Forex trading has become increasingly popular here in the UK. This is hardly surprising, given the UK’s foreign exchange average daily turnover stood at $3,217 billion as of October 2024, according to the Foreign Exchange Joint Standing Committee at the Bank of England’s Semi-Annual FX Turnover Survey. While this represents a 5% decrease compared to the April 2024 figures, the UK market remains the largest single national market by turnover globally.
However, with the numerous costs associated with trading, such as spreads, commissions, and various non-trading fees, it can be challenging for traders to maximise their profits. A growing number of FCA-regulated brokers are offering narrow spreads to UK traders, and below, you will find details on what to look out for when determining whether a broker’s costs are competitive.
Plus500
Pepperstone
Eightcap
CMC Markets
FxPro
IGBelow you can find more information about the best low cost trading platforms in the UK:
- Plus500, an FCA-authorised broker, charges no commissions on forex trading, offering fixed but competitive spreads. The broker imposes no additional charges on deposits and withdrawals and clearly lists all non-trading fees.
- Pepperstone, a broker licensed by the FCA, appeals to UK traders with its transparent pricing structure, free deposits and withdrawals, low spreads, and commissions of £2.25 per side, per standard lot. Another plus of trading here is the absence of inactivity fees.
- Eightcap, a UK-regulated broker, delivers low-cost trading, free deposits and withdrawals, commission-free forex trading, and spreads from 1 pip for major currency pairs. The broker charges no inactivity fees, which is yet another positive of trading here.
- CMC Markets, another broker compliant with FCA regulations, has a transparent pricing structure with no deposit or withdrawal fees, tight spreads, commission-free spread betting accounts, and low commissions of £9 for UK shares only with CFD and FX Active accounts.
- FxPro, an FCA-regulated brokerage, provides raw spreads for Raw+ MT5 and MT4 accounts, coupled with fixed commissions of $3.50 (or approximately £2.60) per side without any hidden charges. The broker charges infrequent traders with funded accounts a $10 (or approximately £7.40) monthly fee after 6 months of inactivity.
- IG, a broker operating under the FCA, offers transparent pricing, volume rebates, tight spreads, and free deposits and withdrawals.
Types of Fees and How to Identify Low-Cost UK-Friendly Brokers
When navigating the UK forex market, understanding the various types of fees is crucial for identifying low-cost brokers. The different charges associated with forex trading include spreads, commissions, and overnight financing rates, among others. To pinpoint low-cost UK-friendly brokers, one must examine their pricing models and fee structures.
It is also recommended that cost-conscious traders stick to brokers that are licensed by the local financial regulator, FCA (Financial Conduct Authority). This ensures a level of transparency when it comes to trading costs, making it easier to evaluate the fee structures of brokers and avoid unexpected charges.
The Spread
Narrow spreads serve as a key indicator of a low-cost broker, representing the difference between the buying and selling prices of a currency pair. They are typically measured in pips, which are the smallest units of price movement in a currency pair. A pip is usually equal to 0.0001 of the currency pair’s value. For example, if the buying price of the GBP/USD pair is 1.1000 and the selling price is 1.1005, the spread would be 0.0005 or 5 pips. UK-friendly brokers may offer fixed or variable spreads, depending on their pricing model.
The spread will vary from pair to pair, with majors typically having narrower spreads compared to minors and exotics. The GBP/USD pair offers some of the narrowest spreads in forex trading. Often, zero-commission accounts will advertise GBP/USD spreads that hover around or under 1 pip on average. Still, if you are seeking even lower spreads, the fee structure covered in the following section offers just that.
Low Spread Forex Brokers
Trading Commissions
Commissions are typically calculated as a percentage of your position’s value or as a fixed amount per lot. For example, a broker may charge a commission of £5 per lot or 0.1% of the trade’s value. The commission is usually deducted from the trader’s account balance as soon as they place an order. As mentioned above, some brokers may offer spread-only trading, but this often comes with wider spreads to compensate for the absence of a commission.
It is crucial to remember that, in most cases, a commission-based fee structure will result in lower overall costs. Let us examine a fictional UK-friendly broker whose average GBP/USD spread is 0.9 pips. Respectively, the cost per standard lot will equal 0.00009 x 100,000 = $9, or £6.89 when using a sterling-denominated account. The same pair has an average spread of 0.3 pips with the zero-spread option, and a commission of £3.5 per side applies. Spread-related costs will amount to $3, or around £2.30 with a GBP-denominated account, for overall expenses of £5.80 (£3.50 + £2.30).
