Forex trading has become an extremely popular occupation in the UK in recent years. Share trading and investing has always been popular here but now forex trading is booming as well. So how can traders from the UK actually trade the forex markets?
Well there are three main ways you can trade currencies. The first one is quite simply through a traditional forex broker. If you browse the internet you will find endless numbers of forex brokers eager for you to open an account with them. They will entice you in with promotional offers and possibly the promise of narrow spreads, but I don't personally believe that forex brokers are necessarily the right route to take if you want to trade forex.
The reason why I say this is simply because if you are based in the UK and trade through a traditional forex broker then you are liable to pay tax on any profits you make. However if you use one of the other two methods I'm about to discuss, then any gains you may make are completely tax free.
The first of the these two methods is not one I would personally recommend but you can actually bet on the movements of the major currency pairs through a small number of online bookmakers. These sites run a number of different markets and some of them include currencies so if you want to speculate on the price of a particular pair in the near future or at 12.00 or the closing bell, which are popular markets, then you can do so through the online bookies which will either quote prices in the traditional manner using fractions or decimal odds, or through the use of binary bets.
This option is great for the casual punter who fancies the occasional bet on currencies every so often, but ultimately it is essentially gambling and not the preferred choice for a professional trader. Also if you manage to fleece the bookies making several winning bets, then there is always the chance that they will suspend your account or limit your bets to really small amounts.
There is a much better option if you are serious about forex trading and that's spread betting. This is just like betting through a bookmaker in that any gains are tax-free but it is better suited to the professional trader. You don't need to worry too much about your account being closed if you do well because the company can always place a corresponding trade every time you place your trade.
These professional spread betting companies are tightly regulated and are an excellent alternative to a traditional forex broker. Most of these companies provide professional charting software like most forex brokers and the spreads are just as competitive if not more so than a lot of brokers. Plus all of your gains are tax-free.
So to sum up, if you are a UK-based forex trader you basically have three main options if you want to trade the forex markets. You can either go through a conventional broker or you can choose the tax-free options of using either a bookmaker that offers financial betting or one of the many spread betting companies.
Why Forex Traders in the UK Have a Big Advantage
Nowadays people from all over the world can open an account with a forex broker and start trading the forex markets. However in my opinion it is those traders who are based in the UK that have an advantage over those traders from the rest of the world.
Why is this? Well there are a couple of reasons why this is the case. The first reason is because in my experience the opening hours of the London session is the most profitable period of the day (by far). I've been trading for a number of years now and have come to realise that if you're trading one of the major pairs, particularly the British and European-based currency pairs such as the GBP/USD and the EUR/USD, then this is the most productive period to trade.
In the morning session (UK time) the major currencies tend to trend strongly in one direction over the shorter time frames so making money from these trends is a lot easier. Furthermore there are far less distractions because apart from the occasional UK or European news release, there are few economic data releases to move the markets, so you can concentrate fully on technical analysis.
Therefore because this session is arguably the most profitable, it is those forex traders, ie those based in the UK (and indeed Europe) who benefit the most because this period is a very convenient time to trade. Unfortunately it is not so convenient for US-based traders, for instance, to trade the opening hours of the London session because it is the middle of the night for them.
The other main reason why UK traders have an advantage is because not only can they open an account with a conventional forex broker, like everyone else, but they can also make use of spread betting as an alternative trading vehicle. This is much the same as trading through a broker except for one key difference. Any gains made from forex trading through spreadbetting is completely tax-free (at the time of writing, future tax laws may change). Therefore forex traders in the UK can make as much money as they want from forex trading, even if it's their full-time job, safe in the knowledge that not a penny of those gains will be going to the tax man.
So as you can see UK traders are definitely at an advantage when it comes to forex trading because they have the option of trading tax-free and can trade the highly profitable opening hours of the London trading session.
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