Forex trading is a high risk investment, and you could lose more than your deposit. Here is more information on forex trading if you are not sure how it works.
Choose a broker
You need a forex account with a broker as they offer you a platform to trade on.
Here is an example of two brokers and their bid and ask exchange rates for the EUR/USD:
|Broker||Bid exchange rate||Ask exchange rate||Spread|
Choosing the broker with the smallest spread means the exchange rate only needs to make a smaller movement before you can make a profit, for example:
To make a profit with broker A, the exchange rate needs to move by 1.1 pip or more in your favour.
To make a profit with broker B, the exchange rate needs to move by 2.1 pips or more in your favour.
You can use our comparison to find which FCA regulated broker offers the smallest spread.
Forex trading fees
Although most forex brokers include their costs in the spread they offer you, some could charge you for the following:
Adding/withdrawing charge: Some brokers charge if you withdraw or add money to your account. This is usually a set fee, such as £5 for every £200.
Overnight trading: Some forex brokers charge an interest charge for leaving a trade overnight, for example 1.5% of the value of any open trades.
Inactivity fee: If you stop trading for a term, such as one or two years, your broker could charge you until you start using your account again, for example £12 per month.
Open an account
After you choose a forex broker, you need to complete an online registration form with them.
You will need to give them the following information:
Mobile phone number
Your broker will send a link by text message or email to verify your details.
You may also have to verify your account by giving your passport or driving licence number. The name on your forex account needs to match the name on your ID.
If your chosen broker has a demo account, use it to become familiar with their forex trading system before you start using your own money.
Make a trade
You can trade in forex 24 hours a day, Monday to Friday, meaning you can trade on currency pairs more often than other markets, such as indices or commodities.
Making a trade is also called opening a position, and if you make a profit or loss will depend on the performance of the base currency against the counter currency you trade with.
The base currency is the first currency in a pair, the counter currency is the second, for example, EUR/USD has a euro base currency, and a US dollar counter currency.
The exchange rate is how much of the counter currency you can buy with the base currency, for example, if the EUR/USD had an exchange rate of 1.12 you can get $1.12 for one euro.
If the rate moves to 1.13 ($1.13 for one euro), this means the euro has grown in value against the US dollar as you can get more of the counter currency for the base currency.
Forex trading tools
If you want to manage your trades without watching them constantly, there are a few trading tools you could use:
Limit order: You choose the exchange rate your trade closes at. This lets you take a profit when the rate reaches a level you have set.
Stop loss: You choose the exchange rate your trade closes at, but this does not guarantee further losses as brokers cannot always close the trade at an exact rate.
Guaranteed stop loss: Unlike a stop loss, you pay a fee* to the broker and they will close your trade at the exact exchange rate you choose.
Buy limit: Your broker will open a trade when the exchange rate reaches a value you choose. If the rate is never reached, the broker never actions your trade.
Margin call: When your losses come close to your margin, your broker asks you to add more money. If you do not, your broker closes your trades to stop further losses.
Close your trade
Before you close you trade, also known as closing your position, you can check if you are making a profit or loss by looking at the active trades on your chosen broker's platform.
When you are ready, select the trade you want to close from your active trades tab and click on the close trade button.
You are then asked to confirm you want to close you trade, then shown how much profit or loss you have made.