It is no news that the forex market is the largest financial market worldwide. Daily, trillions are traded within the foreign exchange market to buy and sell currency pairs. Traders make profits or losses off the forex market due to the movement in the market. The forex market, also called the FX market, is open 24-hours a day, and trades are carried out between two market participants with the help of telecommunications technology.
The United Kingdom accounts for most of the trading volume in the forex market compared to any other part of the world. This also explains why most of the top brokers are in the UK. There are several factors to consider when you decide to trade Forex in the UK. This guide covers all you should know about forex trading in the United Kingdom.
Steps to Take When Trading in Forex in the UK
With the United Kingdom being one of the leading forex trading hubs, you will find that a good number of persons in the UK trade forex. Traders on the forex market anywhere in the world can make a lot of profit from trading. Equally, small and huge losses can also be recorded. This is why traders need to understand the basics of forex trading before delving into it.
The forex market does not have any physical location, which is why it is referred to as an over-the-counter market. The prices of currency pairs on the forex market are constantly changing in value against one another, leading to more trading opportunities.
One vital step to take before getting into forex trading in the UK is to choose a regulated forex broker. This largely determines the safety of your investment. The forex market in the United Kingdom helps know the inflation rates and interest rates. The policies and ways to help the currency’s value are also found when trading with Forex.
Nowadays, technology and advancement have made forex trading exciting. More individuals now have access to trade in Forex and get more profits. Some basic terms used are “To go Short,” which means selling with the aim of a decrease, and you can buy. “To go long,” which means buying with the purpose that it will increase over time.
The information and data are found from banks and other financial institutions. It shows that trillions of different currencies are in use. In simpler terms, Different currencies are sold and bought day by day.
There are significant steps to take when trading in Forex, these steps are:
Know the Pair of Currency to Use to Trade
The forex market has different currency pairs to trade with on the forex market. There are about 80 currency pairs traders can choose from. Currency pairs on the foreign exchange market are categorized into three main parts: major pairs, minors pairs, and exotics currency pairs.
The major currency pairs are made up of the biggest currencies in the world against the United States dollar (USD). These major pairs make up about 85% of the volume in forex trading. The majors include EUR/USD, GBP/USD, USD/CHF, USD/JPY, AUD/USD, and USD/CAD.
On the other hand, minor currencies consist of a mix of all the other biggest currencies in the world. Some of which include AUD/JPY and EUR/GBP. Minors are sometimes called major cross pairs.
Finally, the exotics are the least traded currency pairs in the forex market, such as the Mexcian Peso (MXN) or the Turkish Lira.
As a new trader in the UK, a good start would be to choose one major pair or two in some cases and focus on those. The best and most common pick is the EUR/USD as it is the most traded currency pair in the world because it has very tight spreads.
Know When to Sell or Buy
This is typically the next step to take when starting as a forex trader. These steps will determine the rate of profits you can make and the losses. Making decisions to sell or buy is not as simple as it may sound. It involves a proper study, practice, and consistent learning of the flow of the forex market.
Know your Limits and Stops
The forex market is very volatile. You must have a plan to help manage the risk associated with forex trading. We have about three stops: Guaranteed, Normal, and Trailing stops. Using any of these stops will ensure less risk of having a loss in the market.
Limit orders help forex traders to reach their profit goal in the market.
Opening of Your First Trade
There are lots of platforms where one can carry out trade in Forex. A beginner needs to conduct good research on the platform they wish to trade Forex. This will enable you to have a good base and proper start-up as a Forex Trader.
Checking and Observing your Position
This is a critical step in your business as a Forex trader. You must follow up with news, Trends, stock markets worldwide, and the countries used for trading. Day-to-day check-up of your trade and monitoring of the flow is your responsibility. Tracking the flow helps you know if you are making the right decision or not.
Taking Profit and Loss and How to End Your Trade
A forex trader can decide to take the position and take the profits. This is important to observe and note when dealing with Forex Trade.
These steps have four sub-stages
- Create a plan.
- Get a system that manages risks.
- Get more knowledge on the currency and market you want to trade-in.
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Is Forex Trading Legal in the UK?
Although forex trading is prohibited in some countries, individuals in the United Kingdom can legally trade in the foreign exchange market. Forex traders in the UK can also carry out international investment transactions using Forex. Traders can also import and export and use Forex for other financial transactions.
The UK has strict policies for traders and brokers who trade Forex. There are also trusted companies in the UK that trade forex. These companies provide forex traders with excellent trading services and products that are most relevant and up-to-date.
The United Kingdom’s financial market also brings up new regulations and guidelines from time to time for all market participants. These regulations, in most cases, are well suited for professional traders in the forex market.
