Best forex broker UK
Forex is one of the world’s biggest retail trading markets, having a £4.8 million turnover on every trading day, with the UK generating over 43% of that. As you can see it’s a big business, with appeal for retail traders.
To become a Forex trader, you first need to secure the services of a broker, who will act as an intermediary between you and the Forex markets. There is certainly no shortage of Forex brokers who service UK clients, but how do you choose the right one?
Things we will cover in this guide:
- A few things you need to know about Forex
- Some important information about currency pairs
- What you should be looking for in a good broker
What is forex?
The term Forex is an abbreviation of ‘foreign exchange’, which you will also see further shortened to FX. In the Forex market, there are always two currencies in every trade, with one currency being relative to the other.
In a bid (sell) trade, you are buying the opposing currency and if you enter an ask (buy) trade you are selling the opposing currency. From the prices quoted for the two currencies, you can calculate the spread difference in price, which is defined by a pip value and the resulting figure is your trading profit or loss.
For ease of use currency pairs are always represented using three letters, so if you trade GBP/USD the two currencies are £ sterling and US dollars. Every Forex pair has a ‘base’ and a ’quote’, so in this example, GBP is the base currency and USD is the quote currency.
EUR (Euro), US dollar (USD), £ sterling (GBP), Japanese yen (JPY), Australian dollar (AUD), and Swiss franc (CHF). Currency pairs also have different levels of importance and are categorised into three groups: Major, Minor and Exotic.
Major pairs: Major currency pairs always include USD. There is no definitive list, but these four pairs are always considered to be major pairs and every Forex broker will list them:
- EUR/USD (Euro – US dollar)
- USD/JPY (US dollar – Japanese yen)
- GBP/USD (£ sterling – US dollar)
- AUD/USD (Australian dollar – US dollar)
Minor pairs: Minor currency pairs do not include USD and usually include another Major currency, most commonly EUR or GBP, but not always.
Exotic pairs: Exotic pairs consist of one less mainstream currency paired with a Major currency, usually USD, EUR or GBP. Not all Forex brokers offer exotics and of those who do, the spreads on offer often make them untenable for the average retail trader.
What currency pairs should I trade?
The best way for you to decide is to spend some time analysing various currency pairs and assess which are the most likely match for your level of experience and your trading strategy
Many beginners opt to trade EUR/USD or trade GBP/USD which is undoubtedly two of the most popular Forex pairs and is always available on all four of the major Forex markets. Another good reason is that it’s not overly volatile so your risk exposure is more easily controlled.
Pips – if you trade Forex, you need to know your pips
A pip is the smallest price movement recorded in Forex, representing a unit that equates to 1/1000th of a currency, or 0.0001. Whenever you see a Forex quote, it will be represented in a decimal format, with either four or five numbers after the decimal point. The fourth number represents whole pips and the fifth is a fraction of a pip. A single pip, therefore, has a value of 0.0001, which is 1/100th of 1%.
The one exception is the Japanese yen. Because the yen is a very low-value currency (approximately 100 JPY to $1) Forex price quotes only go to two decimal points, rather than the standard four. So if you trade USD/JPY, you will see the prices quoted slightly differently where the second number after the decimal point is used. Fo this reason, the yen has a value of 0.01 or 1/100th of 1% rather than the usual 1/1000th depicted for all other currencies.
Calculating the spread – profit or loss, this is the way to work it out
Once you understand pips, it is then really easy for you to calculate the spread, which is the difference between the buy (ask) price and the sell (bid) price:
Ask price – Bid price = Spread
The smaller the difference in pips, the better the trade is considered in the Forex marketplace.
Charts – you need to get familiar with your candlesticks
Most Forex traders rely heavily on technical analysis, which is done by studying charts, so it is essential that you are fully conversant with their use. The most commonly used type is the Candlestick chart, which provides the maximum information in a visual way and lends itself to using a variety of advanced indicator techniques you can use to further define your trading strategy.
