ESMA regulated Forex/CFD brokerages are brokers who are regulated by the European Union. The European Union has one of the world’s tightest regulatory regimes in several areas, including the provision of financial services, which broadly includes the services provided by Forex/CFD brokerages. This means that if you choose to become a client of a Forex/CFD brokerage which is regulated under ESMA, you will know that you are getting a relatively very high level of protection, assuming you open your account classified as a retail customer.
Forex/CFD brokerages regulated by ESMA operate under two very notable restrictions which are worth understanding: 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. 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 is a welcome level of protection, as in the past when there have been huge sudden price movements which slip right through brokerage stops, such as the Swiss Franc move in January 2015, clients could suddenly find themselves legally liable for large sums far in excess of their deposit. This is now a danger which belongs to the past if you trade with an ESMA regulated Forex/CFD brokerage.
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, without the associated negative balance protection. Furthermore, there are some well-developed financial centers within the European Union which have the strong supportive infrastructures good brokerages need to succeed.
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MiFID, Central Bank of Ireland, ASIC, FSC, BVIFSC
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CySEC, Financial Conduct Authority (FCA), ASIC