Trading and forex brokers in England and the UK

Forex in England and the UK

With gross domestic product of 2,300 billion pounds, England is the 2nd biggest European-continent economy as of 2020, surpassed only by Germany. The territory has a long history of participation in European and global financial markets.

Given its economic context, it is not surprising that England and the UK have one of the largest and most dynamic foreign exchange markets on the European continent. Nevertheless, the territory has taken a rather conservative stance towards forex trading with regard to rules and regulatory frameworks.

Despite the strict regulations, currency trading remains quite popular among UK traders. Brokers authorised to serve this market offer traders a wide choice of currency pairs and other financial instruments, including contracts for difference.

Strict restrictions have been introduced to limit exposure to risk and prevent small UK traders from suffering huge losses. Historically, the country's financial regulators have always tried to steer the general public away from high-risk investments towards more conservative trading instruments such as the stock market.

In this article, we examine in detail the UK's legal framework for trading on foreign exchange markets and the restrictions imposed by the local regulator, the FCA (Financial Conduct Authority). We also provide answers to common questions about deposits/withdrawals and the most commonly used trading software in the UK.

Forex trading regulation in England and the UK

Forex currency trading is 100% legal in the UK, provided that the brokers have obtained authorisation from the local regulator, the FCA. The Financial Conduct Authority - which was launched in 2013 - regulates financial firms providing services to consumers and maintains the integrity of the financial markets in the United Kingdom. As for Ireland, the Central Bank of Ireland regulates local brokers (such as AvaTrade, listed in the below tables).

Brokerage firms wanting to conduct business with UK residents or worldwide clients are encouraged to provide a "limited risk account" with a guaranteed stop-loss. Before opening a position, traders must set their stop-loss and once the order is executed, they cannot move the stop to a higher level. This way, individual traders therefore can't lose an amount greater than the margin used to open the position.

Another condition encouraged by the UK regulatory authority stipulates that brokers should provide protection against negative account balances. This policy prevents traders from losing more than their trading account's available balance, especially when investing in leveraged derivatives. However, negative balance protection doesn't apply to professional trading accounts.

With regard to derivatives, contracts for difference (CFD) are also legal in the country, but with certain restrictions due to the high level of risk that is involved.

The protective measures are part of the restrictions applied by the European Securities and Markets Authority (ESMA). They apply to the advertising, distribution and marketing of CFDs to smaller investors.

The maximum leverage for forex CFDs is not to exceed 20:1 for minor pairs and 30:1 for major pairs. The limit for minor pairs is lower, because the price movements are much more significant.

The rule of thumb for restricting leverage is generally as follows: the higher the volatility of a given financial instrument, the lower the maximum authorised leverage.

Forex brokers are also required to be transparent about the percentage of clients who lose money when trading leveraged derivatives. They are supposed to display this percentage visibly on their websites, where all traders can see it.

The percentage of losing traders is important, as it affects the execution of transactions by the brokers, the level of education they offer to their clients, etc. In fact, this should be one of the key factors to consider before choosing a broker.

Certain margin conditions must also be met. Brokers must close their traders' open positions when the account balance falls below the threshold of 50% of the minimum margin required.

UK brokerRegulationTrading platformsOfficial website
FCA, ASIC, CySECMetaTrader 5Admiral Markets website
ASIC, CBFSAI, FRSA, B.V.I FSC, FSCA, FSA.JPMetaTrader 4AvaTrade website
FCA, CySEC, DFSA, FSCA, FSA MetaTrader 4HF Markets website
FCA, ASIC, DFSAMetaTrader 4 + 5
cTrader
Pepperstone website
FCA, CySEC Plus500 Plus500 website
CySEC, ASIC, IFSCMetaTrader 4 + 5XM website
FCA, KNF, CySEC, IFSC, CNMVxStation 5 XTB website
FCA: United Kingdom, ASIC: Australia, CNMV: Spain, CySEC: Cyprus, DFSA: Dubaï, FSA: Seychelles, FSA.JP: Japan, FSCA: South Africa, IFSC: Belize, KNF: Poland
CFD trading comes with a high risk of losing money, it is therefore not suitable for all investors. Between 74-89% of retail investor accounts lose money when trading CFDs.

Financial regulators in England and the UK

The main regulatory body that oversees the forex market in England is the Financial Conduct Authority (also referred to as the FCA). This independent agency was created on 1 April 2013.

The FCA is in charge of regulating and protecting investments in various financial instruments, but it also has several other objectives. This includes ensuring that investors have access to sufficient information to be able to make informed investment decisions. The FCA is also responsible for maintaining the order and balance of the territory's financial markets.

Brokerage companies, whether local or foreign, are required to request and obtain authorisations issued by the FCA if they wish to operate legally on UK soil. To receive such authorisation, brokers must comply with all of the requirements discussed earlier.

In other words, they must store clients' funds in separate accounts, offer protection against negative balances, respect maximum leverage limits, refrain from offering bonuses and be subject to regular external audits. In addition, companies must demonstrate that they meet a minimum operating capital threshold.

