Why Britain is the World Leader in Currency Trading

Bank safe from UK pound symbol 3D rendered illustration

Britain is the world leader in global currency trading. When the United Kingdom voted to leave the European Union, it helped London solidify itself as one of the top two financial centers in the world. Britain tightened its grasp on the foreign exchange market in the months following the Brexit vote, and daily trading exceeded $2.7 trillion per day in April 2018.

Trading in the country had increased by 23% at the time, and trading volumes are over double that of the United States.

Almost 40% of the world’s currency trading occurs in the United Kingdom, and the pound is one of the most traded currency pairs in the world.

London has been the leader in the foreign exchange market for almost 50 years, and billions in revenue enter the country annually due to foreign exchange businesses.

But there are other reasons that Britain is leading the world of currency trading:

Taxes on Trading in the UK are Well-Established

Britain has been trading currencies for nearly half a century as the world leader, and there are obscure, yet well-established tax laws in the United Kingdom. Day trading, often what people do when they enter currency trading, is classified under:

  1. Self-employed. When trading is more than just a hobby, a trader may consider themselves self-employed. You’ll have to pay business tax, and there will be deductions that can be claimed.
  2. Speculative. A speculative categorization for taxes is similar to what a person would file for gambling activities. This characterization makes the trader free from capital gains tax, business tax and even income tax. But speculative tax classification is very difficult to get approval for, so this is an unlikely option.
  3. Private. A private investor is one that will have to pay capital gains taxes for their losses and gains. This form of tax classification can be beneficial.

Tax authorities will work to determine your tax classification, and this will be different for every trader. If a trader engaged in one trade, they may be able to fall within the speculative classification. But a person that trades as their only source of income may be classified as self-employed or a private investor.

Tax officials will use a variety of different questions and criteria to determine what type of classification would be best for you as a trader.

British traders also benefit from their time zone, which is well-placed when considering Asia and the United States. Traders also gravitate towards larger markets so that they can absorb large deals without causing prices to fluctuate too much.

Since Britain trades at such high daily volumes, traders will not experience the extreme rises and falls in currency prices as seen in other countries.

It’s a good overall environment for traders.

Existing infrastructure and technology keep traders in the country, with forex operations choosing the UK because of their well-planned, seasoned infrastructure. Banks that work together in other countries benefit from the sub-Atlantic cables that connect Britain to New York, allowing for faster trades and real-time monitoring opportunities.