Trade Online with FX Forex UK

What is Online Trading?

Trading stocks and commodities doesn’t have to take place inside trading houses. In this guide, we’re going to explain how online trading platforms make it possible for you to invest in multiple assets on your desktop or mobile device.

Online trading, as the phrase suggests, is the act of financial trading online. Prior to the internet, all forms of financial trading were conducted inside trading houses or over the phone. Today, thanks to the advent of electronic trading, investors can connect to the world’s major markets from any internet-connected device.

Regardless of whether you’re a novice or professional, there are trading sites and conditions to suit. From low-cost desktop brokers to mobile trading tools designed for experts, there’s something for everyone online. What’s more, it’s possible to trade every type of commodity and asset. From forex (foreign exchange currency) to gold, oil and shares, online trading has opened up the industry in a variety of ways. 

How Online Trading Works

At its core, online trading works in the same way as traditional trading. As a trader, you have the option to buy or sell a particular asset. The price at which you cut a deal will determine whether or not you make a profit. However, the real fun starts when you dive into the nuances of online trading and the different assets you can trade.

Leverage

Leverage is most commonly used in forex trading, but it’s also available when you trade other assets. Leverage is a proverbial helping hand, used to increase a trading position. For example, in forex trading, currency is sold in something known as “lots”. Each lot is, typically, 100,000 units of said currency. Unless you’re a hedge fund, brokerage or professional trader, you probably won’t be able to invest that much. This is where leverage comes in.

Online trading sites will leverage your investment so that you can purchase currency at a professional level. So, the broker might offer you leverage of 1:33. This means they’ll put in 33 units for every one you put in. So, to purchase a standard lot, you’ll only need to spend €3,000 to own 100,000 units of currency.
Leverage works the same way in all forms of trading. The broker will multiply your initial investment and make up the difference so that you can purchase a standard lot.

Short-Trading

Short trading, otherwise known as short selling, is the process of selling an asset for a particular price and buying it back at a later date for a lower price. When you engage in short trading, the first step is to find something you believe will decrease in value. From there, you “borrow” the asset/shares for a set period of time, i.e. you have to return the shares by a certain date.

Once you’ve borrowed the asset/shares, you can sell them on the open market at whatever the daily rate is. You then have to wait. You’re hoping that the asset's value drops so that you can buy it back at a lower price before you’re obligated to return the borrowed shares. The difference between the sale price and the buy-back price will determine your profit or loss.

Short trading is regarded as a high-risk/reward strategy as the profits can be large if you’re correct. However, it’s often harder to predict a sustained downswing than an upswing. Therefore, it’s also possible to lose money when you sell short.

Social Trading

Social trading is a product of the internet. When online trading sites started to become popular, certain operators found interesting new ways to make the markets more accessible to novices. Social trading was one of those ways.

When you join a social trading site such as eToro, you’ll be able to follow, observe and copy the trades of professionals. Social trading sites will offer profiles for certain traders. You can review their stats and follow the ones you like, just as you would on social media sites. From there, the copy-trade software will mimic the trades of those you follow. What’s neat about social trading is that the software will adjust the amount you invest based on your own pre-set conditions. So, when a pro makes a move, you’ll make the same move at a level that suits you.

Assets to Trade Online

The beauty of online trading is that it’s easy to access multiple assets and commodities. Although there are specialist sites that only deal with one type of security, many cover a variety of markets.

Currencies (Forex)

Forex trading is the common way of saying foreign exchange trading or, simply, currency trading. It’s one of the most popular types of trading in the world, with more than €5 trillion worth of currencies exchanged on a daily basis.

Cryptocurrencies

Cryptocurrency trading is one of the newest additions to the industry. Pure crypto exchanges allow you to buy and sell digital currencies such as Bitcoin, Ethereum and Litecoin. A defining feature of these exchanges is that they allow you to buy the underlying asset.

In other words, when you buy some Bitcoins, you own those coins. However, that is not the only way to trade cryptocurrency online, as we'll see below.

