If you reside in the U.K. and are looking for the best forex brokers that accept traders in the country for 2018, you have come to the right place. In this post, we will discuss the various aspects you need to take into consideration when choosing the best forex broker as a trader in the U.K. However, the first thing that you have to do is to have a clear idea as to what you expect to achieve through forex trading and what type of a trader you are in terms of risk-taking.
After the global credit crunch of 2008, many brokers have shut shop and the number of new brokers setting up businesses has also declined drastically. Online forex broking is a very competitive industry and only the fittest can sustain their business for a long time. Though this means that only the established brokers are available in the market now, you need to do due diligence in order to ensure you are working with the right one.
The aim of doing due diligence is to ensure that the brokers you want to work with are complying with certain set criteria. The first and foremost thing you should ensure is that the broker is trustworthy. In addition, the platform provided by the broker should be reliable and the trading cost (spreads and commissions) must be reasonable. Further, the broker should be offering different account types, responsive customer support, and value-added services.
- Forex Regulation in the UK
U.K. based traders must look for brokers that are regulated by the Financial Conduct Authority or FCA. This is an independent body set up by the government and they fund their operations by way of the fee collected from members whose operations they oversee.
Brokers operating within the FCA’s jurisdiction and are regulated by the agency must have a minimum of GBP1 million in operating capital. The capital requirement to be complied with by the broker increases as they acquire more and more customers. Additionally, FCA regulated brokers must:
• Process all requests for withdrawal instantaneously
• Submit audited financial reports annually to the agency for scrutiny
• Submit financial statements with respect to capital holdings periodically to ensure that they are in compliance with the capital adequacy ratio
When you trade with an FCA regulated forex broker, your trading funds are protected under the Financial Services Compensation Scheme (FSCS). All brokerage firms that want to operate under the supervision of FCA are required to become FSCS members. This scheme aims to provide compensation to traders if the broker they are working with happens to run into insolvency problems. Under the scheme, U.K. traders are provided with a guaranteed protection of up to GBP 50,000. Once liquidated, traders get back 100 percent of their funds subject to a maximum of GBP 30,000. If a trader’s investment is more than GBP 30,000, then the trader will receive up to 90 percent of their investment.
- Software and Trading Platform
The trading platform offered by the brokers is another important aspect that has to be evaluated by you. Most brokers often provide different types of platforms so that you can choose one that is best suited to you. These include desktop and/or web-based applications, and mobile apps. They may be proprietary platforms or third-party trading solutions such as the most popular MetaTrader 4 platform developed by MetaQuotes Software. Actually, you should evaluate the broker’s trading platform for ease of use, execution speed, charts quality, technical indicators, risk management tools, and social trading capability.
- Commissions, Spreads, and Leverage
The next step is to consider the trading cost which can be in the form of commissions or spreads or both.
Some brokers choose the No Dealing Desk (NDD) business model to conduct their operations. Such brokers send your orders to the Interbank market to find the right match. For providing this type of service, the brokers generally charge a commission in addition to the spreads payable by you to the Interbank market. Typically, the commission is a small percentage of your trading volume.
Unlike the equity market, most forex brokers generally do not charge any commissions on trades executed by traders. Instead, they make money through spreads. It is the difference between ask and bid prices. The spread is different for each currency pair. Typically, it is just about 5 pips for the currency pairs that are traded more frequently. Some brokers offer fixed spreads, while some others offer variable spreads. While fixed spreads remain the same even if the market conditions change, variable spreads change when the market conditions change.
The leverage offered by the broker is another important aspect to be checked. The leverage refers the capital you can loan from your broker to enhance your position. Leverage has to be employed with great caution. Leverage enables you to increase your profits multi-fold, but it can magnify your losses too.
- Types of Accounts
Different brokers offer different types of accounts. Beginner friendly brokers offer micro and mini accounts, allowing small traders to invest a lesser amount of money than standard account holders who invest 100K units of currency. While a micro account allows you to invest 1K units of currency, a mini account trade in 10K units of currency. Additionally, the minimum deposit required to start trading, privileges, and benefits vary from one account to another. Choose a broker that offers accounts that are suitable for you.
- Customer Service
This is one aspect that should definitely be a part of your due diligence. You may be a very experienced trader, but you will need the support the customer service team for various reasons. If the customer support team of the broker is not responsive enough, you could even lose money in trades.
- Other Services
Finally, you must also check out as to what additional value-added services they provide. The value-added services provided by brokers include free trading signals, free VPN, comprehensive trading education, and robot trading services, among others.
In conclusion, it is important to remember that you are only as good as your broker. It is, therefore, important that you choose the best and regulated forex broker that accepts UK traders to work with.
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