Is Forex trading legal in the UK? It seems a little question for those who want to make sure before starting this journey.
Just like other countries, the UK allows Forex traders and brokers to earn money. It is interesting to discuss whether it is safe for us to trade abroad, or whether we should choose a local broker.
In this article, we will discuss whether it is legal for a UK citizen to trade Forex and CFDs, and what to do once they make profits. It would be a shame to put so much effort into trading and not being able to access profits for not doing the proper research.
What is Forex Trading (UK)?
What is forex trading? Forex trading, also known as foreign exchange, is basically the process of converting from one currency to another with the purpose of gaining a profit with the difference in prices. It is one of the most traded markets in the world with a daily trading volume of $5 trillion.
So, as a trader, you are constantly exchanging from one currency to another. It involves constant analysis of markets around the world. That's why graphic analysis and news media are part of any trader's daily routine.
Depending on the market and economy of the country they can be more or less volatile, that's what makes the Forex market so attractive. Bringing a greater chance of high profits.
Why would you doubt its legality?
The forex market is the most significant in the world, without a doubt, it is an industry that provides opportunities for traders all over the world to make money and even start their own successful business through trading.
Therefore, like many other activities involving money, primarily digitally, forex trading is surrounded by some myths and false impressions. Several people around the world are reluctant to get involved in forex trading.
Because they believe that it is gambling and it is prohibited in their country; however, in my opinion, forex trading is not gambling, and yes, it is not available in other countries, but in most, it is allowed.
Individuals can legally trade forex in all countries where legal entities, as well as individuals, are permitted to own currency accounts, currency purchases at bank exchange offices, and so on.
Moreover, forex traders also use forex for international investments, export and import operations, and several other essential activities.
Is Forex Trading Legal in the UK?
For a Forex broker or Forex trader, the UK is an ideal place in the United Kingdom. It has always known for its strict policies and trustworthy companies.
It provides traders with the most exquisite trading products and services that are still the most up-to-date, relevant. The financial market in the UK shows off new regulatory guidelines for those who are well familiar with Forex trading.
These guidelines are, most of the time, tailor-made for the professional Forex traders.
The main problem with trading in the UK is that it has been around for a long time. In comparison with many other European countries such as Spain, where not that many people are familiarized with trading forex online.
What usually happens when something has been around for long? That some not-so-desirable people have also found ways to make money by taking advantage of others, that is why choosing a reliable broker and knowing what is legal and what is not, helps.
Choosing the wrong broker can hijack your plan before starting.
While choosing any broker, going for a broker with the FCA regulation tends to be the best choice. Even though that means that your trading flexibility might take a hit, you usually benefit from other advantages.
Forex trading is entirely legal in the UK as these regulatory and judicial conditions are the reasons that UK forex brokers have been at the head of the queue.
When it comes to customer services, helping traders make a profit at the day end, and dedication to keep transactions secure UK fx brokers are the best.
Some of them have insurance with banks that will protect your funds in case the broker goes bankrupt. Very complicated to happen as the FCA has a minimum regulatory amount that the broker needs to keep in their account at all times.
Forex trading Taxation in the UK
You might be wondering, is forex trading tax free? well it depends. When it comes to forex trading tax UK, you should know what are your responsibilities under the UK income tax law. And since it haves a lot of freedom as an income method, there are factors you should take into consideration.
Firstly know that the tax year goes from April 6 in the current year to April 5 next year, and the personal allowance on income that is not subject to taxation is £12.500.
Secondly, even if the forex trading tax in the UK is one of the most trader friendly taxation systems. You need to take into account your own category.
What category do you belong to in the eyes of the Tax department?
When opening an account with a forex broker, your forex trading profits will get analyzed in 3 main categories in the UK
- Private Investor
In this case, your earnings or losses will get taxed according to the capital gains imposing regime.
- Self-employed trader
As an independent trader, you will be taxed just like any other self-employed individual in the UK. Any self-employed who is liable to pay business taxes.
In the UK, forex, spread betting, and CFDs fall in the risky category because there is no underlying owned asset. Therefore, these derivatives dodge Capital Gains Tax, and the HMRC sees the profits from these as tax-free until you surpass the threshold.
The tax laws on forex trading in the UK are a lot more flexible than in most countries. At present, there are no taxes on spread betting profits.
Moreover, several forex brokers offer regular accounts as well as forex demo accounts with the spread betting structure.
Therefore with this spread betting structure, you can successfully trade the forex market and not have to pay taxes.
The capital gains tax allowance in the UK for the years of 2019-20 is £12,000, which increased from the £11,700 available in 2018-19. Is the amount of profit you can make from an asset this tax year before any tax is payable.
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What is the FCA? The Financial Conduct Authority
When anybody participates in the Forex trading market, it is essential to have the question 'is forex trading Legal in Uk?' answered.
Nevertheless, anyone who is interested in forex trading needs to be aware of the customs and laws that control the right trading procedures. There are three leading institutions and agencies in the UK.
These institutions make sure traders will get provided with fair conditions, and their funds will not be subject to scams.
In the UK, the most vital regulatory body in charge of regulating Forex brokers is the FCA, Financial Conduct Authority.
This agency is independent of other organizational entities. It also assigned to managing the legality of all UK companies as well as individual investors who contribute to Forex trading.
The FCA works in the interest of its consumers. It can control a trader's loss based on their capacity by placing a leverage limit on forex trading.
Every Broker that is regulated by FCA is compliant with stringent UK regulations. In the event of any consumer abuse, or the occurrence of fraud, the Financial Conduct Authority has to conduct an inquiry, then investigate accordingly.
Here is a list of the Forex trading brokers who get regulated with FCA.
- City Index
- CMC Markets
- Saxo Bank
- Forex Time
- FX Choice
This list is just a brief overview of the Forex brokers, which are regulated by the FCA. If we randomly pick up UFX or Pepperstone, we cannot say that one broker is better than the other.
Bonus facts you might be interested in:
- Is Forex Tax Free in USA? Forex taxes applies to U.S. traders only with the US brokerage firms. Foreign investors that are not residents or citizens of the United States of America do not have to pay taxes on foreign exchange profits.
- Which countries are tax free for forex trading?, if you are looking for the best country to trade, you need to find a country with zero capital gains tax, some of them are the following:
- Cayman Islands
- New Zealand
- Hong Kong
- The Bahamas
- The British Virgin Islands
Final Thoughts about forex trading
So, do you have to pay tax on forex trading uk? yes, but it depends. Now you know the rules of the game and can start making your moves.
However, Forex trading is not an easy venture, and it requires time, effort, patience, and consistency, to name a few. The Forex trading market is unpredictable because even experts can lose money, and even beginners can make profits.
Now you know who to choose and what to do with your earnings. If you want to learn more about how to earn an income with forex. Read the short guide about Forex Trading.
Just like any health-related recommendations, we always advise you to ask a tax accountant if you have more doubts about your specific case. It is better to play the rules correctly from the beginning so you don't compromise your long-term success.
Is forex trading legal in the UK? YES, IT IS.
What broker do you prefer the most and why?
Let us know in the comments down below.