Trading in the UK - Best Guide
Trading is a growing skill that people are picking up especially in the UK. Everyone from your friends and family have probably started trading in the UK to some degree... or at least heard of it.
In this article we'll be covering some things you'll need to know about trading in the UK and what you'll need to get started as a beginner or an intermediate trader.
What is trading?
Trading is the action you take when you're buying or selling a financial instrument. These instruments included things like: forex, shares, indices, bonds and crypto... the list goes on! The trader could buy multiple different assets over a set time period to sell at a later date for profit.
Traders take advantage of market movements, it's that simple.
How to start trading in the UK
The best way to get started trading in the UK, you should consider:
Research the markets you want to trade in the UK
Decide on your trading strategy
Pick a regulated and reputable broker to trade the market
The quickest way is to learn about trading and financial markets with Logikfx's beginners forex course to get started on the forex market.
Best markets for trading in the UK
Trading covers a broad area, when people say they're trading it's often associated with specific asset classes or markets. For example, you could be a trader who only trades the forex market or the stock market. On the other hand, you could be trading all the markets.
Eventually the market you choose to trade comes down to a few factors.
This includes what you could be interested in, what you can afford, how much time you're willing to invest into trading and what type of risk appetite you have.
The most popular markets include:
1. Forex
The forex market is one of the most popular choices when it comes to trading, mainly due to the large amount of currency pairs to trade and the liquidity making it very easy to buy and sell. Traders through brokers will generally have access to both the forex markets, indices and even stocks in one platform.
The forex market is generally less volatile than the stock market making it a great place for beginners and capping risk.
2. Indices
Trading indices is like a trading shares but at a very high level. Instead of trading a single share you're actually trading on a group of shares. For example, the S&P500 is a group of the top 500 public shares in the United States and by trading this you're essentially trading all those shares at one time. This gives you a broader exposure to the stock market as a whole.
3. Shares
Trading stocks or shares is another very popular market amongst traders and beginners. In the equity market (fancy word for stocks/shares market) there's an endless amount of stocks to choose from and they're grouped in various ways like technology, energy and pharmaceutical.
Similar to indices, traders can use leverage and margin accounts to trade stocks or shares through CFDs or look to buy the actual share using an investing account a broker or bank provides.
The equity market is comparison to the forex market is a lot more volatile so there's a lot more risk but in theory more return.
There's more guides on our wikiHow pages which cover investing in stocks.
4. Crypto
One of the newest markets to emerge is cryptocurrencies... this is the likes of Bitcoin, Ethereum and Ripple. They're essentially digital assets which traders can buy and sell or even spend in certain places. Another growing part of the crypto market is an NFT.
What makes cryptocurrency one of the most dangerous and volatile markets is that there's no real intrinsic value. The value of the digital asset is determined by how much people are willing to pay for it. This makes it a very speculative, unpredictable and dangerous asset to trade.
Since it's a new financial instrument one of the biggest risks is regulation, such as a Government imposing a ban on cryptocurrency.
The 4 most popular trading strategies
Trading itself is difficult and somewhat gambling if you're not following a strategy. It should be treated just like a battlefield, if you come prepared with a plan you'll likely succeed, if you come unprepared you'll likely fail.
Below are 4 of the most popular types of trading on all markets:
1. Trend trading
Trend trading is one type of strategy that's been around for years, traders use this strategy to buy or sell in one direction expecting it to continue for a longer period of time. For example, a short seller in a downtrend will look to sell an asset and hope it goes even further down. These trades will be held for long periods of time, months to years.
Trends can be identified in a few ways such as using technical analysis. If market prices create higher highs then the trader may buy the asset. If the market prices are making lower lows then the trader may sell into the market.
2. Swing trading
Swing trading on the other hand is a type of trading which captures a shorter time period, you could look at it as a medium-term view of the markets which can span over a few days to weeks. This is different to trend traders who may hold their trades for months and maybe years.
Swing traders will most the time use fundamental analysis as well as technical analysis which includes analysing price trends, price patterns and indicators.
Fundamental analysis and technical analysis is covered in our beginner forex course for any new traders.