Stocks

A stock, also known as a share, is a financial instrument (essentially a contract) that represents a claim on a certain percentage of the assets owned by a company. In simple terms, when you buy shares, you’re buying a small piece of a company. Trading shares is the process of buying and selling small pieces of companies.

Other commodities you can trade

But online trading sites don’t just cover the basics. Depending on your interests and preferences, you can buy and sell a variety of assets, including:

CFDs

Contracts for Difference (CFD) are a unique way to trade that can be applied to a variety of assets, including shares, indices, commodities and forex. When you trade CFDs, you are not purchasing the underlying asset. Instead, you’re speculating on the price of an asset. Basically, you’re buying and/or selling virtual contracts in something instead of actually owning it.

As a CFD trader, you’re agreeing to exchange the difference in price of an asset from the time the contract was opened to the time it was closed. To put it another way, you open a contract at one price with the agreement to close it at a set point in time. The difference in price between these two points will determine whether you make a profit or a loss. 

Binary Options

Binary options are based on yes/no outcomes – hence the name. Trades will start with a simple statement and it’s your job to agree or disagree with it. For example, a binary option may be “the share price of X company will surpass £100 by Y date”. If you agree, you take the yes side. If you don’t, you take the no side. When the binary option expires on the pre-set date, you’ll make money if you choose the right answer.

Future Contracts

Futures contracts allow you to enter into a legal obligation to buy or sell a commodity at a set point in the future for a predetermined price. If you’re buying futures contracts, you’re saying that you’ll purchase the asset for X price by Y date. If you’re selling futures contracts, you’re saying that you’ll sell the asset for X price by Y date.

Best Online Brokers in the UK 

There are dozens of online brokers to choose from these days, all of which offer various types of financial instruments for trading, from shares, indices and commodities to forex and crypto trading.

Each broker comes with its own minimum deposit to start off with, and the best online brokers also offer additional onsite tools!

Plus500

• Platforms: iOS and Android
• Minimum Deposit: £100
• Demo Account: Yes
• Tradable Assets: CFDs on Forex, Cryptocurrencies, Stocks, Commodities, ETFs, Options and Indices
• Selling Point: Low fees and listed on LSE

For more information about this broker, see our full Plus500 Review here.

Markets.com

• Platforms: iOS and Android
• Minimum Deposit: £250
• Demo Account: Yes
• Tradable Assets: Forex, shares, ETFs, indices, commodities and cryptos (all CFDs)
• Selling Point: Great onsite research tools

For more information about this online broker, view our Markets.com Review.

Skilling

• Platforms: Desktop, Mac and iOS and Android
• Minimum Deposit: £100
• Demo Account: Yes
• Tradable Assets: Forex and CFDs for gold, silver, oil, gas, other commodities and shares
• Selling Point: Easy to use and over 3,000 financial instruments to trade

Best Online Trading Apps

Apps are a great way for investors to trade on the go, at the tap of a screen!

The best online brokers have their own intuitive app, allowing you to trade financial instruments on your mobile, and most trading apps these days are available on both iOS and Android.

The below are some of the best online trading apps based on the huge selection of financial instruments and stocks that can be traded, as well as their user-friendly functionalities.

eToro

• Platforms: iOS and Android
• Minimum Deposit: £200
• Demo Account: Yes
• TradableTradeable Assets: Forex, cryptos, 2,000 stocks, CFDs, 150 ETFs
• Selling Point: Social trading site

AvaTrade

• Platforms: iOS and Android
• Minimum Deposit: £100
• Demo Account: Yes
• Tradable Assets: Forex, CFDs, cryptos, stocks and options
• Selling Point: Low minimum deposit and trade amounts

easyMarkets

• Platforms: iOS and Android
• Minimum Deposit: £100
• Demo Account: Yes
• Tradable Assets: CFDs, forex, cryptos and stocks
• Selling Point: Simple, intuitive mobile app