Do you know what the largest financial market in the world is, as measured by trading volume? It’s not the London Stock Exchange, nor the New York Stock Exchange, as one might think.
The largest financial market is actually the foreign exchange market, otherwise known as Forex or FX.
The Forex market is a global over-the-counter market that facilitates trading between different currencies. Every respectable currency in the world is traded on the forex market.
The foreign exchange market is open for trading 24 hours a day, 5 days a week. It offers a place for speculators and professional traders to place exchanges between any two pairs of currencies. It’s also chiefly responsible for setting global exchange rates for every currency. In other words, the exchange rates offered by banks, travel kiosks, etc. are based on live trading prices from the Forex exchange.
Large financial institutions and banks are the largest customers of the Forex exchange. They trade massive quantities of currencies each day, both for speculative purposes and for the purpose of running their international banking operations. Multinational banks collect deposits in dozens of currencies and turn to the Forex market to exchange them.
Currencies on the Forex market are always traded in pairs. For instance, the GBP/USD pair indicates the exchange rate between these two currencies; or, the number of pounds that one dollar buys. Popular Forex pairs include EUR/USD, GBP/AUD, JPY/USD, and several others.
Forex is a complex market, and its biggest participants are large banks. That said, individual investors and traders can use the Forex market to trade currency pairs. This is a risky, but potentially profitable venture.
To trade on the Forex market, UK investors will need to seek out a Forex broker.
What is a Forex broker?
A Forex broker, or FX broker, is a company that offers a trading platform for Forex traders. It facilitates trades between individual investors and the global Forex market, offers trading tools and insights, and more.
Some brokers charge small fees on every trade, known as a commission. Most make the bulk of their money through the spread, which is the difference between the buy and sell price on a currency pair.
Brokers provide live pricing for every currency pair, drawn from official Forex markets. Most also provide leverage, allowing investors to trade on margin. In simple terms, this means investors can borrow money in order to increase the size of their trades.
A Forex broker is similar to a stockbroker, where stocks and bonds are traded. The difference is in the specific financial vehicles available for trading.
Most UK Forex brokers are only for trading on the Forex market. In other words, you can’t necessarily trade other assets, like equities or cryptocurrencies, via these Forex brokers.
Some British Forex brokers buck this trend, offering a full suite of investment services. For example, on eToro, investors can trade equities, bonds, currencies, and even cryptocurrencies such as Bitcoin.
In summary, a Forex broker is the middle-man between investors and the global Forex market. They function similarly to investment brokers.
Why are Forex brokers needed?
Brokers are needed to facilitate currency trades on the Forex market. Each trader in the market must use a broker of some sort, with the exception of large global banks who can essentially function as their own broker.
Forex brokers provide the platform that’s used to actually connect buyers and sellers. They use modern interfaces to help traders navigate a fairly complex market.
Brokers are also the primary way that traders glean information on live currency exchange rates. The live prices of currency pairs are displayed clearly and automatically update nearly every second.
Risks of Forex trading
Keep in mind that trading Forex is risky. Volatility can be high, and leverage can make trading even more high-risk. If you note disclaimers on various trading platforms, you’ll see that many traders lose money attempting to trade currencies.
Many Forex products are complex instruments that require study in order to trade effectively. In short, Forex trading is not recommended for inexperienced investors.
What to look for in a UK Forex broker
There are many FX brokers competing for your business. How do you know which one to choose? These are some of the key factors you should consider.
Trusted, regulated brokers
First and foremost, it’s vital to choose a trusted, respected broker. This means brokers that are approved by official regulators. In the UK, this means the Financial Conduct Authority or FCA. For the EU, it’s the ESMA, among others. Some brokers are also insured by the Financial Services Compensation Scheme or FSCS.
By choosing regulated brokers, you can avoid scams and ensure you’re working with a trustworthy firm. All brokers on the list below are regulated by the FCA.
