outcomes of the market without the cooperation of all the central banks.
Trading in foreign currencies is also achieving greater popularity than traditional methods as it requires considerably less specialist knowledge and research. Although a certain amount of awareness of the world economic situation is required to maximize profits, the type of in depth information necessary to be successful in stocks and shares trading such as insider knowledge about a company’s management skills, their unique strengths in the financial markets and even specific information regarding the company’s industry, is not necessary in order to achieve success.
When choosing trusted Forex brokers UK there are no fees to pay, so there is no need to work out your profits minus commission.
Important Things to be Aware of When Forex Trading
There are several things that anyone considering entering the Forex trading market should be aware of before they begin.
When trading in foreign currencies, traders can use any amount of currency as long as it is in increments of 1000, with this amount being a standard lot. A novice trader may wish to start with a smaller amount, while a more experienced investor may want to consider sums of 10,000 currency units or more.
Leverage is also an important aspect of Forex trading to become familiar with as it can lead to problems. Many top Forex brokers UK offer high leverage to investors, allowing them to trade with much larger amounts than they have actually invested. For example, an investor can deposit a small sum in their account but effectively borrow more money at a broker-specific rate to allow them to take greater advantage of fluctuations in the exchange rate. However, a failure to fully grasp the usage and risks of leverage can lead to investors making spectacular losses.
Forex trading is always done in pairs of currencies, with some currencies being more popular than others. The most commonly chosen pairs will have the lowest spreads, and these are generally US Dollars and Pounds Sterling, Euros and Pounds Sterling and US Dollars and Euros. It is worth bearing in mind that the US dollar is the most commonly traded currency followed by the Euro.
Traders should not be put off if they do not see instant results and should not expect to make massive profits in a short space of time. Forex trading is a skill, and over time skills and strategies will be developed by observing patterns and finding out more about the market.
How is Forex Trading Regulated?
In the UK there is a regulatory body set up to handle Forex trading brokers. The FCA, or Financial Conduct Authority, keeps a register of brokers who have met certain criteria and are trusted and reliable. This means that their banking systems have been investigated and found to be of high quality, their financial reports are correct and submitted in a timely manner, and that they are regularly audited every year. Choosing an FCA trusted Forex broker UK is the best way of ensuring that your investments are in the best possible hands.
Some brokers are registered with the FCA but have a home country outside the UK but within Europe where they are regulated. These are known as EEA authorised brokers and are also considered to be trustworthy.
Tips and Tricks for Choosing the Best Forex Brokers UK
Anyone new to the Forex trading market would do well to take some time to investigate and choose one of the best Forex brokers UK. There are plenty to select from, but not all can offer the same experience, so there are many things to bear in mind before you make any final decisions and start investing your hard-earned money.
Over $4 trillion-worth of foreign currency exchanges take place every day, and the only way to access this market is through a Forex broker. One of the first things you need to consider is whether your chosen broker is reputable and has a good reputation in the market. There is no point in investing money with a broker that may not be reliable and may not have a proven track record. A good indicator of this is if the broker is registered with the FCA, the UK’s regulatory body for Forex brokers.
Another important factor to consider is the ease with which you can deposit and withdraw funds. The best Forex brokers UK make it a simple and smooth process to put money into your account and have fast turnaround times. They also ensure that withdrawing your money is a painless and satisfactory experience without undue delays or problems.
Although less important that the trading experience with a broker, it is wise to consider the spreads on offer through your chosen Forex broker. One that offers a more competitive spread will help in maximising profits.
The amount of leverage offered to investors is another important factor to consider when choosing a Forex broker. The ability to extend leverage up to 100:1 or 200:1 may be important to you if you are a very experienced investor, but also the minimum leverage available is also important to assessing the reliability of a broker and determining its suitability for novice traders.
The trading platform used is an important aspect of selecting a Forex broker. The most trusted Forex brokers UK ensure that their online trading software is reliable and safe as well as being simple to use. A trading platform that offers lots of effective tools and indicators, an easy to access interface, reliable servers, and customisable options is the standard to be looking for in your choice of Forex broker.
The currencies on offer for trading via your chosen Forex broker may also swing your decision. The variety and amount of currency pairs on offer, and the countries that are covered may help you to make a choice depending on your trading requirements.
Some of the best Forex brokers UK will also permit traders to branch out into trading of shares or commodities, which offers a greater breadth of choice for experienced investors who are looking for a change from the foreign exchange market. This may also be a factor in your final decision.