The FCA, also known as the Financial Conduct Authority, takes responsibility. They ensure that one has protection from dealing with brokers and investors, scams, and those who try to impersonate. It is also essential to check the kind of broker you are willing to work with. Some brokers have differences in how they function.
- Differences in contracts
- The investment is made on a contract, as well as interest rights
- Contracts for rolling spot forex.
- Securities and rights to invest.
- Bet spread.
The FCA regulates the amount of cash a forex broker can keep in their account. Further explanations tell us that brokers do well to protect funds despite any issues with the broker.
The Legality of forex trade is in line with the categories of forex traders. In simple terminologies, there are various categories of forex traders. These are:
- Private Investors.
- Self-employed traders.
- Speculative Traders
Can You Get Rich by Trading Forex?
Truth be told, forex trading can be pretty tricky, especially when you as a trader do not understand the rudiments of the trading. This is why traders need to know that forex trading is not a scheme that helps you make quick money.
Huge losses can also be incurred from trading forex or any other financial market. Research gives more details than those who trade in Forex. Several new traders are more likely to lose money due to their lack of skill and ideal trading strategy.
Trade done in Forex does not have shortcuts. If you plan to make profits from trading the forex market, you should get enough knowledge about the currency pairs you want to trade and what trading strategies will be best suited for you.
Trading forex demands a high level of discipline and planning. To be successful in trading, you must put in the work it requires and work with regulated brokers to ensure your investment is secure.
To avoid losing your money while trading forex in the UK, there are some critical steps to take
- Have a realistic expectation.
- Choose a reputable and well-regulated broker
- Start with a demo account before funding a live account
- On your live account, start with a small amount
- Use a lower leverage
- Avoid panic selling
How do I trade the Forex in the United Kingdom?
When you want to begin trading Forex in the UK, the steps to take are pretty simple. They are the same as when trading in any other part of the world. One of the most critical factors is to be authorized by the Financial Conduct Authority (FCA).
This is the condition under which any UK forex broker will accept you as a forex or CFD trader in the UK.
As a forex trader in the UK, you make money by playing the market on currency price changes or fluctuations in the market. Currencies are quoted in twos to enable traders to sell or buy a pair simultaneously, depending on which is favorable.
To trade, all you have to do is create a trading account with a broker online. This gives you access to the forex market; the trading platforms provide you a place to carry out market analysis and execute trades.
Forex brokers in the UK also provide traders with credit which is popularly called leverage. This enables traders to take up more significant position portions, and in turn, there is the potential for increased returns.
Is Forex Trading in the UK Taxed?
For traders who are just starting in the UK, it might be easy to get carried away by the potential profit margin in forex trading. However, one of the first steps to take when you intend to trade in the UK is to understand the rules as well as laws on trading tax.
It is essential to know that your profits from trading forex in the UK are taxable. Although this is dependent on the category, your trading activity falls under. The tax branch of the United Kingdom’s government, also known as the HMRC, divides trading activities for tax purposes into two different categories.
Speculative traders, in most cases, have other income sources, while the profit they make from forex trading becomes just a supplementary income. For this reason, until they reach the tax allowance of £12,000, all profits are not taxed; that is, they are tax-free.
For professional traders who take the profits from forex trading as their primary income source, profits are taxed under the capital gain regime. Before going into forex trading in the UK, it is helpful to speak with a professional tax advisor as they can help determine which activity category your forex trading is under.
To help reduce the stress of filing your yearly tax returns, it is essential that you keep proper records of your trading activities, losses, profits, trade size, and dates.
How Much Profit do Forex Traders Make in the UK?
In the United Kingdom, forex traders work independently or as an employee for some organizations. The money they can make varies in line with the level at which they trade, their skill, and the market’s movement in general.
For those employed by banks or other institutions to trade, their salary range depends on their job title and complete job description. Other factors will include the firm they work for, their overall performance, and the city they work in.
According to Glassdoor, the average salary of a trader in London is £61,621. Traders also get specific trading commissions yearly, depending on their company. The commission ranges from £21,000 – £25,000. This would also be higher or lower.
For independent traders, various factors determine how much a trader makes from a trade. These include the trader’s starting capital, trading cost, and return on investment (ROI).
Generally, your ROI also depends on certain factors, including your trading style, the frequency at which you trade, and the way you make use of your leverage.
Also, your starting capital plays an essential role in how much profit you make cumulatively. For instance, a trader with starting capital of £5000 cannot have the same profit margin as trading starting with £500,000.
