Forex Trading in the UK - A Full Beginner’s Guide

Is Forex Trading Legal in the UK?

Yes. Forex trading is completely legal and regulated in the UK. In fact, the UK forex trading volume is among the highest in the world.

The Financial Conduct Authority (FCA) is in charge of overseeing forex brokers and monitoring their activities. Accordingly, all professional brokers must register and obtain a license from the FCA to operate.

However, traders take note. Even though the forex market is regulated, many brokers still try to take advantage of inexperienced traders. Scammers and fraudulent operators often target forex beginners. That’s why UK residents should always trade with brokers that are FCA-regulated. This ensures that the broker adheres to strict financial standards and reports their activities as required.

For example, in the UK, brokers are required to report any changes to their terms of service. They must also undergo regular audits. Transparency measures help protect traders from losing their funds to malicious or incompetent brokers.

How to Begin to Trade Forex in the UK? A Step-by-Step Guide

It’s simple to set up a UK-based forex account and start trading. Follow these steps, and you’ll be trading in no time.

Step 1. Choose an FCA-Regulated Forex Broker

There are many forex brokers on the market competing for your attention, which can make it challenging to select the right one. However, the most crucial aspect of choosing a forex broker is ensuring that it is FCA-regulated. If not, you risk losing your funds to mismanagement or theft.

Another thing to consider is the size of the commission. If the broker takes a high percentage from each trade, are they providing outstanding service in return? Most beginners should choose a platform with low fees. This will help you maximize your earnings.

Finally, take a look at the possibilities for earning passive income. Copy-trading, or pooled money trading (PAMM), are two common strategies for earning passive income. Both rely on qualified traders to generate profits for others.

Step 2. Try Demo

You should always try out the platform before opening an account. Most platforms offer free demo accounts or paper trading accounts to allow potential users to get a feel for the interface. The user experience should be smooth and easy to understand. Suppose the platform doesn’t match the level of complexity or simplicity for your needs. In that case, you may need to search for another option.

Step 3. Think About Your Trading Strategy

If you don’t approach forex trading with a set plan, you’re basically gambling. True, it’s impossible to predict precisely how the market will move. But you can still influence your outcome positively if you have a sound approach.

For beginners, you should first experiment with low-activity trend strategies. Don’t attempt a high trading volume or conduct high leverage trades until you gain more experience. After all, the best trading skill is risk management. If you can manage your risk tolerance appropriately, you have a better chance of success as a trader.

Step 4. Explore Passive Income Options

Specific strategies can help beginner traders earn passive income even if they don’t have much trading experience.

For instance, copy trading allows you to copy the actions of professional traders with a proven track record of making profitable trades. This popular social trading strategy encourages traders to learn from their peers and share trading techniques.

Another type of passive income strategy is the percentage allocation management module (PAMM). It sounds complicated, but it’s essentially a pool of money managed by a qualified trader/money manager.

The performance of funds that you allocate to the pool of your choice depends on your chosen money manager's skill, experience, and good fortune. While there is still a risk that you could lose funds if the pool performs poorly, it’s also a passive way to potentially earn profit.

Step 5 Learn, Learn, Learn

If you want to be a successful trader, the best advice is to always keep learning. If you approach trading with the right mindset, you’ll continue to improve over time by recognizing the right signals and executing more efficient trades.

Be patient, learn from your mistakes, and don’t let your emotions get the best of you. Set your targets and recognize when you’ve extended yourself beyond your budget. Traders who fail to continue learning have a higher chance of failure.

Do I Pay Forex Taxes in the UK?

The UK is one of the most trader-friendly places regarding forex taxation. Still, you may be liable for taxes depending on the type of trader you are and what kind of trades you carry out.

Always consult a tax professional before proceeding with any tax-related decisions. However, you can ask yourself the following questions to determine the general category you fall into.

Are you a part-time or full-time trader?

If you only trade part-time, your earnings from spread betting are considered secondary income. In this case, you don’t need to pay taxes on your earnings.

If trading is your primary source of income, then it’s considered a business activity. In this case, you’ll be liable to pay taxes on either your income or capital gains.

What type of instruments are you trading?

If you’re engaging in spread betting – where you’re betting on the direction of a price – then it’s considered a form of gambling or speculation. This type of forex trading is free of capital gains tax.

But suppose you trade in contract for differences (CFDs). In that case, you are subject to capital gains tax on any profits from your trading activities. For the basic rate tax bracket (£12,571 to £50,270), the capital gains tax rate is 10%.