ESMA FOREX BROKERS

Forex Brokerages Working Under ESMA Regulations

Forex/CFD brokerages operating under ESMA regulations carry two very notable regulatory conditions which are worth understanding. Firstly, the maximum leverage which can be offered to clients trading Forex currency pairs is thirty to one. This means that the largest trade you can open is your total account size multiplied by thirty. Some traders will not like the idea of being limited to a maximum leverage of thirty to one, but it is worth considering how much money you could become liable for at a much higher level of leverage in the event of a sudden huge price movement.

Closely connected to this is a further restriction which prevents any retail client from being liable under any circumstances for an amount beyond the funds which are already sitting in the brokerage account. This “negative balance protection” is a welcome one, as in the past when there have been huge sudden price movements which slip right through brokerage stops, such as the huge Swiss Franc move in January 2015, clients could suddenly find themselves legally liable for large sums far exceeding their deposit. The sudden volatility triggered by that event and effective freezing of the entire global market in Swiss Francs for about an hour resulted in traders leveraged by more than 1:3 seeing instant losses exceeding their account equity with no ability to immediately exit the trade. This is now a danger which belongs to the past if you trade with an ESMA regulated Forex/CFD brokerage. However, it is also true that many brokers who are not regulated by ESMA offer negative balance protection as it has come to be seen as a fair practice.

Now that you have considered ESMA-related issues, you can consider what the broker has to offer. Is the cost of trading there competitive or not? Check spreads, commissions, and other incidental fees. Remember that some brokers can offer very competitive fees on certain asset classes, such as Forex, while the cost of trading commodities might be high, for example, so check the fees section in the reviews carefully depending upon what instruments you intend to be trading the most. Traders who are planning to keep trades open over the New York rollover at the end of the trading day there should also consider the overnight swaps typically offered. Unfortunately, some brokers abuse this typically “hidden” fee.

Finally, examine the “nice to have” elements, such as the range of tradable instruments, quality of customer support, and trading platforms. Going through the process in this order should ensure you end up opening an account with the best ESMA regulated Forex broker for you.