The financial landscape in Europe is heavily governed with numerous restrictions telling brokers and traders what they can and can’t do. Forex has been hard-hit by an ESMA leverage clampdown in recent years, but does this explain why the FX industry is moving to non-EU based brokers? And what exactly are the benefits of avoiding the EU’s clutches?
Traders move to non-EU brokers as ESMA bites
For many traders, moving to a non-EU broker has extensive appeal, especially due to the new ESMA regulations introduced back in 2019. In a move to cap leverage across Europe, ESMA introduced very strict new rules which state that:
- Trading on FX Majors now carries a maximum of 30:1
- FX Minors, gold, indices and stock CFDs now come with a leverage maximum of 1:20.
- Crude oil CFDs carry a maximum leverage of 10:1
- Extremely volatile stocks will see leverage capped at a maximum of 5:1
While ESMA has put a focus on trader safety, the new rules make it more difficult than ever for traders to benefit from high leverage and potentially gain from small market moves. At times of low volatility, high leverage is often used in order to maximise gains with just a few pip movements. This can potentially result in breath-taking returns.
Of course, trading comes with risks and intelligent risk management strategies are needed in order to reduce losses. But traders who appreciate making their own calculated decisions are now looking for alternatives outside of the EU.
Essentially, ESMA regulations will weed traders with small capital from the European ecosystem. But as the new rules can’t supress a trader’s need to monitor the market, they will simply move to other jurisdictions where high leverage is still provided.
A way out of the quagmire
Since the introduction of ESMA, the financial landscape has started to change considerably. Not only are traders looking for new alternatives far from EU restrictions, but brokers are also moving offshore and applying for licenses outside of the EU.
Why? Well it enables them to continue offering the services traders are used to including a combination of tight spreads and high levels of leverage. Brokers looking to retain clients and reduce revenue shortfalls are branching outside of the EU and are transferring those looking for flexible leverage options to their non-EU branches in countries such as the Cook Islands, Mauritius, Australia, the Seychelles, Vanuatu and other offshore locations.
Essentially, EU trading is more focussed on big players with large amounts of capital who perhaps don’t need to take advantage of high leverage as those with less capital in their accounts. This is an obvious shift, which is why brokers are moving trade away from EU-based regulations in order to stay afloat. Similarly, traders looking for a way out of the EU quagmire are also driving the FX industry outside of the European Union and this is facilitated by forward-thinking companies that want to maintain service standards.
When researching brokers, it’s essential to think about your goals, risk tolerance and leverage options as well as the regulations each broker is subjected to.
One such broker that may tick a lot of a trader's needs is 4xcube.com who have successfully obtained one of the first licensed brokerages on the Cook Islands offering a 20,000 euro compensation fund for traders.
