Despite several macro-economic setbacks, there is no sign of slow down in forex demand in the UK. A survey by the Bank for International Settlements (BIS) found that forex demand in London went up by around 30 percent in the three years since the Brexit vote.
London is positioning itself as the financial services hub, but the stringent conditions of Brexit brought massive regulatory changes for the companies. Retail forex brokers, which have to obtain a license from the city’s Financial Conduct Authority (FCA), suffered the most as they were running European operations as well by the passporting their UK license.
Europe-based brokers, which did not obtain an FCA license, also had to suspend their regular operations in the UK. But, the regulators in both jurisdictions allowed a temporary period to operate under some strict conditions to avoid any sudden disruption in their business.
Ben Clark, Devexpert’s VP of Business Development
“I believe that the City of London’s financial services took a large impact from Brexit as they were pretty much left out of the trade deal the UK and EU agreed in 2020. So in 2021, when the rules took effect, British operators took the hit straight away. That being said one of the areas that London is still dominant in is Foreign exchange and derivatives. And the Mass exodus of companies that was predicted never materialized,” Ben Clark, Devexpert’s VP of Business Development, told Finance Magnates.
Forex CFDs
In the retail market, forex derivatives are traded with contracts for differences (CFDs) instruments. These speculative instruments are also available for other asset classes, including equities and commodities.
According to data from Trading Authority, around 560,000 customers traded CFD products each month in 2020 only in the United Kingdom. It was a year-over-increase of 32 percent. Also, there were over a million funded CFDs trading accounts that year.
“The main reason is Covid has provoked volatility in the markets,” said Adrian Reading, Trading Authority’s Head of Research.
“CFD trading presents an opportunity to generate profits in both swings of the market. From the beginning of last year when many shares sunk 60-70 percent to the impressive recovery where growth shares and cryptocurrencies saw a surge of up to 6x, traders have been able to profit both ways.”
A Reputed License
There were around 110 different FCA-regulated CFD trading platforms in the United Kingdom in 2020. The country also houses some big industry names like IG and CMC Markets. A few international brokers like Plus500 also listed their stocks on London markets.
Brokers also preferred the UK to be their base due to the reputation of FCA too. The regulator keeps a keen eye on the operations of these trading platforms and keeps retail traders a priority.
“Companies have always thought of the FCA as very stringent and therefore license to have,” Clark added.
But that perspective is changing. Now, brokers can only operate within the UK with an FCA license, but a European Economic Area regulatory approval can provide them access to a broader European market.
Also, regulators like the Cyprus Securities and Exchange Commission (CySEC) allow brokers to gain a license with much lower capital requirements. Many UK-based brokers are now also seeking European licenses.
“From my perspective new companies that I speak with form a cross section when it comes to the regulators, they are looking to gain. However, there are some reports available on the Internet that indicate that the UK: FCA is still one of the key global onshore CFD/Forex regulators,” said Clark.
Tarik Chebib, Chief Revenue Officer at Capital.com said: “The UK has an established retail trading population, so there is still a lot of competition here from brokers vying for their business. Most brokers have remained in the UK and increased their European footprint with more licenses sought on the continent as they needed to find a way to paper their clients to a European entity.”
New brokers might be preferring some EU license now over the FCA one. But no one can deny the credibility of an FCA approval on the business. Also, the retail forex and CFDs demand among the UK investors will always keep the country as one of the most sought-after markets.
Despite several macro-economic setbacks, there is no sign of slow down in forex demand in the UK. A survey by the Bank for International Settlements (BIS) found that forex demand in London went up by around 30 percent in the three years since the Brexit vote.
London is positioning itself as the financial services hub, but the stringent conditions of Brexit brought massive regulatory changes for the companies. Retail forex brokers, which have to obtain a license from the city’s Financial Conduct Authority (FCA), suffered the most as they were running European operations as well by the passporting their UK license.
Europe-based brokers, which did not obtain an FCA license, also had to suspend their regular operations in the UK. But, the regulators in both jurisdictions allowed a temporary period to operate under some strict conditions to avoid any sudden disruption in their business.
Ben Clark, Devexpert’s VP of Business Development
“I believe that the City of London’s financial services took a large impact from Brexit as they were pretty much left out of the trade deal the UK and EU agreed in 2020. So in 2021, when the rules took effect, British operators took the hit straight away. That being said one of the areas that London is still dominant in is Foreign exchange and derivatives. And the Mass exodus of companies that was predicted never materialized,” Ben Clark, Devexpert’s VP of Business Development, told Finance Magnates.
Forex CFDs
In the retail market, forex derivatives are traded with contracts for differences (CFDs) instruments. These speculative instruments are also available for other asset classes, including equities and commodities.
According to data from Trading Authority, around 560,000 customers traded CFD products each month in 2020 only in the United Kingdom. It was a year-over-increase of 32 percent. Also, there were over a million funded CFDs trading accounts that year.
“The main reason is Covid has provoked volatility in the markets,” said Adrian Reading, Trading Authority’s Head of Research.
“CFD trading presents an opportunity to generate profits in both swings of the market. From the beginning of last year when many shares sunk 60-70 percent to the impressive recovery where growth shares and cryptocurrencies saw a surge of up to 6x, traders have been able to profit both ways.”
A Reputed License
There were around 110 different FCA-regulated CFD trading platforms in the United Kingdom in 2020. The country also houses some big industry names like IG and CMC Markets. A few international brokers like Plus500 also listed their stocks on London markets.
Brokers also preferred the UK to be their base due to the reputation of FCA too. The regulator keeps a keen eye on the operations of these trading platforms and keeps retail traders a priority.
“Companies have always thought of the FCA as very stringent and therefore license to have,” Clark added.
But that perspective is changing. Now, brokers can only operate within the UK with an FCA license, but a European Economic Area regulatory approval can provide them access to a broader European market.
Also, regulators like the Cyprus Securities and Exchange Commission (CySEC) allow brokers to gain a license with much lower capital requirements. Many UK-based brokers are now also seeking European licenses.
“From my perspective new companies that I speak with form a cross section when it comes to the regulators, they are looking to gain. However, there are some reports available on the Internet that indicate that the UK: FCA is still one of the key global onshore CFD/Forex regulators,” said Clark.
Tarik Chebib, Chief Revenue Officer at Capital.com said: “The UK has an established retail trading population, so there is still a lot of competition here from brokers vying for their business. Most brokers have remained in the UK and increased their European footprint with more licenses sought on the continent as they needed to find a way to paper their clients to a European entity.”
New brokers might be preferring some EU license now over the FCA one. But no one can deny the credibility of an FCA approval on the business. Also, the retail forex and CFDs demand among the UK investors will always keep the country as one of the most sought-after markets.