The UK regulator holds official meetings once every few months. During these meetings, it examines proposals to close brokerages that operate in the territory without authorisation.

It should be mentioned that the FCA is subject to an important piece of legislation, known as the Markets in Financial Instruments Directive II (MiFID II). Entered into force in 2018, which aims to increase competition, enhance transparency and ensure the protection of investors located on the European continent.

The purpose of this law is to provide unified regulation on investment services carried out in Europe. Under this directive, all brokerage firms operating in Europe must follow harmonized regulations.

Therefore, a license issued by entities such as the FCA or the Cyprus Stock Exchange Commission (CySEC) allows a brokerage to offer its services in all other European countries where currency and CFD trading is legal.

Lastly, there is the European Financial Markets Authority (ESMA), whose headquarters are in Paris. The main idea behind the creation of this supranational authority is to establish a pan-European regulator of the financial markets.

Deposit/withdrawal methods for forex traders in England and the UK

When choosing a brokerage firm in England or the UK, it is important that you consider the payment methods that the company offers. Money transfers to and from your trading account should be easy, fast and - most importantly - secure.

Each broker has its own list of payment methods as well as individual limits for deposits, withdrawals and lot sizes. Many brokers offer several types of accounts with minimum deposit requirements, including micro-accounts which offer smaller lot sizes.

As for the payment methods, they are specific to each broker. The best way to get an idea of the money transfer solutions available is to consult our broker comparison. You can see all the methods supported by the brokers.

That being said, the most common options used by UK forex traders to fund their forex accounts are credit and debit cards (mainly Mastercard, Maestro and Visa). Most traders prefer them as there are generally no commission fees on card payments and processing times are short.

Bank transfers are also widely used by UK traders, although this option is much slower. Wait times vary from broker to broker, but in many cases you have to wait three to five business days before the funds reach your trading account balance.

Electronic wallet systems are a practical solution for UK traders who don't have a credit or debit card, but who still insist on quick payments. These are basically virtual wallets where you can store your money. The most popular electronic wallet service in the UK is PayPal, although similar and better alternatives like Neteller and Skrill are also available.

The most popular trading software in the UK

Another key item to consider when choosing a forex broker is the trading platform. Traders should be able to place orders quickly and without any hassles. A decent trading platform should be designed to appeal to both novice traders and professional traders.

This generally means that the interface must be intuitive enough while providing additional functionalities for market analysis.

The most popular trading software among UK traders, MetaTrader 4 (MT4), was designed by the MetaQuotes Software company. MT4 allows traders to see quotes and prices in real time and to execute orders quickly.

Its basic interface makes the platform user-friendly for novice traders. Seasoned professionals are able to perform in-depth market analyses by taking advantage of various analytical tools such as technical indicators, charts and graphical objects. The platform is available in several other languages, such as French and German.

As MT4 was designed specifically to meet the needs of currency traders, some UK brokers offer it along with MetaTrader 5 (MT5).

The MT5 trading platform makes it possible to trade more financial instruments, such as bonds, stocks, options and futures contracts. It is therefore better suited to professional traders.

Mobile trading in the UK

The market penetration of smartphones in England and the UK has experienced a significant increase over the last decade, the percentage of smartphone owners increasing from 18% to 76% from 2012 to 2020. Owning such a device is no longer a privilege reserved for the wealthy!

The UK mobile scene is mainly dominated by the Android operating system, which has over 31 million active users as of 2020. This represents a significant market share equal to around 69%. In contrast, Apple's iOS operating system only reports a 22% market share.

In this context, mobile trading has grown rapidly in the UK. Brokers are betting a lot on the progress of mobile technologies. Almost all brokers have developed free applications, compatible with the two operating systems that dominate the country's mobile market, Android and iOS.

The developers of these applications are no longer interested in basic features such as keeping a watch list, viewing one's trading portfolio or executing transactions. They are focusing their efforts on creating applications that bring the mobile trading experience closer to that of a desktop computer.

UK brokerRegulationTrading platformsOfficial website
FCA, ASIC, CySECMetaTrader 5Admiral Markets website
ASIC, CBFSAI, FRSA, B.V.I FSC, FSCA, FSA.JPMetaTrader 4AvaTrade website
FCA, CySEC, DFSA, FSCA, FSA MetaTrader 4HF Markets website
FCA, ASIC, DFSAMetaTrader 4 + 5
cTrader
Pepperstone website
FCA, CySEC Plus500 Plus500 website
CySEC, ASIC, IFSC MetaTrader 4 + 5 XM website
FCA, KNF, CySEC, IFSC, CNMV xStation 5 XTB website
FCA: United Kingdom, ASIC: Australia, CNMV: Spain, CySEC: Cyprus, DFSA: Dubaï, FSA: Seychelles, FSA.JP: Japan, FSCA: South Africa, IFSC: Belize, KNF: Poland
CFD trading comes with a high risk of losing money, it is therefore not suitable for all investors. Between 74-89% of retail investor accounts lose money when trading CFDs.