Keep in mind that forex futures are a slightly different way of trading in foreign currencies. They are always represented by showing the value of a given foreign currency expressed in USD. Effectively you are entering a contract to predict the value at a specified future date.
Futures are a little bit more of a niche market, so if this is something you may be interested in, then you need to find a Forex broker, UK licensed preferably, that specialises in them.
Choosing a forex broker UK
You cannot fail to be aware that Forex has had some very bad press since it first became available to retail traders, some of which was caused by unscrupulous brokers allowing traders to over-extend financially.
That is just one reason why it is really important for you to choose a broker that has a reputation for security, reliability and adherence to the guidelines of a robust regulatory authority, amongst other things.
Licensing – only the best is good enough
When you are looking for the best Forex broker, UK licensing should be your first priority. Look for a broker that is licensed and regulated by the FCA (Financial Conduct Authority) which is a Tier-1 regulator and is considered one of the best in the world.
Not only will you be reassured that your broker is kept under stringent scrutiny, at the insistence of the FCA, your capital is also protected under the terms of the Financial Services Compensation Scheme (FSCS).
Platform – you must feel confident using your chosen platform
Although your choice of platform may be confined to what a broker has available, if you are new to Forex trading then take every opportunity to try out different platforms before you commit. Most brokers offer free demo opportunities to clients, which is a great chance for you to ‘try before you buy’ so to speak.
In fairness, many experienced Forex traders use the MetaTrader MT4 platform, which was purpose-made for the retail Forex market. An estimated 54% of all retail Forex trades are made using this platform, it is available for any device and can be customised according to your needs and trading strategy.
Fees – a good Forex broker will have a fully transparent fee structure
There is a great deal of competitiveness between Forex brokers, which is all good from your perspective as a client. You won’t need to look too far to find a broker that does not charge fees to traders, as the majority of Forex brokers make their profits purely from the spread.
Nobody wants to find out about extra costs that were conveniently hidden away in the depths of a broker’s terms and conditions, so a broker that provides a transparent fee structure, which is available to view before you sign up, is the ideal.
Support and trading hours
Forex markets around the world are open 24 hours a day, Monday to Friday:
- London: 08.00 – 17.00 GMT
- New York: 13.00 – 22.00 GMT
- Sydney: 22.00 – 07.00 GMT
- Tokyo: 00.00 – 09.00 GMT
Naturally, if you are able to trade 24 hours per day, you need a broker that is able to offer support throughout the entirety of the market opening times. Forex brokers, UK based ones that are, are sometimes only available for London market times, plus an hour on either side, which is no use if you want to trade globally.
Otherwise, think of customer support as all-around help, not just a complaint mechanism when all else fails. A good broker will have plenty of information available on its website to help clients, like FAQs and a transparent fee policy.
If you are new to trading it’s also certainly worth checking if your broker has any learning materials you can use, as well as a free, unlimited demo platform as well.
The more you understand foreign exchange and world currencies, the easier you will find it to make good Forex trading choices. Finding a reliable, licensed broker and a platform that you feel happy and confident working on will help you even more. We hope that this very brief guide to Forex will give you something to aim for when you begin your search for a suitable broker to trade with and the best assets to opt for.
Best forex broker FAQs
There are a vast number of brokers offering Forex to UK traders. However, not all of these operations are quite as legit as others. If you read our guide to choosing a Forex broker UK, we will show you exactly what you need to look for in a broker, along with some useful Forex facts.
It is possible to start trading on the Forex markets with a relatively small amount of capital, although most brokers have a minimum deposit requirement, which can vary considerably. Want to know more about how to get started, or how to choose a broker? Then head over to our site, where you can also read numerous in-depth reviews of top UK Forex brokers.
There really is no single currency pair that can be defined as the ‘best’ one to trade. If you go to Nextmarkets and read our Forex guides, you will find lots of information about different types of Forex pairs and how to include them in your trading strategy.