Forex trading in the UK accounts for the lion’s share of the $6 trillion daily global turnover. In fact, recent years have seen the UK account for more than 40% of the world’s forex trading volume with many of the top-rated trading providers headquartered and licensed in Britain.
This guide will explain how to get started forex trading in the UK, covering the best trading platforms and accounts, the tax implications, plus online training courses for beginners.
How Forex Trading Works In The UK
Forex (FX) traders generate income by speculating on price fluctuations in the currency market. They sell one currency while simultaneously buying another, which is why they are quoted in pairs.
Importantly, the first currency is the base currency and the second the quote currency, meaning that in the GBP/USD pair, you are buying GBP and selling USD. In other words, it tells you many dollars you would need to exchange for one British pound.
To trade forex in the United Kingdom, traders register for an account with an online brokerage who connects them to the market, providing a platform to conduct analysis and execute trades.
Note, UK traders do not have to speculate on currency pairs with the GBP.
Leading brokerages offer trading on dozens of currency pairs, from majors to minors and exotics (more on these later).
The spread is the difference between the ask price and the bid price. It represents the cost of trading.
Let’s say the GBP/USD currently has an ask price of 1.0925 and a bid price of 1.0923, then the spread is 0.0002 – the ask price minus the bid price.
Profit margins in forex are slim. So the more capital you have to invest the greater the potential returns. However, most UK FX providers extend leverage to their customers.
This means for a small deposit, known as margin, you can take a much larger position, amplifying potential profits. Of course, this means losses are also magnified.
Is Forex Trading Legal In The UK?
Forex trading is legal in the UK. In fact, along with the US, the laws and regulations governing forex trading in the UK are among the most robust in the world.
The body responsible for overseeing the UK forex market is the FCA (Financial Conduct Authority). All brokerages looking to accept UK traders must obtain a license from the FCA.
By selecting a regulated broker, traders can decrease the possibility of scams and safeguard their capital in case the broker goes bankrupt.
Authorized forex providers are more likely to offer negative balance protection (so you can’t lose more than your account balance) and use segregated accounts (separating your funds from the company’s capital).
Providers & Platforms
The best forex brokers in the UK provide leading platforms to connect customers to the FX market. The platform is where you carry out price analysis, take positions, and utilize any additional trading tools available. Platforms are free to use when you sign up for an account, so it is worth shopping around.
If you are uncertain about which platforms to start with, MetaTrader 4 (MT4) is widely considered as the best forex trading platform for both beginners and advanced traders. Reviews show it is easy to learn, has a range of signals, over 30 indicators, plus a live news feed and economic calendar.
The most cost-effective way to test software is to sign up for a free demo account. You can then try signals, charts, strategies, and any automated trading capabilities. Most of the top forex trading platforms offer demo accounts.
Often found in reviews of the top 5 forex trading platforms are:
Note that minimum deposits vary between companies, but UK forex traders can find accounts with low deposit requirements of less than £100.
In contrast to the majority of financial markets, the FX market has no physical location or central exchanges.
Trading Hours and Mobile Apps
Understand forex trading hours, which run around the clock five days a week through a network of banks, organisations, and traders. Although the opening times are staggered globally, traders can expect significant volume throughout the day. However, forex operating hours are reduced on weekends, resulting in less activity on Saturdays and Sundays. If you’re forex trading in the UK, your platform’s time zones will be displayed in GMT.
Mobile Apps for Trading
The best UK forex firms offer mobile apps that allow traders to conduct almost the same functionality as desktop platforms. With market data and reviews showing an increasing number of new traders who are learning to trade forex on mobile devices, traders can conduct technical analysis on charts, monitor signals, and execute trades. Additionally, traders can chat with the online trading community and follow training courses.
How to Start Forex Trading in the UK
If you’re a beginner, start by following this straightforward guide to begin forex trading from the comfort of your home.
1. Register for an Account
Sign up for an account with an FCA-licensed broker. Ensure that the company is reputable and offers user-friendly tools, good quality execution, and customer support. Some firms also offer no deposit bonuses and other incentives, including ultra-tight spreads and fee discounts. Check our reviews to see our full list of UK forex brokers or compare the top firms above.
2. Learn the Basics
Before you start trading, learn the basics of forex trading. This includes understanding the terminologies, trading strategies, and risk management.
3. Create a Trading Plan
Develop a trading plan based on your goals, risk tolerance, and trading style. A well-thought-out trading plan will help you avoid making impulsive decisions that could result in losses.
