UK Forex Brokers

The UK is an island country sitting off the northwestern coast of Europe’s mainland. Commonly referred to as Great Britain, it comprises Scotland, Wales, England, and a portion of Ireland. Its capital London has been a booming hub for culture, commerce, and finance for centuries.

The city is also home to one of the oldest stock exchanges in history, the London Stock Exchange, whose market capitalization hit US$4.59 trillion in the spring of 2018. One interesting historical fact is that brokers were prohibited from entering the exchange in the late 17th century because of their poor manners. Instead, they gathered at the coffee houses in the vicinity where they would list the prices and exchange rates of widespread commodities like salt, paper, sugar, and coal.

The London Stock Exchange is also the place where the Financial Times Stock Exchange 100 Index (FTSE 100) is traded. Informally known among locals as the Footsie, the index comprises a hundred of the largest companies in the UK, including Tesco, HSBC Holdings, BP, Barclays, and British American Tobacco.

The country has always enjoyed a stable, independent, and well-developed economy that served as one of the main catalysts of the Industrial Revolution, a process which began in the UK in the 18th century before it spread to other parts of the Old Continent.

Considering all this, it is only understandable that the UK has one of the most prominent Forex trading markets in the world. According to the Bank for International Settlements (BIS), the London share of daily trading volumes increased from 37% in 2016 to 43% in 2019.

Forex traders from the country get to enjoy a strictly regulated trading market, having a broad range of locally licensed brokerage firms to choose from. UK brokers have always been known for their high-quality trading products, transparency, and reputability. All participants in the market must abide by the uncompromising rules and regulations laid out by the local financial watchdog, the Financial Conduct Authority.

UK Forex Legislation

The foreign exchange trading industry in the UK is regulated by the Financial Conduct Authority (FCA) under the Financial Services Act of 2012. This piece of legislation effectively created a new regulatory framework that governs all financial services in the country.

Forex brokers looking to operate in the UK must first acquire the necessary license from the local watchdog. There are three types of licenses, starting with the Dealer License granted to the so-called “market makers”.

The Intermediary License restricts the brokerages’ activities to the Straight-Through-Processing (STP) of traders’ orders. Finally, there is the Restricted Broker License. It authorizes brokers to sell and market their products to UK residents but denies them the right to hold the funds of customers.

The first two types, the Dealer and the Intermediary License, also enable the brokerages to sell contracts for difference (CFDs) for currency pairs, commodities like gold and silver, shares and futures to retail and professional traders. In contrast, a company with a Restricted License is only permitted to introduce customers to firms with Dealer and Intermediary licenses.

Brokerages must meet specific minimum capital requirements to obtain FCA licenses. Market makers need a capital of at least €730,000. The requirements for Intermediary Licenses and Restricted Broker Licenses are respectively €125,000 and €50,000.

Licensed companies must have a physical presence in the UK to receive authorization. The must appoint qualified Compliance Officers and Chief Executive Officers based in the country and approved by the local regulator.

UK-licensed trading firms are also obliged to participate in the Financial Services Compensation Scheme (FSCS), which provides for customers in case their brokers go out of business. The scheme aims at strengthening consumers’ confidence in the local financial market. As of April 2019, the compensation limit of the FSCS was raised from the previous £50,000 to £85,000 per person.

Many uncertainties surround the local foreign exchange market now that the UK is about to withdraw from the European Union (EU). For the time being, however, the Markets in Financial Instruments Directive (MiFID) still applies in the country. Many of the MiFID regulations would probably remain in force after Brexit officially becomes a fact.

Under one of the provisions of the MiFID, licensed UK brokers must segregate customers’ funds from their own capital. This ensures brokers never use traders’ money to cover their operational expenses.

The companies are strictly prohibited from resorting to manipulative practices to attract customers. Also, they cannot enter into positions against their traders or provide them with financial advice, especially when it comes to high-risk trading decisions.

Some of the regulatory requirements concern the sale, distribution and marketing of CFDs to retail clients. All providers of leveraged derivatives on the local market must publish compulsory risk disclosure disclaimers to inform prospective customers what percentage of retail traders lose their money due to leverage.

Speaking of leverage, there are curbs on this, too. The UK adopted the caps for retail customers proposed by the EU regulator, the European Securities and Markets Authority (ESMA). The changes came into effect at the beginning of August 2019. The caps vary depending on the traded assets’ volatility.

Thus, leverage is limited to 30:1 for major Forex pairs, 20:1 for gold, major indices, minor and exotic pairs, 10:1 for all other commodities and non-major indices, 5:1 for individual equities, and 2:1 for cryptocurrencies. Provided that a trader’s position drops under 50% of the margin needed to maintain it open, the broker must instantly close the position down to prevent the customer from losing too much money.

While we are on the subject of derivatives, it is worthwhile mentioning the UK regulator permanently outlawed the distribution, sale, and advertising of binary options to retail customers in April 2019. These are highly volatile speculative instruments that can lead to significant financial losses when in the hands of incompetent retail investors.

UK Financial Regulators

UK’s watchdog, the Financial Conduct Authority (FCA), easily wins the race for the harshest financial regulator in the world. The FCA came to be after the passing of the 2012 Financial Services Act, which abolished the previous financial regulator, the Financial Services Authority (FSA).