Check out our roundup of the Best Online Stock Brokers
Brokers will offer different trading platforms, tools, and interfaces. Because trading Forex can be complex, having a broker with an intuitive platform is very helpful.
Most brokers will offer both online trading and trading via a mobile app. Some have downloadable software for a desktop trading version.
Some brokers have their own, proprietary trading platform. Others simply offer an established platform, the most popular of which is Meta Trader 4 (MT4). If you are experienced with a particular platform, finding a broker that offers that platform is wise.
Platforms also offer different features and trade styles. Advanced traders will want sophisticated charting, access to spread betting, CFDs, and a wide variety of currency pairs.
Trading costs can eat into your returns. All brokers have costs, but they can vary substantially.
There are two primary costs to be aware of:
- Commission, which is a flat fee or a percentage fee on every transaction
- Spread, which is the difference between the buy and sell price
Most brokers make the bulk of their money through the spread. Comparing brokers to find one with competitive spreads can help you save money on trading costs, which could improve your long-term returns.
Sophisticated traders may also wish to look into ECN brokers, which may offer lower costs in some cases.
Leverage and margin
Most people who trade Forex do some using some sort of leverage. For example, this means that they invest $1,000 in cash, but are actually borrowing $9,000 for a total risk of $10,000.
Using margin can improve returns. Because of the massive size and liquidity of currency markets, the swings in prices are usually fairly minor. This makes securing substantial profit to gain capital difficult, particularly without margin.
If you plan to use leverage, look into the amounts available from each broker, as well as the costs associated with margin trading.
Choosing a reputable broker also means finding one with good customer support. This is important for any trader, but particularly for high-volume traders and beginner traders.
You can read customer reviews to get a feel for the customer service of a particular company. Or, simply call in to ask some questions.
Forex is complex, so many brokers provide tools to help their customers learn more about the markets. These could include informational webinars, blog posts, and more. Some brokers even offer demo accounts, where you can trade in a simulation where you don’t actually risk any real money.
Other financial services
Some Forex brokers offer other services, such as retail investor accounts, retirement accounts, brokerage services, cryptocurrency trading accounts, and even normal checking accounts.
For those who prefer simplicity, having multiple services available from one company is convenient.
Best Forex Brokers in the UK
Residents of the United Kingdom have many options to choose from when it comes to trading FX. Below, find some of the best UK Forex brokers, based on a combination of features, pricing, available currency pairs, and customer service.
A versatile broker offering trading in Forex, stocks, cryptocurrencies, and more
eToro is a popular trading platform for UK residents. In fact, the company operates in many countries, connecting traders with global exchange networks.
eToro can be used to trade nearly every financial asset class – currencies, stocks, bonds, cryptocurrencies, and more.
eToro is a social trading platform, which sets it apart from many competitors. One of their most popular features is Copy Trading. This feature allows you to follow professional investors, and automatically copy their trades in real-time.
eToro offers over 50 currency pairs to trade. Spreads are competitive, with an average of 1 pip on popular currency pairs. There is no account minimum (although there is a $200 minimum to use the Copy Trading feature).
There are also many beginner-friendly tools from this broker, including extensive learning resources, an intuitive interface, and the unique Copy Trader functionality. Plus, eToro has a demo account that you can use to test your trading strategies for free.
A low-cost broker with lightning-fast speeds and a wide variety of currency pairs
IG is one of the largest and most popular Forex brokers in the UK – and the world. The platform is popular among professional and casual traders alike.
IG is known for several things: A wide selection of currency pairs (90+), an exceptionally fast trading platform, and some of the lowest spreads in the industry (as low as 0.745 on popular pairs).
There is a £250.00 minimum deposit to get started. IG offers learning resources to new traders. The broker is fully licensed and regulated by the Financial Conduct Authority (FCA) and is a trusted partner for hundreds of thousands of traders worldwide.
The widest selection of currency pairs, and competitive spread pricing
CMC Markets is a popular choice, and for good reason. They offer one of the widest selections of currency pairs, with over 150 at the time of this writing. That’s more than double the selection of many peers.