Overnight Fees
Forex overnight fees, also known as swap or rollover fees, are charges incurred by traders for holding positions overnight. These apply when a trader keeps a position open past the market’s closing time. The fee is calculated based on the interest rate differential between the two currencies in the pair being traded. In essence, the trader is borrowing one currency to buy another, and the overnight fee is the cost of this borrowing.
Swap fees can be positive or negative, which is to say you could either earn or pay interest depending on market movements. As one might imagine, overnight fees can significantly impact a trader’s profitability, especially for those who hold positions for extended periods.
Non-Trading Fees
There are various non-trading costs that can significantly impact your overall expenses. For example, there may be fees when you deposit or withdraw funds from your live trading account. These fees can vary depending on the broker and the payment method used and may be charged at a flat rate or a percentage of the transaction amount. Some brokers have chosen to forgo deposit or withdrawal fees entirely, making them exceptionally enticing to traders.
Additionally, traders may incur currency conversion fees when exchanging funds between different currencies. This can occur when depositing or withdrawing funds or when trading in a currency that is different from the account’s base currency. These fees can add up quickly, especially for users who conduct numerous trades on a daily basis, making it important to avoid brokers whose conversion costs are high.
Another cost to consider is the inactivity fee, which applies when a trading account is dormant for an extended period. Brokers may charge a flat rate or a percentage of the account balance. We should also stress that, typically, accounts are deemed inactive after 3 to 12 months without any trading or deposit activity, depending on the broker’s policy. For those who choose to partake in copy trading, a performance fee will typically be charged. This fee will vary based on the broker and the signal provider the client is copying.
Is Forex Trading Taxed in the UK?
In the United Kingdom, the taxation of forex trading profits depends on how you trade. Forex trading is generally tax-free for the majority of UK residents utilising spread betting accounts. This exemption applies to both Capital Gains Tax (CGT) and Stamp Duty, allowing retail traders to retain 100% of their profits.
Alternatively, speculating on forex prices with contracts for difference (CFDs) is subject to a different price structure. While CFD trading is still exempt from Stamp Duty, the profits may be subject to capital gains taxes. The applicable rate depends on the trader’s income tax bracket. Basic rate taxpayers face a 10% rate, while those in higher income tax brackets are liable for rates of up to 20%. Notably, the initial £1,000 in profit is tax-free for forex trading conducted as a secondary income source.
Low-Cost Trading With Leverage in the UK
Leverage enables traders to control substantial market positions with minimal capital. UK brokers provide this by lending funds, which can amplify both your potential profits and losses. While leverage allows placing larger orders with a smaller capital overlay, traders must acknowledge the increased risk of suffering huge financial losses.
The Financial Conduct Authority (FCA) restricts leverage limits for retail traders in the UK to protect them against excessive risk. Retail customers can use maximum leverage of 1:30 for major and 1:20 for minor and exotic pairs. By contrast, professional traders have access to significantly higher ratios of 1:200, 1:400, or even 1:500 at some brokers.
FAQs
What are the typical deposit and withdrawal methods offered by UK forex brokers?
UK brokers provide various deposit and withdrawal options, including bank transfers, credit/debit cards, and e-wallets like PayPal and Skrill. Traders should check the potential transaction fees and processing times with their chosen broker.
How do UK brokers handle client fund segregation?
FCA-regulated brokers must segregate client funds from their own operational capital. This ensures that client money remains protected in case of broker insolvency. It also prevents unethical brokers from misusing the funds of their customers to cover their operating expenses.
What educational resources do UK brokers typically offer to new traders?
Many UK brokers provide educational materials, such as webinars, free video tutorials, e-books, and demo accounts, to help new traders understand the forex market and the various trading strategies.
Are there any specific risk management tools that UK brokers offer?
UK brokers frequently offer risk management tools like stop-loss orders, take-profit orders, and trailing stops. These tools help traders limit potential losses and manage their positions effectively. All FCA licensees must provide negative balance protection to retail traders to prevent them from running up debt.
How can I verify that a UK forex broker is regulated by the FCA?
Traders can verify a broker’s FCA registration by checking the Financial Services Register on the FCA’s official website. This register provides information on authorised firms and their current regulatory status. You can even see what disciplinary actions, if any, the regulator has taken against a broker you are interested in.