Good news for clients of Fortrade. The British international broker, which has been regulated by the FCA since 2014, recently also obtained regulation by the National Bank of the Republic of Belarus (NBRB).
Traders outside of the European Union now have the option of trading on an FCA-regulated account with Fortrade, or on one under the supervision of the NBRB.
The primary advantage to trading on an NBRB-regulated account is the ability to continue trading with the leverage that has been available until now. As of August 1, 2018, the European Securities and Markets Authority (ESMA) introduced new directives on trading Contracts for Differences (CFDs) that affect all retail clients within the European Union.
Under these new regulations, maximum leverage provided by brokers for retail clients on all financial instruments are significantly lower than what has been available to date – in some cases with the maximum leverage being slashed by 90%.
For traders, these new directives carry both advantages and disadvantages, which is exactly why Fortrade’s new regulation in Belarus is a positive step for the broker. While traders within the EU are bound by these new regulations, traders outside of the EU may choose to open an account under the auspices of the NBRB, if they prefer to trade with the higher leverages.
For those less familiar with exactly how leverage works, we offer a brief explanation. Leverage is essentially a “loan” from the broker that enables the trader to open a trading position with a higher investment.
For example, imagine a trader wishes to invest €100 on EUR/USD, which is trading at 1.4520. At that rate, the trader’s base amount of €100 can purchase $145.20. If the trader’s broker provides leverage of 200:1, the trader has 200 times that amount, or €20,000, with which he can purchase $29,040.
If the rate of the EUR versus USD rises to 1.4765, the investment will be worth $29,530, and closing the position at this point would yield a profit of $490. Had the position been opened without leverage, the initial investment of €100 would have earned a profit of $2.45.
Of course, because online trading always carries a certain amount of risk to one’s capital, the downside of leverage is that just as the potential profits are higher, so too are the potential losses. If in the above scenario, the EUR/USD were to fall to 1.4273, the investment would drop to $28,546, and the trader would lose $494, rather than the $2.47 that would have been lost without leverage.
Within those pros and cons of leverage lie the advantages and disadvantages of the new ESMA directives. Lower leverage translates to less risk to one’s money, but it also limits the potential gains that a trader might enjoy.
Traders who are more conservative, and wish to allow investments to earn slowly over longer periods of time, will likely be more satisfied with the lower leverage caps allowed by the FCA. In doing so, they would be able to manage their risks more closely, and not be tempted to trade beyond their means.
On the other hand, traders with more experience in reading market trends, and who prefer trading with higher risks, may be happy switching over to an NBRB-regulated account, in which higher leverages carry higher risks, but also higher potential profits.
Under the new policy, the maximum leverage available with FCA-regulated brokers on currency pairs are 30:1 for majors, and 20:1 for minors, as opposed to 200:1, which was previously allowed. Major indices also have a maximum leverage of 20:1 (down from 50:1), while the leverage on minor indices and commodities have a cap of 10:1 (down from 25:1 and 100:1 respectively). Stock shares carry a maximum leverage of 5:1, instead of 10:1, while the maximum leverage on cryptocurrencies will be 2:1, instead of the previously available maximum of 5:1.
Fortrade Ltd. is authorized and regulated in the UK by the Financial Conduct Authority, Firm Reference Number (FRN): 609970, and in Belarus by the National Bank of the Republic of Belarus, FRN: 193075810.
Please remember that trading financial instruments online carries a risk to your capital.
Risk Warning and Disclaimer Contracts for Difference (CFDs): Trading financial instruments carries a high level of risk to your capital as prices may move rapidly against you. 71% of retail investor accounts lose money with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Be Aware: You can lose all, but not more than the balance of your Trading Account. These products may not be suitable for all clients, therefore, ensure you understand the risks and seek independent advice. This material does not constitute an offer of, or solicitation for, a transaction in any financial instrument. Fortrade accepts no responsibility for any use that may be made of the information and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information, consequently, any person acting on it does so entirely at their own risk.