Cyprus Forex Broker Regulation: The CySEC Rules

Cyprus Forex Broker Regulation: The CySEC Rules

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As we state in all of our reviews, regulation is a key factor when choosing a forex broker. Most countries have financial regulatory agencies, which impose rules on the companies registered with them. An unregulated company can potentially have dishonest practices (or be an outright scam). Different agencies have different rules and practices, although some general principles are applied throughout the world.

We are going to introduce you to the Cyprus Securities and Exchange Commission (CySEC) in this article. First of all, we know financial markets wouldn’t be your first thought when somebody mentions Cyprus. The country has attracted lots of Forex brokers for several reasons, one of which is the fact it is a part of MiFID (Markets in Financial Instruments Directive). By this ruling, a broker registered in Cyprus can operate in the entire EU market, without further hassle.

Here are the main benefits of a CySEC regulated broker:

  • Segregated Accounts – whenever clients deposit money in their trading accounts, it is kept separate from the broker’s operating bank accounts. This lowers the risk of fraud by simply allowing fewer people access to the funds.
  • Minimum Capital Holdings – brokers who wish to receive a CySEC license must have holdings of at least EUR 730,000. This is done in order to guarantee the company is stable and has a serious long-term approach.
  • Compensation Scheme – all CySEC regulated companies participate in a compensation scheme. By doing so they deposit a portion of their profits in a pool, which serves as insurance against broker bankruptcy. All forex accounts, with a CySEC regulated broker, are guaranteed up to EUR 20,000 if the broker fails.

All of these rules are undisputed benefits to clients. Now we will mention a few practices which are NOT implemented by CySEC:

  • No Anti-hedging (First In, First Out – FIFO) Rule – some regulators, like the US ones, have applied a ruling which forbids clients from simultaneously having both short and long positions in the same instrument. This is commonly known as “hedging”, although that term can mean a lot of other things and is deemed too risky and complicated for clients.
  • No Limitation on the Maximum Leverage – leverage levels offered by forex brokers can get pretty high. This can create immense levels of risk, which often prove to be devastating for unsophisticated clients. US regulators have set a limit on the maximum leverage a broker can offer to its clients at 1:50. The UK’s FCA has also suggested it may do so soon.

Here is a brief comparison of the most popular trustworthy forex regulators:

Regulation Segregated Accounts Guaranteed Funds Min. Holdings Requirement
FCA Yes Up to GBP 50,000 EUR 730,000
CySEC Yes Up to EUR 20,000 EUR 730,000
ASIC Yes none AUD 1 million

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