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What is Forex Trading?

Read more about what Forex trading is, how to trade Forex and discover a range of tips and strategies.

Trading on forex is a means to speculate on the relative values of currencies. Forex trading involves the simultaneous purchase of one currency and selling of another, with the aim of profiting from fluctuations in the exchange rate.

The market is enormous, with average daily turnover of $5.1 trillion, according to the latest assessment of the market. Forex trading is described as being an over-the-counter (OTC) market, which means there are no central exchanges or clearing houses. Because of this forex trading is a truly 24/7 market, with prices moving constantly and gapping is less likely to occur. The forex market is also said to be a principals-only market. To explain, when buying and selling stocks investors will use a broker. Forex trading firms are called dealers and assume risk to make the trade. Rather than charging commission, one of the primary ways brokers make money is on the bid-ask spread.

Forex trading always involves two currencies and is therefore sometimes called a zero sum game. When one currency rises in value by definition the currency on the other side of the cross necessarily loses value.


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What is the Forex Market?

What is the Forex Market?


The primary purpose of the forex market is for large multinational companies to exchange one currency for another – for example to purchase raw materials in another country or to repatriate foreign earnings. But this primary element makes up only around one-fifth of the market. The rest is speculative, with prices driven by the actions of investors betting on future movements.

CFDs vs spread betting

CFDs versus spread betting

For retail clients, forex trading means spread betting or trading CFDs (Contracts for difference).

The chief difference lies in the tax consideration – spread bets are free from capital gains tax in the UK, while CFDs are not*.

With spread betting the contract size is determined by the amount of money you are prepared to stake per point. CFD trading involves buying or selling contracts that represent a certain amount per point in the market.

Spread Betting CFDs
No Capital Gains Tax
but you cannot use losses to offset tax liabilities
Capital Gains Tax to pay
but can use losses to offset tax liabilities
No Stamp Duty No Stamp Duty
No Commission No Commission (forex)
Leveraged product Leveraged product
Trade on rising and falling markets Trade on rising and falling markets
Prices based on underlying market Prices based on underlying market
Expiry dates on all spread bets
No expiry dates
except on futures, binaries and options

*Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.



New to
Forex Trading?


Forex Markets

Forex Trading?

Forex Trading Overview

Forex is the world's largest and most liquid financial market, with around $5.1 trillion traded every day.


New to Forex Trading?

Forex trading involves speculating on the value of currencies. It's the world's most traded, liquid market, with an...


What is forex trading?

Trading on forex involves the simultaneous purchase of one currency and selling of another with the aim...


Forex Markets

At ETX Capital you can trade on 60+ forex pairs, including EUR/USD, GBP/USD, USD/JPY, AUD/USD, ...


How to Trade Forex?

Placing orders, setting stops and using charts - forex trading can be as simple or complec as you make it.


Forex Trading Tips and Strategies

From interest rates to PMIs, there is a lot that can affect exchange rates but developing a strategy can help.


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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.6% of retail investor accounts lose money when spread betting or trading CFDs with ETX. You should consider whether you understand how spread bets orCFDs work and whether you can afford to take the high risk of losing your money.

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In the unlikely event of ETX becoming insolvent, segregated client funds cannot be used for reimbursement to ETX Capital’s creditors. If we are unable to satisfy repayment claims, eligible claimants have the right to compensation by the Financial Services Compensation Scheme (FSCS), up to £50,000. If one of the banks ETX Capital uses to hold client money goes into liquidation then the losses would be shared by clients in proportion to the share of the money held with the failed bank. Funds lost this way may be compensated under the FSCS up to a limit of £85,000 per person.

79.6% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.