The new regulatory body functions independently of the country’s government and is funded by the fees it receives from the market participants it oversees. In this vein, the FCA currently scrutinizes the conduct of approximately 58,000 financial companies in the country. These firms employ over 2 million individuals and pour more than £65 billion into the local economy in the form of tax revenue.

The regulatory entity is mandated with considerable powers. It has the capacity of freezing the assets of persons and organizations while they are investigated for violations. The FCA requires brokers to process their customers’ withdrawal requests instantly as well as to provide annual audit reports regarding their operations.

The quasi-independent regulator the Prudential Regulation Authority (PRA) is mandated with the regulation and oversight of local banks, credit unions, insurance companies, and large investment firms. The entity promotes the safety and stability of the companies it oversees and ensures an adequate degree of protection for policyholders (in the context of insurance firms).

UK Forex Payment Methods

It is fair to say UK traders have a wealth of options when it comes to funding their live Forex accounts. The results of a 2019 survey conducted by the German statistics portal Statista indicate that nearly half of the surveyed Brits have used their PayPal accounts when paying for online purchases.

Indeed, this digital wallet is broadly available across authorized Forex brokers in the country. PayPal is a reliable online payment service that enables registered users to transfer and store money to the balance of their e-wallet accounts. Payments with PayPal are fully anonymous and very time-efficient.

When initiating a deposit, the trader is redirected to the PayPal system where they access their account with their wallet log-in credentials. This prevents payees from disclosing any sensitive information, such as credit card or bank account numbers.

Yet, PayPal is not the only such wallet available to UK customers. Brokers frequently offer it in parallel with other similar payment services such as Skrill, WebMoney, and Neteller. All three operate on the same principle as PayPal, i.e. they require you to register and top up the balance of your e-wallet.

The best brokers on the local market also facilitate quick and secure deposits via credit and debit cards, which rank as UK’s second most widely used payment method. British traders should feel free to use cards by commonly available brands such as Maestro, Mastercard, Visa, Discover, Diners Club International, and American Express.

As for the minimum deposit with cards, the exact amount varies between brokerages but starts at £10 in many cases. Many UK-regulated brokers lift the extra charges for customers who pay with cards. However, additional fees may potentially be charged by the bank provided that it treats the transfer as a cash transaction. The minimum processing timeframe for card deposits ranges from several hours to one business day.

Another widely offered alternative is the bank transfer. This option is preferred by many large-scale traders because there are usually no restrictions on minimum and maximum transactions. Domestic bank transfer deposits require approximately one to three working days to complete. The waiting time for international transfers typically extends to five working days.

When registering with a UK broker, Forex traders are recommended to choose the local GBP as the base currency of their accounts. This would prevent them from paying extra fees for the process of currency conversion. Luckily, all good UK brokers support the GBP as a base currency, along with the other two common options, the USD and the EUR.

Popular Trading Software in the UK

Apart from the legalities and regulations, another key factor UK traders must carefully consider is what software their broker of interest uses. The best trading providers on the British market offer their customers a selection of multiple platforms, catering to all members of the local Forex community.

The software is normally available in the form of a desktop application, a browser-based platform or dedicated mobile applications. Some companies choose to develop proprietary trading platforms instead of using software created by third parties.

With that said, a significant percentage of FCA-regulated brokers still stick to the MetaTrader 4 (MT4) and the MetaTrader 5 (MT5) platforms. Developed by MetaQuotes, MT4 and MT5 are highly regarded for their ease of use and a wide range of helpful tools for analysis and risk management.

For example, traders can minimize damages by setting Stop Loss orders when the prices make an adverse movement. There are technical indicators users can implement to detect notable patterns in the price movements of different asset classes including stocks and currency pairs.

Armed with this knowledge, traders can assume future price fluctuations and change their trading strategies accordingly. Other great features of the MetaQuotes software include timeframes from one minute to one month, dozens of graphical objects, and three main chart types.

Some UK-licensed brokers use the platforms of ZuluTrade, Sirix, and cTrader but their number pales in comparison to those who run on MT4 and MT5. The main appeal of these three platforms is that they support copy trading. This is particularly beneficial for small-scale retail customers who are new to the Forex scene. The feature enables them to follow successful traders and copy their positions into their own portfolios.

Mobile Trading in the UK

Trading on the foreign exchange markets is becoming increasingly accessible in recent years, largely thanks to the widespread availability of applications for portable devices like smartphones and tablets. Such apps are particularly useful in the contemporary interconnected world where the Forex market plays a crucial role in day-to-day business.

All good brokers in the UK offer intuitive mobile software that enables smartphone traders to keep their eyes peeled for the latest price movements wherever they go. Optimized for use on Android and iOS, the apps facilitate all aspects of one’s account management, from processing payments and risk management to backtesting strategies and analyzing market trends.

Also featured in most cases are personalized full-screen charts along with a set of drawing tools. The best brokers on the market are committed to replicating the desktop trading experience on mobile, offering smartphone and tablet users roughly the same functionalities.

Of course, the exact features vary between brokers. We recommend you to check and compare the mobile apps of several firms so you can make a well-informed pick. If you are already accustomed to the MetaQuotes software, you can download the MT4 or the MT5 app from Google Play or Apple’s App Store. They work similarly to the desktop versions but allow for higher levels of flexibility.