Best Forex Brokers for UK Traders [Updated for 2021]

Forex Trading for Dummies

Foreign exchange or forex is the market where currency pairs are traded. Currencies are a crucial part of the financial market and our well-being depends on it more than we might expect. But is forex trading worth it?

The short answer is yes.

Businesses need to exchange currencies to do transactions with foreign companies. For example, a UK based wine company that uses grapes from France to manufacture their products will have to pay for it in EUR. Therefore, the wine business owner will need to exchange the equivalent value of GBP to EUR to buy the grapes.

Another day-to-day forex trading example is travelling abroad. A British tourist in Japan won’t be able to pay GBP to visit Osaka Castle, because it is not a locally accepted currency. Thus, the tourist will have to exchange their British pounds to Japanese Yens in order to make any transaction during their stay in Japan.

The forex trading market is open 24 hours a day, for five and a half days a week. Trading forex isn’t made on a centralized exchange but rather made electronically between traders through computer networks. Currency trading happens in the major financial institutions of New York, London, Zurich, Hong Kong, Tokyo, Frankfort, Paris, Sydney and Singapore, across all available time zones. 

For instance, when the U.S. trading day ends, the forex market opens in Hong Kong and Tokyo. So, the foreign exchange market is active at any time of the day, and price quotes change continually, based on the current time zone.

Prior to the informational age, forex trading was nearly impossible for individual investors, as it required a lot of capital. Back in the day, only hedge funds, multinational corporations, or extremely rich individuals had access to this type of investment.  

Nowadays, through the use of the Internet, anyone can easily access the foreign exchange markets through top forex brokerage trading websites. These online-based companies offer their clients the possibility to trade with high leverage, meaning that they can control a large position with a smaller account balance.

Guidelines for finding the best forex broker

At ForexTradingHub, we review and rank all the forex trading platforms based on a wide variety of factors. To make things easier for traders, we’ve created a list of the key components that they should always take into consideration when choosing the best forex brokers:

Trading Platform Features

The most important factor in choosing a broker is the trading platform. It is crucial that the platform has a user-friendly interface, widgets, charting tools, robots, and other features like a news feed or economic calendar that will enhance the trading experience. 

Mobile compatibility is another factor that many British traders consider important. Most brands have mobile apps that are available on both Android and iOS. Investors should check in advance if the forex trading mobile app offers the same features that can be found on the desktop version.

Trading Fees and Commissions

Most forex brokers will charge spreads, commissions, overnight fees that can lower the profit potential. When choosing a trading platform, investors should make sure that these fees are as low as possible. These costs can pile up quickly, especially for high-frequency trading. 

Additionally, there are other non-trading fees, like those for inactivity or withdrawal that must be taken into consideration. Even though these fees aren’t usually high, they are an extra drain on the trader’s balance. 

Product Portfolio

Prospective clients should check if the broker has the financial assets that they are willing to trade. Most trading platforms have the essential assets available, like major currency pairs or blue-chip stocks. However, those that want to trade more exotic assets, like the Thai Baht, should double-check the availability of the desired assets.  

Customer Support

Customer service is an important part of trading platforms. British traders should check if the customer care agents are available 24/7 or not and the channels through which they can be reached. Usually, trading platform customer service can be contacted via live chat, phone support or email. 

Licenses and Regulation

A crucial factor for deciding on the best trading platform is if it is regulated by the leading authorities in the industry, like the FCA, CySEC or ASIC. This ensures that the traders are making transactions in a safe environment and that their money is deposited in segregated accounts.

Payment Methods Available

Trading platform deposit and withdrawal methods are essential for British investors because it’s the way through which they can fund their account. Traders should check if the forex broker has the banking method they are using available. 

The most common broker payment methods are: 

• Bank Wire Transfer
• Credit / Debit card (Visa and MasterCard)
• E-wallet (PayPal, Neteller, etc.)
• Bitcoin or Etherum

Third-Party Integrations

Advanced traders might want to use a third-party trading tool, like MetaTrader 4. While most brokers allow investors to execute trades using an external trading platform, it’s a great idea to check if integration with advanced software is available.

Educational Resources and Demo Account

Forex trading beginners need to have access to thorough educational resources, like trading basics or how to use the broker platform. The forex trading demo account is a great way for investors to test the platform in advance and decide if it suits their needs.

Tradable Assets 

In online trading, the assets are usually CFDs, which stands for contract for differences. In a nutshell, a CFD is a financial contract that pays traders the difference in price between the moment the investor opens and closes the trade. CFD trading allows clients to trade on the rise or fall of the prices of financial assets.

The most popular CFD trades are made with:

• Stocks – also known as equity, a stock is a financial instrument that represents a small portion of a company. Traders can speculate changes in the price of a stock based on news. For example, when Apple releases a new iPhone model, the stock’s value is likely to go up, because investors trust the product, so they will purchase more shares.

