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74.5% of retail CFD accounts lose money
Compare forex trading platforms
For investors, the foreign exchange market is an opportunity to make a profit. Find out how forex trading works.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 62%-78.6% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Most people usually only deal with foreign exchange when they’re jetting off somewhere nice on holiday. You might deal with it when purchasing items from abroad, or if you own a business, selling items to people abroad. Forgeign exchange fees may also come into play if you purchase overseas shares.
One very popular use of foreign exchange is trading the currency pairs themselves to (hopefully) make a profit. You need a forex trading platform to do this. Compare forex trading platforms below.
Compare forex trading platforms
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All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
What's in this guide?
What is forex trading?
Forex is short for foreign exchange. It uses exchange rates to calculate the value of one currency against another.
The exchange rate between GBP and USD is Loading GBPUSD rate . This means that for every £1 you can get $ Loading GBPUSD rate .
It’s exactly the same as when you go abroad and convert your money – sometimes it feels like you got more money out of the transaction, but the reality is that once you arrive, things generally cost a little bit more.
Forex trading pairs two currencies together, with the trader predicting which will be worth more after a given period. The two currencies are referred to as the base currency and the counter currency.
After you’ve set up an account you’ll be able to browse for currency pairs. You can usually choose to buy currency pairs based on quantity or value.
Forex jargon explained
Leverage. When you enter a trade with only a small percentage of the full trade amount.
Margin. The minimum percentage of the trade that you need to put down to open the trade.
Spread. The difference between the buy and sell price. Wider spreads will cost you more money, so when looking for a provider, you’re looking for tighter spreads.
Speculating forex pairs
Some investors choose to speculate on forex pairs in order to make a profit. This is because there’s constant volatility due to a range of different factors that influence foreign exchange rates.
If an investor thinks that a currency is going to strengthen against another, they may decide to trade a currency pair, going long on the one that they think will strengthen.
For example, say the USD/GBP exchange rate was 0.72, which means for every 72p, you can buy a dollar. If you thought that the pound was going to strengthen, you may go short on the US dollar and long on the GB pound. If the rate then moved to 0.5, it would only take 50p to buy a dollar, and you’d have made a profit.
What impacts foreign exchange rates?
Foreign exchange rates change all the time based on a huge range of external factors that impact supply and demand. You hear about the pound strengthening against the dollar or the euro weakening against the pound – this usually has something influencing it, such as:
- Interest rates. Such as the Bank of England rate
- Trade flows. Importing and exporting of goods in or out of a country.
- Tourism. How many tourists are visiting the country?
- Economic strength. How strong the economy is for each of the countries in the currency pair.
- Geopolitical risk. Such as when policy areas clash or collide.
There are two different types of forex trade, these are:
- Spot trades
- Forwards and future trades
Spot trades
A spot trade is one done on the spot. It’s almost certainly the one that you get when you buy foreign currency to go on holiday. For spot trades, you get the current exchange rate.
Forwards and future trades
These are technically different things, but, on the face of it, they’re both agreements to buy on a future date at a predetermined price. Neither forwards or futures contracts trade actual currencies, merely contracts that represent claims to the currency. They show the currency type, the price and the settlement date.
In the case of forwards contracts, they are bought and sold between two parties who decide the terms between them.
Meanwhile, futures contracts are bought and sold with a standard size and settlement date.
Forex trading fees
It goes without saying that forex platforms need to make money. They don’t tend to charge commissions, but it’s not unheard of. They usually make money through spreads, which is a set difference between the buying and selling price that moves in line with the changing prices. There may be additional fees, such as:
- Account fee: This charge might be monthly or annually.
- Inactivity fee: Some platforms will charge you if you stop trading, but this is a decreasing trend as more providers compete for customers.
- Price per trade: This is what it sounds like. The more often you trade, the more likely you’ll get a discount on this.
How do I compare forex trading platforms?
When comparing forex trading platforms, keep in mind the following:
- What leverage and margin do you get access to?
- Does it charge commission?
- What are the spreads like?
- What size deposit do you want?
- What currency pairs do you want access to?
Pros and cons of forex trading
Pros
- Because the forex market is global, you can pretty much trade forex whenever you want.
- Forex is very liquid, meaning your buy and sell orders are likely to be executed very quickly.
Cons
- You really ought to know what you’re doing before you get started.
- Leverage means that you could lose more than your initial trade.
Bottom line
To trade forex pairs, you typically need to have in-depth knowledge of worldwide economics and be able to keep track of what will impact the price of currencies. Because it’s global and primarily over-the-counter, you can trade on the forex market 24 hours a day, which is appealing to investors.
Foreign currency is pretty liquid, meaning they’re not difficult to buy and sell, so trades are typically executed instantly.
Back to topThe offers compared on this page are chosen from a range of products we can track; we don't cover every product on the market...yet. Unless we've indicated otherwise, products are shown in no particular order or ranking. The terms "best", "top", "cheap" (and variations), aren't product ratings, although we always explain what's great about a product when we highlight it; this is subject to our terms of use. When making a big financial decision, it's wise to consider getting independent financial advice, and always consider your own financial circumstances when comparing products so you get what's right for you.
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