London, the capital of the UK, has always held a dominant position as a global financial centre for centuries. From the turn of the previous century, with the use of telex machines to communicate cross-border settlement information, the UK national currency, the British Pound, was considered the world’s reserve currency. Moreover, London became the world’s central location for these types of exchanges and it remains the largest such centre today, especially in the world of foreign exchange. If fact, over 37% or $1.5 trillion in volume are transacted out of London every day in the form of forex securities, compared to 18% out of New York and a mere 6% out of Tokyo.
When compared to most other Western countries, we can observe that the forex industry in the UK is at a more advance stage in its development, drawing of its rich and extensive history, tradition and experience that has been acquired over the years. As a result London has become a preferred location for forex brokers to set up shop in order to also benefit from the associated prestige that comes pack and parcel with the label of being “a forex broker for Brits”. Because both the size of the market and the experience of the stakeholders in it are important factors to consider when choosing your forex broker and also because of the very high presence of forex brokers operating out of London, choosing a forex broker based here appears as a very logical and wise decision for anyone interested to investing in online retail forex trading, provided such an arrangement is permissible by the relevant rules and legislation.
The United Kingdom Foreign Exchange Market
The United Kingdom’s foreign exchange market has been and will continue to be one of the largest operational markets in the industry globally. This is undeniable and it is also clearly reflected in the relevant industry statistics that are being reported, revealing massive figures for the daily turnover of the forex market in the UK, indicative of this particular market’s extensive influence and importance as well as its unrivalled popularity.
Under the auspices of the prestigious institution that is the Bank of England, which regulates and controls the entire foreign exchange market in the UK, this market has become one of the main contributors to the daily trading volume generated by Forex markets worldwide. In fact and according to the latest statistics available almost one third of the currency trading transactions executed worldwide take place in the United Kingdom, a track record that cannot be easily matched by any other market. Literally trillions are being generated by the UK’s Forex market , showcasing the market’s size, importance and complexity.
Moreover, one should also take into account that the UK foreign exchange market is twice as large as the respective USA market, while London is comfortably situated as one of the four leading world foreign exchange trading centres.
As expected, the most traded currency on the UK Forex market is the American dollar, followed by the Euro, while the USD/EUR is the most popular currency pair on the market. However, most UK traders tend to prefer the GBP/USD pair, because its exchange rate is directly affected by developments in their national economy to which they have better access and to which they can gain a better understanding.
Although all Forex trading agencies registered in the UK are regulated by the country’s regulating bodies and therefore should adhere to a strict set of rules regarding their trading policies, the centralised nature of the market in the UK and the high volatility it features, make it very attractive to foreign companies. Such companies are enabled to provide British companies as well as individual investors with the chance to trade in the UK forex market, without any special qualifications or the need for special licenses.
Forex Regulation in the United Kingdom
When it comes to trading forex or doing forex related business in the United Kingdom, the trading environment is governed by strict legislation and regulations under the country’s pertinent authorities, which are the Financial Conduct Authority (FCA) and the Financial Policy Committee (FPC).
The main requirements that forex brokers should adhere to in order to be allowed to lawfully conduct brokerage activities in the UK forex market are neatly summarised below:
Segregation of Accounts
The segregation of accounts by UK forex brokers is a requirement primarily aiming at the protection of forex traders from any adverse events pertaining to their broker, which could lead to a loss of their trading capital, one such example being the bankruptcy of a forex broker. Under this specific segregation policy, brokers are expected to take the necessary steps so as to separate and lodge the traders’ funds into an account that is separate from the broker’s own operational account. Besides keeping traders’ funds safe, this arrangement also aids the smooth and timely settlement of trades and withdrawal requests by traders.
Robust KYC Policy
Moreover, the UK regulating bodies require that forex brokers apply a solid “Know Your Customer” (KYC) policy, requiring not only the thorough identification of the trading entities, but also the full disclosure by such trading entities of all their sources of income as well as the sources of the funds to be used in forex trading. The main aim of this procedure is to prevent money laundering, especially by criminal entities attempting to generate more money through forex trading in order to keep funding their illegal operations.
As part of implementing this policy prospective traders coming from EU member countries are obliged to present their passports or their drivers’ licenses as their means of identification when setting up an account to trade through. In case the prospective client is a corporate entity, then it should submit this data for all directors of the company. In the case of clients from outside the EU, then the rules are much stricter and such traders are obliged to submit a passport and a utility bill as proof of their current residence. Both these documents must be notarized by a Public Notary.
Moreover, all brokers are obliged to submit reports to the FCA on a regular basis, in order to indicate and declare the level and status of their compliance to KYC requirements. FCA officials cross check these reports to evaluate and verify that they are accurate.
Top Forex Brokers in the United Kingdom
To help you choose the right UK based Forex Broker for you, we provide below a list and a short description of forex brokerages in the UK which we consider trustworthy:
Alpari UK is a well established forex broker that offers traders the chance to choose between several account types, through which to trade in currencies, energy assets, spot metals and futures CFDs. Floating leverage on selected assets and the Autochartist MT4 plug-in, which can be used on Alpari’s MT4 and MT5 trading platforms, are just two of the many features that can be enjoyed by traders who sign up to trade forex with Alpari UK.
Another reliable forex broker is Plus 500, which has enjoyed increased popularity not least due to its innovative offering of the no-deposit forex bonus. This is a program through which traders who open an account on Plus500 via an affiliate link, are then given a bonus of $100 deposited into a live account without the clients themselves having to deposit a penny into the live account.
Having suffered a blow to its reputation due to a fine it had received from the CFTC, FXCM’s UK office is back on track trying to win back the confidence of clients through offering a robust MT4 platform that permits trading in forex, crude oil and several stock indices. The broker is attempting to improve its image through this innovation, since the particular feature is designed to enable traders with a good understanding of the inter-relationships between markets to trade these accordingly.
A relative newcomer on the scene, having set up shop in 2010, Vantage FX is preferred by many because it offers traders rewards of up to $10,000 per month. Moreover, traders can start trading with as low as $100 and the platform used by Vantage FX is scalping-friendly.
The list above is just a short snippet from the really extensive list of forex brokers that are regulated to operate in the UK. The FCA website is a reliable source of information and clients are urged to consult it before joining a broker to be sure that the broker is indeed regulated and honest.