• Indices –  Indices traders speculate the price change of stock indexes, like Dow Jones, FTSE100 or S&P 500. Essentially, these indexes are baskets of individual company shares that are ranked by major banks or financial institutions like Deutsche Borse or the FTSE Group.

• Commodities –  a commodity is a basic good that is interchangeable with other similar goods (like Gold, Silver, or Crude Oil). They are often used as base products for the creation of other goods or services. Commodities have full fungibility, which means that their value remains the same regardless of the supplier.

• Currency pairs –  a currency pair is a quote of two different currencies. The value of one of the currencies is quoted against the other. For example, in the GBP/USD pair, the British pound is the base currency, and the USD is the quote currency.

• Cryptocurrency – a digital currency that is encrypted, meaning that it’s impossible to counterfeit. The majority of cryptos are decentralized networks that operate based on blockchain technology.

Which currencies trade on forex?

Majors

The majority of investors that are part of the international forex day trading community focus their trades on the seven most liquid currency pairs on the market.

First of all, we have four major currency pairs:

• EUR/USD (Euro / Dollar)

• GBP/USD (Great Britain Pound / Dollar)

• USD/JPY (Dollar / Japanese Yen)

• USD/CHF (Dollar / Swiss Franc)

Additionally, there are three emerging currency pairs:

• USD/CAD (Dollar / Canadian Dollar)

• AUD/USD (Australian Dollar / Dollar)

• NZD/USD (New Zealand Dollar / Dollar)

These pairs and the wide variety of other combinations account for nearly 95% of the total of speculative trading and retail forex markets. Still, the US dollar is the widespread currency in the majors. The reason behind it is that USD is the world’s largest currency reserve and it accounts for 88% of all currency trades.

Minors

Currency pairs that don’t include USD are commonly known as minor currency pairs. The most popular minor pairs among traders include currencies like Euro, Japanese Yen or the British Pound, like:

• EUR/GBP (Euro / Great Britain Pound)
• GBP/JPY (Great Britain Pound / Japanese Yen)
• GBP/CAD (Great Britain Pound / Canadian Dollar)
• NZD/JPY (New Zealand Dollar / Japanese Yen)
• CHF/JPY (Swiss Franc / Japanese Yen)

Additionally, there is a variety of exotic currency pairs, like the Swedish or Norwegian Krone, Turkish Lira, or the Thai Baht. Traders should take into consideration that the majority of these pairs are from developing countries, meaning that they come with an increased level of risk and high volatility.

The bottom line?

There is no such thing as “the best forex pair”. Instead, traders should make investments based on their experience. Trading forex beginners should stick to the majors and minors because they come with lower spreads and it’s easier to find opportunities in the market.

Of course, we’re not entirely excluding exotic pairs, but the truth is that they are more difficult to work with, as their liquidity is low and the spreads are below average. 

Forex Trading Glossary

Below, we’ve listed the most important definitions in the forex trading world, that will come in handy, especially for those that are just getting started:

What is Bid, Ask, and Spread?

Forex quotes are announced with two prices: bid and ask. Generally, the bid is lower than the ask price.

The bid is the price at which the forex broker is buying the base currency, in exchange for the quote currency. The bid is the best price at which traders can sell on the market.

The ask price (also known as offer price) is the value at which the broker will sell the base currency in exchange for the quote currency. So, the ask price is the best price at which an investor can buy from the market.

The spread is the difference between the bid and the ask price.

In the EUR/USD quote in the image above, the bid is 1.16216 and the ask is 1.16221. So, traders can buy EUR at 1.16221 and sell EUR  at 1.16216.

Flat or Square

In the forex world, being flat or square means that a trader has no open position. Closing a position is often referred to as “squaring up”

Trading Forex with Leverage

Leverage allows traders to multiply the outcome of their investments without having the entire amount required for opening the position. Essentially, investors use leverage to get higher returns with fewer resources. 

Using leverage is a double-edged sword. If the trade goes well, the return will be much higher than the initial investment. However, the same can happen to the losses, if the trader’s prediction is wrong.

The main reason why people are more attracted to forex trading is that they can get higher leverage (up to 30:1 for UK traders) than they would with stocks or cryptocurrencies.

Pips

A pip is an acronym for percentage in point and it represents the last decimal place of a price quote. Thus, a pip is the equivalent of one-hundredth of 1% or the fourth decimal place.

For instance, the smallest possible move that the GBP/USD currency pair can make is $0.0001 or one pip.

Final Thoughts

Currency trading can be very lucrative for experienced investors with long-term goals and serious funds. Trading forex for beginners can be challenging.it is recommended that they choose the best forex brokers and decide which financial assets suit their needs before they start investing. 

Below, we’ve prepared a list of the best trading platforms reviews for British investors, with in-depth reviews that will help them decide which forex trading platform is suitable.