Brokers for European Residents
European residents are encouraged to understand their home country's specific broker and regulatory landscape as there are many factors that will affect trading conditions and funds safety.
Europe has an interesting mix of regulatory overlap; On one hand, there's strong consumer protections and overall product rules set centrally by the ESMA and through legal acts like MIFID, but on the other, countries have local authority on regulating the operations and capital requirements of brokers in their region. This leads the following hierarchy of regulatory authority from the top down:
ESMA - European Securities and Market Authority. The ESMA sets European-wide rules on trading that affect any regulated broker operation within Europe who deal to European residents. The main impact on Forex traders are the following ESMA set rules for European accounts:
Retail Leverage:
- 30:1 for major currency pairs
- 20:1 for non-major currency pairs, gold and major indices
- 10:1 for commodities other than gold and non-major equity indices
- 5:1 for individual equities
- 2:1 for Cryptocurrencies
Retail negative balance protection. This means you can only lose what you deposit with the broker and not be held responsible for losses caused by your account beyond this amount. In the event of a shock market move (think black swan type events, unexpected events that cause the market to gap well beyond what anyone has seen before or would reasonably expect,) you would not be liable for losses caused by your positions that are greater than the capital you've invested. Any trader with 10+ years experience following the markets will tell you these events do happen and some are large enough to bankrupt brokers who had too much client exposure at the time.
Requirement for retail funds to be held in segregated bank accounts by the broker (this means that the broker cannot comingle client funds with their operational capital and cannot use client funds to pay operational expenses.) This might seem like a given, but we still see unregulated brokers these days who mix funds and fuel marketing expenses with client deposits (not illegal, just a liability on an unregulated broker's balance sheet they hope will never be realized.)