The largest and most influential financial market in the world is not the Dow Jones or the FTSE 100 but the foreign exchange market. Now, you can trade in foreign exchange online.
With in excess of $1.5 trillion traded every day it dwarfs the combined total of the world’s stock exchanges.
By opening an online forex trading account you can profit from correctly predicting movements in exchange rates between the major currencies.
What is forex trading?
Foreign exchange is a currency market where you can trade one currency against another. It is often referred to as Forex or FX.
When trading forex, the trade is always done in a ‘currency pair’. You buy one currency and sell another. For example, you buy euros against sterling, anticipating the euro will increase in value relative to sterling. If the euro rises relative to sterling, you sell the position and have made a profit, if it falls you'll make a loss.
The currencies all have three letter abbreviations such as the euro (EUR), British pound (GBP) and US dollar (USD).
One of the main advantages of forex trading UK investors benefit from is that you can trade ‘on margin’. This means that you can open a position far in excess of the capital in your forex account.
For example, if you were to trade £100,000 on the GBP/USD currency pair you would be required to have just £2,000 at 2% margin in your account to open the trade.
However, you would be liable for the full amount plus any losses should things not go your way. It's essential that you're aware of this risk to your money and take steps to mitigate it before you begin trading forex.
What to look for in the best forex trading account
With lots of forex trading companies looking for your business it’s important to shop around for the best best forex trading account.
Always compare providers to see what trading platforms they offer. For example, many companies offer forex trading online and via your mobile phone. This means you have the flexibility to open or close a trade whenever you want and wherever you are.
In addition, you should establish whether you can benefit from a ‘guaranteed stop loss’ facility. A stop loss is a price level you set on a particular trade that, if reached automatically, closes out the particular position at the desired price. It means you will only ever lose a certain amount of money if the currency markets move against your position.
You should also compare the ‘spreads’ offered by the best online forex trading accounts. This is the difference between the ‘buy’ and ‘sell’ price applied to trades in currency pairs and is effectively the commission earned by the provider.
Compare your options and apply for the forex trading account that combines access to the currencies you want to trade on, competitve spreads and convenient management and loss limiting tools.