Broker to Trading

This page has a table of prominent Forex brokers which are not affected by the ESMA changes, which is to say brokers located outside of the European Economic Area (EEA). However looking for a broker which is not within the remit of ESMA (the European Securities and Markets Authority) is not necessarily the best choice. This is because the ESMA changes were taken to protect clients.

Perhaps the most noticeable of these changes is the limit on leverage for Forex to . This has resulted in a reduction in the maximum leverage typically offered by brokers by a factor of around 10 times or more. However increasing leverage increases risk and traders who trade with high leverage, higher trade sizes and lower account sizes risk having their account depleted rapidly by adverse moves. This is because leverage allows the trader to trade with higher trade sizes.

Higher trade sizes have a higher pip value. The Forex market moves in complex ways and can easily retrace or reverse against the position taken in a trade. Thus higher trade sizes can accelerate the account being depleted from adverse moves. The solution is to use lower trade sizes, even down to a cent account, which can make trading with low account sizes more feasible as it brings trade size and account size in balance and this can be done at brokers within the remit of ESMA.

The stop-out level has been set at 50%. This is another related change to protect capital in a client's account, since it is triggered as an adverse trade depletes the account value (in effect it realises the effect of the trade on the balance, when half of it has gone, to protect against the possibility that the trader will let it go lower). Perhaps as significant as any of these changes all EEA brokers now offer negative balance protection, meaning that the trader will not have to account for a negative account balance. Other changes include requiring the broker to show on a quarterly basis the percentage of retail clients which lose money, this is not shown for non-EEA brokers.

Thus these changes can be seen as creating a series of protective barriers. Leverage reduction to prevent accounts having too large a trade size relative to the account size and to reduce account depletion acceleration, standardised warnings to inform the trader of risks in a clear way, stop-out as a way to protect the capital in the account and negative balance protection to protect the trader from sudden sharp or other moves which can spike the capital in the account into a negative balance. Brokers outside of ESMA may still offer some of these protections (but not the loss warning).

Thus a trader, if they wish to trade within the EEA, will really only have to adjust their trading to leverage reduction and for most trading will be sufficient. This said it is possible to trade responsibly with higher leverage, but the trader needs to exercise discretion about how they use it. A lower stop-out means that it is possible for a greater amount of the account capital to be depleted before the position is closed. No negative balance protection means that it is possible for the trader to owe the broker more than their account balance. All in all perhaps a more optimal way to choose a broker is by such features as online trading platforms available, which are shown in the table above, as leverage is but one of many factors which are found in trading, especially for those who wish to keep doing so in a sustainable manner.