3. Position trading
Position trading is a less popular but profitable long-term trading strategy. Similar to trend trading a position trader will hold their trade for months or years ignoring their short term price movements and focusing on the fundamental analysis of the long-term trend.
An example of position trading is traders or investors that buy and hold an assets... think of it how your parents or friends buy and hold shares for 10 years.
4. Day trading
Day trading or scalping is a short-term trading strategy that hopes to be in and out of trades in matters of minutes or hours only within the day. This is what many traders enter the markets doing however... many of these traders lose.
Most of these scalpers will have higher costs as they need to pay commissions and swaps each time they trade so the frequent trading increases the costs.
One of the main downsides is you need to sit at your screen all day which not many people have time for and it's not sustainable in the long term.
What to know before you start trading
1. Understand the factors that drive value
When trading anything not just financial assets you want an understanding of value right? If you were to trade your hard earned money you want in return to know if it's "worth" it.
This is why understanding the value is important.
When trading all the markets your first goal is to figure out if it's worth to buy or sell something, it's that simple. There are different valuation techniques for stocks/shares, forex and crypto.
In the beginner forex course we give a head start in finding value in currency pairs when trading the forex market.
2. Choose how you want to trade
Choosing how you want to trade is an important step. This means do you want to trade derivatives, like CFDs mentioned earlier or do you want to own the underlying asset. There are pros and cons for both sides.
One of the pros of trading CFDs is that it will give you lots of choice in terms of what you want to trade. It can range from stocks, shares, indices and forex currency pairs. Cryptocurrency however is banned from CFD trading in countries like the UK but can be subject to change so please make sure to keep an eye on this in your country!
If you want to buy and sell the underlying asset then this generally comes with much higher costs such as trade in and out commissions for shares. CFDs will have much lower costs in comparison.
3. Create a trading journal
The trading journal is the core of any trader’s toolbox. It’s the place where you can identify:
Your major weaknesses
Your major strengths
How well you are performing
Where to focus to improve the amount of money you make on trades
It's really important to set out how you're going to trade here, the strategy your following and documenting that process.
4. Learn the basic foundations
Understanding the basics of each market you trade is really important so you don't make the mistakes that will inevitably cost you. Once you understand the foundations of the market you want to trade you'll be more confident in answering "why" you're making a certain decision.
If you're looking to trade and learn the basic foundations of the forex markets take a look at our forex course.
When looking learning the foundations it should cover:
Introduction to the market
The financial structure of the market
Introduction to maths required
Analysis techniques
Just like any sport or game, if you don't know the rules, participants and how they play you won't get far.
5. Open your position
Once you've followed all the previous steps and you've found a broker which is reliable, reputable and regulated you can do what all traders need to do. Place a trade.
The final step is the easiest step.
The analysis required to make that decision to place a trade is where traders will struggle but the hard working and persistent traders will reap the rewards.
After you've placed your trade, your strategy and plan from your journal will help guide you on how you should manage that position to the end.
Trading FAQs
What do I need to start trading?
The first thing you'll need to start trading is the steps mentioned in What to know before trading, a proper trading plan, strategy, understanding the basics and finding a broker.
What software do I need to start trading?
One of the main pieces of software you'll need is an internet browser, here you can access all your required software such as analysis tools and broker to trade the markets.
If you're an experience trader then the Logikfx currency strength meter is an ultimate tool used for all forex traders.
Can I make money day trading?
Day traders will try to profit from small and frequent trades in the markets. The money they make depends on their strategy, capital and risk management. Most day traders lose money.
How much money do you need to start trading?
Most broker accounts will have a minimum requirement to start trading e.g. £250.
Starting with the minimum has disadvantages as you'll be severely limited to how much you can trade and how many assets in one given time.
It will also limit how much profit you could make so bare this in mind.
What are the costs associated with trading?
Most markets will charge you at a minimum a commission or a spread.
These are the 2 most popular forms of cost for brokers to charge.
There are also some hidden costs that are in the fine print so make sure to check with your broker.
Is trading legal in the UK?
Trading is legal in the UK for anyone over the age of 18, for other countries the legal age limit can be as high as 21.
Brokers in the UK should be regulated by the FCA, if they're not please consider this as a risk.
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