FX in the UK

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FX, or foreign exchange, is the market in which currencies are traded. The currency exchange rate is the rate at which one currency can be exchanged for another. Currency trading represents the world’s largest market, consisting of about $3.2 trillion US dollars in daily volume. Not only is it the largest market in terms of volume, but it is also the most liquid. The market has seen continual growth as more people learn more about foreign exchange. Unlike the stock market, there is no central marketplace for trading to take place; instead, trading is conducted over the counter. This type of decentralized market allows traders to choose from a number of different brokers to make trades and compare prices. The market is also open 24 hours a day, 5 days a week. FX trading in the UK has seen a sizable increase in recent years as more and more people are realizing its potential as a profitable investment alternative.

The Basics

In Forex, currencies are quoted in pairs that are relative to one another. There are four main currencies traded daily on the foreign exchange market:
  1. EUR/USD
  2. USD/JPY
  3. GBP/USD
  4. USD/CHF

Base Currency vs. Quote Currency

The first currency in the pair is called the base currency. The base currency is typically considered to be the domestic currency or the accounting currency. The second currency in the pair is called the quote currency, or counter currency. The base currency is the currency that is being bought or sold against a change in price of the quote currency. The value of the quote currency is the amount equal to one unit of the base currency. When participating in a transaction, investors are actually both buying and selling a currency.  Exchange rates fluctuate based on a number of economic factors such as inflation, industrial production, and geopolitical events, driving the purchase or sale of different currencies.

Learn Before You Earn

When trading, many firms do not charge commissions; rather, brokers make their commission off of the spread between the currencies. For more risky investors, trading on leverage can increase potential gains. Currency trading carries a considerable amount of risk, as does equity trading. Prospective traders should study how value fluctuates in the market, as there is a relative learning curve when it comes to understanding how the foreign exchange market functions. Investors are encouraged to participate in paper trading or mock investing to help identify trends and understand when to buy or sell currencies for a profit. Many companies allow users to set up demo accounts to practice trading without real money.
Just a few decades ago, trading currency was an option limited to only big money investors. Now, it is widely available and has become a standard part of any well-diversified portfolio. FX in the UK has continued to grow, making it the biggest FX trading hub in the world. Foreign exchange is emerging as an investment alternative for people across the world through competitive online brokers who can provide personalized service at affordable fees. 


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