Best MetaTrader 5 Brokers UK 2022 - InvestingReviews.co.uk

What is MetaTrader 5?

MetaTrader 5 (MT5) is a third-party trading platform that allows you to invest in and track several different financial instruments. This includes both forex and CFD products.

The thing that sets the MT5 platform aside from other trading apps is how intuitive and user-friendly it is. The platform offers users access to a plethora of advanced technical analysis tools that allow you to keep track of typically complicated markets.

In fact, this is where the real benefits of the MT5 platform start to shine – forex markets are usually quite difficult to understand and predicting trends can seem like a mammoth task.

So, by using a platform that aims to relieve some of the complexity of these markets, you can potentially give yourself an easier time when you trade.

While you are required to open an account with a broker before you can use the MT5 platform, you should keep in mind that it is essentially external software.

The broker will "host" the platform, and even though you're trading on MT5, all investments are dealt with by the broker.

Trading forex on the MT5 platform

One of the most common ways of trading on the MT5 platform is forex trading. This is the global marketplace that allows you to exchange foreign currencies.

When trading on the forex, you will typically see that most currencies are paired together, and these currency pairs are split into major and minor pairs.

For example, the EUR/USD pair is a major currency pair, as it is between two commonly traded currencies. Major pairs tend to be highly liquid, which means you can essentially trade them whenever you wish.

Meanwhile, minor currency pairs, such as EUR/GBP, are far less liquid. Also, you may find that minor pairs tend to be more volatile than major pairs due to their low trading volume.

Forex traders typically speculate on currency pairs to turn a profit. For example, you can purchase a certain volume of the GBP/USD currency pair and wait until the value of the dollar rises relative to GBP, after which you can buy back GBP for a profit.

Unlike traditional stock markets, the forex market is open at all hours of the day, seven days a week. This is because it deals with currencies around the world that are located in different time zones, so the forex market needs to be open all the time.

Though, one of the barriers to entry to trading forex is the complicated jargon used to describe the different features of trading. Continue reading my guide to find out what each piece of essential jargon means.

Leverage

One of the facets of forex trading that you must keep in mind and research thoroughly before you start trading is leverage.

Your forex broker will typically offer you leverage in the form of a ratio. For example, 10:1 is a common leverage offered by forex brokers.

When you make the most of leverage, you're essentially "borrowing" money from forex brokers.

Say you were to trade one lot of the GBP/USD pair for £100,000. If your forex broker offered you leverage of 10:1 for your trade, you would only be required to pay an upfront cost of £10,000 to make the trade.

This is called the "margin", and this reduced total cost for trading can allow you to make larger trades with a smaller upfront investment. In turn, this can see you benefit from magnified returns.

However, this is a double-edged sword, as if the trade doesn't go your way, you could be required to pay back more than you initially invested.

Also, it's worth keeping in mind that the largest leverage FCA-regulated brokers will offer is usually 30:1. This is because FCA regulation states that it is dangerous for retail investor accounts to access leverage higher than 30:1, as if a non-professional makes a mistake with leverage larger than this, there is a high risk of losing money rapidly.

Spreads

Another important aspect of forex trading is the spread. This is the difference between the bidding price and the asking price for a particular currency pair, measured in "points" or "pips".

Major currency pairs, such as GBP/USD, tend to have much tighter spreads when compared to minor currency pairs. This is partly thanks to major pairs' higher liquidity.

As you can imagine, minor pairs tend to have far wider spreads than major pairs, again due to liquidity issues.

A common way for brokers to charge users to trade forex is by building the trading costs into the spread. This is why, if you're looking for a broker with low fees, you should find one that offers competitive spreads.

Alternatively, you could choose an ECN broker that offers direct market access to multiple liquidity providers. These providers simple offer the best price available, so there's no manipulation of spreads.

Spreads tend to change frequently and can sometimes be tricky to keep a track of. This is why trading platforms like MT5, which help you properly track spreads, are great for forex trading.

Trading derivatives on the MT5 platform

Another way you can trade on the MT5 trading platform is through derivative trading.

This is often done with the use of spread betting or CFDs, both of which involve you speculating on how the price of a particular asset will move.

When you trade derivatives, you don't actually purchase the underlying asset, you're simply speculating on how the price will move. As for the underlying assets themselves, you can speculate on a plethora of different securities, ranging from precious metals to currency markets and more.

It is vital you remember that derivative trading is very complex, and more than half of retail investor accounts lose money when trading this way. So, before you decide to start trading derivatives, you should read on to find out the features of both spread betting and CFD trading to decide if they are suitable for you.

Spread betting

Spread betting is when you "bet" on the price movement of a particular security. It's worth keeping in mind that when you spread bet, you aren't actually purchasing a stake in the underlying asset.

For example, you could spread bet on the price movement of the GBP/USD pair, though you wouldn't actually own any of the currency you're betting on.

When spread betting, you can either predict that the price of a security will increase, which is called a "long" position, or that the price will decrease, called a "short" position.

If you predicted a price movement correctly, you would earn the difference between the opening price, and the price when you closed your position.

So, to give an example of how trading spread bets works, imagine you wanted to spread bet on the GBP/USD pair.

Let's say that the asking price for the pair was 1.0015, and the bidding price was 1.0010. You believe the price of the currency pair will drop, so you open a short position against it.

If you staked 50p for each point the pound decreased below the asking price, and the GBP/USD currency pair did indeed drop by 10 points to 1.0005, you would earn £5 from your 50p position – as that's 50p times the 10 points.

Though, if the price of the GBP/USD pair increased by 10 points to 0.00025, then you would lose £5.

Trading CFDs

One of the other derivative trading methods mentioned previously is CFDs, or "contracts for difference".

CFD trading is relatively similar to spread betting, with a few key differences. For example, you're still "betting" on how the price of an asset will move, though, unlike spread betting, you'll instead receive the difference in price from when you opened the position.

Also consider: Best CFD Trading Platform for Beginners

So, to give a further example, imagine you purchased 100 long CFDs on Apple shares when the price rested at $135.10 a share. If your leverage for this trade was 5:1, you would be required to pay a margin of $2,701.

If the value of Apple increased to $150 a share and you decided to close your position at this time, then the value of the security would've increased by 14.9 points.

Your profit would be calculated from the difference between the opening and closing price, which is 14.9 points, multiplied by the number of contracts you purchased. So, in this example, your total profits would be $1,490.

Source: Capital.com

What is the best way to trade on the MT5 platform?

The best way to trade on the MT5 platform wholly depends on your experience levels, your tolerance for risk, and the reasons you're investing in the first place.

If you are still fairly inexperienced with the MT5 trading platform, you may want to consider trading forex instead of derivatives.

This is because derivatives, such as CFDs and spread betting, tend to be very complex financial instruments, and if you don't know what you're doing, you could end up losing more money than you initially paid in.

Also, as you can imagine, derivative trading tends to be far more high risk. If you have a low risk tolerance and don't want to commit yourself too much to trading, forex may be the better option for you.