Top UK Brokers for Currency Traders

The UK is one of the largest forex markets accounting for over 40% of global FX trading volume.  Although emerging markets have expanded their share of the forex trading volume in recent years, the UK is unlikely to forfeit its top position any time soon.

London has been an important center of global finance for centuries and is the birthplace of modern capital markets.  The financial services industry in the UK contributes over £65 billion of tax revenue and employs over 2 million people.

Best Online FX Brokers in the United Kingdom

Who Regulates Forex Trading in the UK?

Retail Forex Trading is regulated by the Financial Conduct Authority (FCA) in the United Kingdom. The FCA was established under the Financial Services Act of 2012 and replaced the Financial Services Authority.

The FCA is charged with regulating, supervising, investigating, and enforcement with respect to Great Britain’s financial markets and covers over 56,000 businesses.  It’s objectives including making the financial markets “honest, fair and effective” for all participants including small investors.  It is an independent government body that is fully funded by fees collected from companies it regulates.

What is the Financial Services Compensation Scheme?

The FCA requires its regulated forex brokers to contribute to the Financial Services Compensation Scheme.  It covers individual investors for up to GBP 50,000 of losses resulting from investment firms in default.  This is significantly higher coverage than, for example, CYSEC regulated brokers, which only cover the first EUR 20,000 of investment losses.

What changes has the FCA proposed in re Forex Regulation in 2017?

In light of increasing strict forex regulation in various European countries involving marketing, leverage and bonus incentives, the FCA has also begun to revisit regulation of the retail forex industry.

In a consultation paper released in December 2016, the FCA has proposed a leverage cap of 50:1 for experienced traders and a maximum of 25:1 for traders with less than 12 months of experience. They feel traders using high leverage tend to have to early closeouts of losing trades from small market fluctuations where lower leverage traders can sustain greater market volatility. The FCA believes the proposed leverage caps will reduce trader losses by 20-40%.

They are also considering a restriction on bonus promotions. Some of the problems the FCA has identified with bonus incentives are broker hopping, volume conditions on bonuses leading to excessive trading, and unclear bonus withdrawal conditions.

Why are non-FCA regulated Forex Brokers allowed to operate in the UK?

Non-FCA regulated brokers are permitted to solicit UK forex traders because of EU legislation known as MiFID (Markets in Financial Instruments Directive).  MiFID has been in force since 2007 and was created with the goal of increasing the competitiveness of European financial markets.  It involves a certain degree of harmonization of financial regulatory standards across all European Union member countries.

One key feature of MiFID is it allows for “regulatory passporting” across the European Economic Area (EEA).  This helps decrease the regulatory and compliance burdens of operating in multiple European countries.  This means, for illustration, Cyprus based CYSEC regulated firms can legally operate in the UK without a license from the FCA under MiFID.

While FCA and CYSEC regulations must meet MiFID standards, they are not the same.  Thus, brokers naturally tend to choose to get licensed in European countries with less onerous regulation, lower capital requirements, and lower taxes.

Implications of Brexit on Forex Regulation in the UK?

At the time of writing, it is not clear what impact Brexit will have in terms of regulatory passporting.  This will depend on the exit deal negotiated between the EU and the UK.  If the UK does not retain EEA membership, UK based forex brokers will need to open a European subsidiary to continue servicing EU clients.  Likewise, Cyprus based forex brokers would need to open an FCA regulated UK subsidiary to reach UK forex traders.

UK Forex Summary