With the latest restriction measures for forex a CFD trading imposed by the European Securities and Markets Authority (ESMA), finding a reliable broker that offers high leverage levels is becoming more difficult.
For those of you who are new to forex trading, leverage is a kind of credit brokers offer to their clients so that the latter can place orders that are significantly higher than their actual deposit. For example, with leverage of 1:100, you can trade up to $100,000 in value by depositing $1,000.
Otherwise, traders need to invest a lot of money into their accounts in order to make decent profit.
The problem is that the higher the leverage is, the riskier the trading gets. The number one reason new traders fail is they don’t understand how margin trading really works and blow their trading accounts because of high leverage levels used.
That is why most reliable financial regulators have introduced some restrictions on the leverage that can be provided to retail traders. Forex brokers in the US, for example, are allowed to offer leverage up to 1:50 on majors and up to 1:20 for minor currencies. In Japan, leverage is capped at 1:25. As regards the situation in Europe, ESMA has recently introduced a temporary restriction on the leverage provided to retail clients. As of August 1, 2018 forex brokers won’t be allowed to offer leverage higher than 1:30 to retail traders in the EU and the EEA, among other restrictions and obligations.
Considering the above, the question a lot of traders are probably asking is how to find a forex broker that is reliable and offers decent leverage levels, of, say 1:100, at the same time?
As some of you probably know, most offshore brokers provide leverage ratios even higher than that – 1:200, 1:500 or even more. However, these brokers are not actually regulated, which brings in significant risk. What is worse, a large part of offshore brokers are known to run investment scams. That is why we would advise those of you searching for brokers that offer high leverage levels to choose among companies with good reputation, such as FxChoice for example, and invest small sums of money.
Meanwhile, there is a better option. Australia – one of the top forex broker destinations worldwide – has not set any restrictions on the use of leverage. Yet, the local financial regulator, the Australian Securities and Exchanges Commission (ASIC), has set certain requirements brokerages are obliged to meet, which guarantees their clients a high level of service. To be more specific, ASIC requires licensed financial services providers to hold at least AUD 1 million, to keep clients’ money in segregated accounts and to follow certain internal procedures including risk management, staff training, accounting, audits, etc.