4. Start Trading
Once you’ve completed the above steps, you’re ready to start trading. Begin with a small amount of capital and gradually increase as you become more comfortable with the market.
Choose A Currency Pair
You will find dozens of currency pairs at most providers. For forex beginners, the most popular are the major currency pairs. These always include the US dollar and are traded in the greatest volumes. As a result, there is enough liquidity that you can trade almost anytime. The other benefit of major currency pairs is that they often come with the lowest spreads and trading fees.
Included in the majors are:
There are also minor currency pairs, which don’t include the USD. The most-traded have the Great British Pound, Euro, or Japanese Yen. Then there are exotic currency pairs that are formed of a major currency and a currency from a developing country, such as Brazil. Because they are harder to find, spreads on exotic pairs are usually higher.
3. ‘Buy’ Or ‘Sell’
Once you have decided on a currency pair, use technical or fundamental analysis to determine whether to buy or sell. For example, are there upcoming market events you expect to affect the price of currencies?
For instance, in 2022, the GBP fell to its lowest value since 1985 as investors lost confidence in the British economy.
This was because of too much government spending, record inflation, plus a rise in the value of the US dollar as investors sought a safe haven during increased geopolitical uncertainty.
Importantly, if you believe the base currency will rise versus the quote currency, you would buy. You would sell if you thought the opposite.
4. Set Stops & Limits
These important risk management tools can help protect profits and limit losses. Set a stop-loss to automatically close out a trade when losses reach a certain level. Use a stop-limit to exit a trade when profits hit a certain point.
5. Monitor & Exit
In the ‘open position’ area of your platform, you can monitor your FX trade. You can also set notifications to get alerts when buy or sell percentage points are reached. Once you are ready to exit the trade, simply select ‘close’ from your open positions. Any profits or losses will shortly appear in your account.
Is Forex Trading Taxed In The UK?
For beginners, it can be easy to get swept up in the uncapped income potential. But it is important to first understand the trading tax rules and laws in the UK.
So, do you pay tax on forex trading in the UK? Profits from forex trading are taxable. However, taxability depends on which category your activity falls into. The UK government’s tax branch, the HMRC, splits trading activity for tax purposes into the following:
- Speculative – The speculative trader likely has other sources of income, with occasional profits from forex trading in the UK a supplementary source of income.
As a result, profits are tax-free until the tax allowance, which was £12,570 in 2022-2023, has been reached.
- Investing – Forex trading in the UK is treated as a business, with earnings often the primary source of income. Profits are taxable under the capital gains regime.
Professional tax advisors can help establish which activity your forex trading falls into, and therefore, whether you should be paying tax on your earnings.
Tip: Keeping a detailed record of trades, including profits, losses, dates, and trade sizes, will make filing your annual tax return less stressful.
The forex traders in the UK that generate consistent profits never stop learning. Fortunately, there is a wealth of resources available, from books and online training courses to forex trading diplomas.
Free YouTube videos are a good place to get the basics explained. For more in-depth training, online university sessions and training courses can demo strategies and chart analysis. Reviews show the best courses have engaging coaches and mentors, innovative trading techniques, and are available to answer questions. Other useful learning forums include blogs and magazines.
It has never been this easy to get your hands on free forex training tools and with technology today, you can learn at a time that works for you.
Final Word On Forex Trading In The UK
Forex trading in the UK facilitates access to the world’s largest financial market.
Both beginners and experienced traders can get the tools needed to trade on the forex market, including the best accounts, platforms, and online training courses. And with robust laws and FCA oversight, UK traders are operating in one of the most regulated forex environments.
To start trading forex in the UK today, sign up with one of the top-rated FX firms.
How Does Forex Trading Work In The UK?
Traders speculate on the value of a currency by buying one currency and simultaneously selling another, for example, through the EUR/GBP. UK traders can open an account with an FCA-regulated company which will provide retail investors with the desktop platform, mobile app and execution services to enter and exit trades.
UK firms also offer leverage on some trading vehicles, such as CFDs, meaning you can trade with additional capital in return for a small initial outlay, increasing potential profits.
Is It Illegal To Trade Forex In The UK?
No – retail investors can trade currencies in the United Kingdom.
But to avoid scams and fraudulent providers, budding traders should sign up with companies regulated by the Financial Conduct Authority (FCA). This body oversees retail FX providers in the country, enforcing various measures designed to protect retail traders, from negative balance protection to a ban on misleading financial incentives.