Another factor is your trading cost, which consists of your spreads, commissions, and swaps. As long as you are an active trader, your broker will charge these fees. These costs will be charged to your trading profit, so it is essential to bear this in mind.
Best Forex Brokers in the UK 2022
There are undoubtedly a good number of forex brokers in the United Kingdom ready to take you on as a client as long as you are authorized to trade by the FCA. However, as mentioned earlier, working with a reputable broker determines how smoothly your trading journey will go.
That said, here are some of the top forex brokers in the UK
- Vantage Market
The Vantage Market is a well-known brokerage firm that started out in 2009 and is properly regulated by the Australian Securities and Investment Commission (ASIC), the Financial Conduct Authority, and the Cayman Islands Monetary Authority (CIMA).
Vantage Market is regarded as an average risk broker for trading forex and CFDs. Aside from the coverage offered by these regulatory bodies, they also hold insurance for added protection. Vantage has also integrated the TradingView forex platform into the MetaTrader 4 and MetaTrader 5.
The platform provides great functionality for traders. Generally, their fees as also quite low. Infact, forex traders are not required to pay any inactivity fee. New traders are able to open an account in less than 5 minutes. There are also a range of options when it comes to the deposit and withdrawal options.
One of the downsides of choosing Vantage Market is that the product selection option is quite limited.
RoboForex is a forex broker that has been in operation since 2009. A good number of investors and professional traders refer to it as one of the best brokerage firms out there. RoboForex is situated in Belize, they provide their traders a range of asset selections and also affordable trading cost.
Traders who use RoboForex are well protected as they are highly regulated by the International Financial Sevices Commission (IFSC). Although they are not regulated by tier-1 regulatory authorities such as ASIC. They also offer quite decent spreads as compared to other brokers in the industry.
Traders can start their trading account with a minimum deposit of $10. There are also 5 different account types for traders to choose from. RoboForex offers a number of trading platforms including the MetaTrader 4 and MetaTrader 5.
Capital.com is owned and managed by Capital Com SV Investments Limited. The brokerage firm is regulated by various jurisdictions including Cyprus, United Kingdom and Belarus.
One of the top benefits of choosing Capital.com as your forex trader is that they traders can deposit a minimum of $20 and withdraw $50 which is quite low compared to other brokers. All clients trading with Capital.com have their funds in a separate account although their is no insurance for this.
New trader can also access educational trading materials, breaking news and trading guides. As a trader, you don’t have to pay any commission and there are also no hidden fees. Traders also have access to their active customer service team through live chats.
Pros and Cons of the Forex Trade in the United Kingdom
There are benefits when you work as an employee or work on your own. Some of which includes, commissions, bonuses, and other benefits with a good income. The expectation of employers and the security and hours used for the trading is suitable.
However, when trading forex as an individual trader or investor, the stakes are quite different. You get the bear the profit or losses in your executed trade. It is important to note that trading forex just like any othe investment opportunity comes with its risk.
Although, you also have the flexibility to trade at your pace and pattern gives you the upper hand and is an added source of income.
Other benefits are:
- Cost is low.
- It can be volatile and high when trading is liquidity.
- It is easy to enter.
- The need for the capital is low;
- They have a suitable trading style that varies.
- There are different varieties as well as a combination of the family to trade.
The most significant cons of trading forex are that you are not guided as much to learn the trade. It also has a low level of transparency and huge risk.
It is vital to know that when one commits to learning and gaining knowledge in forex trading, forex traders can maximize the positive side. They will gain more in wealth, experience, and how to trade fast. In summary, One who is coming to this stand on or as regard must be teachable and ready to learn.
When you think of forex trade and its importance, you should also consider various factors that might affect it — areas like the country, the policies, and the economy’s strength.
Forex trade is global, currently in operation in many countries. The United Kingdom is one of many. Individuals and organizations in different parts of the world can also trade Forex as long as the country’s law permits it.
This market allows many people to do business at a high international level, especially in the United Kingdom. The rate of the forex trade is quite profitable and quick too. This shows that the Forex serves as a market for all.
The forex market is obviously a large market that gives way to high investment compared to other financial markets. Forex trading allows you to invest in weak currencies. Also, it will enable you to work with stable currencies. To get profits and reduce losses.
Trading with Forex in the market in a country like the United Kingdom is possible. It is legal and accepted. Forex trade in the United Kingdom is well recognized, and they have a body that regulates the trade.
This market has given a more comprehensive look and an upgrade on the use of technology. With your smartphones and other smart gadgets, people trade and make profits. This includes brokers, investors, and beginners who will have cities to protect them. This will protect investors, brokers, and those starting the trade as a beginner.