Their spreads are also extremely competitive. For instance, the typical spread on the EUR/USD is just 0.74 pips. CMC also has rebate programs for high-volume traders.
Despite all its advanced features and tools for experienced investors, CMC Markets has no minimum deposit. Its award-winning Next Generation platform is easy to use, yet includes features that more experienced traders look for.
An intuitive platform with social trading features
Pepperstone is a popular broker with copy trading/social trading features. Many new traders prefer it because it makes trading simple.
Pepperstone has over 60 currency pairs. Spreads are a bit higher than average, at a typical 1.160 on popular pairs. However, Pepperstone has zero-commission trading.
Alternatively, high-volume traders can look into the Pepperstone “Razor” account type. This account does have a trading commission, however, spreads are much lower. Depending on your trading style, this may save you money in the long term.
Pepperstone has no minimum deposit amount, although they recommend a starting balance of at least £500.
Competitive spreads and choice of multiple trading platforms
City Index is a popular choice for sophisticated Forex traders. It offers the choice of two beginner-friendly apps (Web Trader and Advantage), as well as advanced trading platforms like MT4 and City Index’s own AT Pro platform.
City Index offers trading in 80+ currency pairs and features competitive spreads averaging around 1.1 pips on popular pairs.
With a low, £100 minimum deposit and beginner-friendly tools, City Index is suitable for casual traders. At the same time, it offers advanced trading features suitable for sophisticated traders.
Sophisticated Forex and CFD trading tools, plus access to other investible markets
Interactive Brokers is a large online broker operating in many countries, including the UK. They offer tools for trading CFDs, Forex currency pairs, stocks, ETFs, bonds, and more – all on the same platform.
Interactive Brokers has a sophisticated user interface that some beginners may find challenging to navigate. Their Trader Workstation platform has great tools for experienced traders but lacks a user-friendly design.
More than 100 currency pairs are available to trade, and spreads are competitive (although spreads aren’t published clearly). Interactive Brokers has a unique pricing structure that will likely be best suited to active traders.
See the full review of Interactive Brokers here.
Quality customer service and competitive spreads
XTB is a major Forex broker that is known for quality customer service and competitive spread pricing. They have an excellent reputation for customer care, whether the customer is a small casual trader or a sophisticated professional investor.
They offer fewer currency pairs than many competitors, with around 48 at the time of this writing. However, their spreads on the pairs they do offer are very low – as low as 0.86 pips.
XTB has a £250 minimum deposit. Users can trade on the proprietary xStation 5 platform, or on the full Metatrader 4 platform.
Useful tools for high-volume, active Forex traders
FXCM is a good option for very active Forex traders and those who trade large volumes of currencies.
Their basic account is a bit lackluster, with higher-than-average costs, and a lower-than-average selection of currency pairs (39 at the time of this writing).
Where the value of FXCM comes in is in their Active Trader account. This account style requires a £25,000 minimum deposit but offers much more competitive spreads and powerful trading tools.
Investors with FXCM can trade on several platforms, including MT4, ZuluTrade, NinjaTrader, and Trading Station.
A well-established platform with a good user experience
Forex.com is a large broker, operating in several countries. They are certainly not a discount broker, as their spreads are typically higher than many competitors. Average spreads are around 1.4 pips.
While it’s not the cheapest option, Forex.com offers a very user-friendly experience. They have a good mobile trading platform, extensive learning resources, and powerful tools for experienced investors.
Forex.com offers a wide variety of investment options. There are 90+ currency pairs available to trade, as well as CFDs, options, and even crypto CFDs in some countries.
A user-friendly platform offering both Meta Trader 4 and Meta Trader 5
FX Pro is a good choice for fans of the Meta Trader platform. It offers the full suite, with both MT4 and MT5 (most competitors only offer MT4). It also offers the CTrader platform.
For fans of these platforms, FXPro is a good choice. The downside is higher-than-average trading costs. The typical spread on popular pairs is around 1.5 pips.