Trading in the UK

Trading in the UK; The Evolution

Wednesday 24th Nov 2021 |

In many ways, it can be incredibly hard to quantify the exact size of the UK’s financial market, which is home to a diverse array of asset classes and attracts investors from across the length and breadth of the globe. 

To provide some context, however, it’s important to note that the total value of UK assets under management peaked at a staggering £9.1 trillion ($11.8 trillion) in 2017. Only the US and Japan have more assets under financial management, highlighting the size of the UK marketplace and its popularity as a global investment hub. 

Of course, it has taken a great deal of time for the UK market to evolve into the behemoth that it is today, with this journey capable of being traced all the way back to the 17th century. We’ll explore this journey in the article below, while exploring this evolution in greater detail and appraising some of the most popular forms of trading. 

Trading in the UK – What is Trading and How Did it Start? 

 Usually, there’s a clear distinction drawn between trading and investing, with the former typically associated with derivative assets and speculative markets such as forex. The term ‘trading’ typically refers to the buying and selling of financial assets, either via an exchange or over the counter (commonly referred to as OTC). There are exchanges located all over the world, with these established as hubs of financial activity in regions such as New York, Tokyo and the UK.  Today, exchanges are described as highly-organised and tech-led marketplaces where you can trade specific types of instruments, such as UK shares on the London Stock Exchange. The London Stock Exchange began in the idyllic coffee houses of 17th century London in 1698, when a man called John Castaing began publishing lists of stock prices called ‘The Course of the Exchange and Other Things’.  By 1761, 150 stockbrokers started their own club for buying and selling shares in a dealing room on Sweeting’s Alley, which eventually became known as The Stock Exchange and became an official, fully regulated exchange in 1801. Interestingly, the London Stock Exchange wasn’t the first entity of its type in the world, with the history of stock exchanges actually having its origins rooted in 12th century France.  What’s more, the Amsterdam Stock Exchange preceded its London counterpart following its launch in 1602, with this established as the world’s first official exchange and one that primarily traded shares in the Dutch East India Company.  

Trading in the UK – The Impact of Technology and the Number of Active Traders Today 

The London Stock Exchange has barely closed its doors since opening in 1698, apart from five months in the midst of World War I and a paltry six days during World War II. It was in 1972 that a brand new, lavish office with a 23,000 square foot trading floor was opened for the exchange by Queen Elizabeth II on Threadneedle Street, a year before all regional exchanges in England and Ireland merged with the omnipotent London Stock Exchange. In more recent years, we’ve seen a pronounced change in terms of the accessibility of trading and its core appeal.  More specifically, this was once the preserve of large institutional investors, who could utilise cash resources to open and control large trading positions and utilise their insight to track market movements. 

With the advent of computers in the 1980s and the digital revolution that has taken hold since the turn of the century, however, we’ve seen a huge increase in the number of part-time or retail traders who execute orders on a regular basis. 

 Nowhere is this more evident than the forex market, which can now traded seamlessly online through web trader platforms and mobile apps. Back in 1995, the average daily trading volume across the globe was just $1.2 trillion, but this had increased to $5.1 trillion in 2016 and $6.6 trillion at the end of 2020. In the UK, there are an estimated 46 million people that frequently use the Internet, of which approximately 280,000 are financial traders. This suggests that the region has at least one online trader per every 165 Internet users, highlighting a revolution that has been almost exclusively driven by tech and innovation. 

In addition to the web trader platforms mentioned above, for example, traders can now utilise compatible trading apps that are accessible through their smartphones. This makes it easier than ever to trade the 24-hour forex market, while making informed and time-sensitive trades depending on your chosen currency pairings. 

Most importantly, this means that even novice retail traders can time their trades to coincide with peak periods of volatility and price movement, which often occurs during overlaps between different forex trading sessions (such as the London and New York Stock Exchange sessions). 

Trading in the UK – The Popular Forms of Trading and Potential Pitfalls 

 Trading can manifest itself as various forms and strategies, depending on your risk appetite and chosen asset class. If we focus on forex trading, for example, two of the most popular forms of trading are day trading and scalping, both of which are short-term in their nature and focused on leveraging the various price fluctuations that occur during minutes and hours. The primary difference between these strategies is the amount of orders executed and relevant time-frames, as scalpers will commission a high volume of trades over the course of several minutes and hours during the trading day. While day traders are also unlikely to maintain open positions overnight, they’ll execute a smaller number of orders each day and will usually operate in slightly longer time-frames. While there’s an inherent risk when targeting potentially large and short-term fluctuations (particularly when dealing with inflated leverage of up to 200:1 in some instances), this can trigger incremental returns over time and generate significant income over time. 

 Other strategies exist in the form of position and swing trading, which are considered to be lower risk and require investors to assume longer-term positions over a matter of days, weeks and even months. This is more akin to the classic ‘buy-and-hold’ strategy that’s associated with investing in stocks, and is considered to be lower risk and appealing to risk-averse investors. The important thing is that retail traders can now access financial markets from a largely level playing field, especially in terms of the investment vehicles that they use and the diverse range of assets available to them. Make no mistake; this completes the journey that began when London’s now iconic Stock Exchange opened back in 1698, when just a select few wealthy investors were able to buy and sell a small number of stocks. 

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