Use Of CySec How CySec Works For Regulation

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How to Prepare for CySEC’s New Tiered Leverage

Having an end-to-end compliance and technology provider can support your brokerage as CySEC’s regulations come into effect

In line with the flurry of regulatory moves made by the European Securities and Markets Authority (ESMA), Cyprus – the “Kingdom of Forex Brokerages” in the eastern Mediterranean, is following suit with its own much-anticipated financial legislation.

The Cyprus Securities and Exchange Commission (CySEC), has proposed a range of innovative leverage measures to protect retail clients and brokers who trade with Cypriot financial institutions.

As a Forex broker, or retail client, you can become punch-drunk trying to follow all of the financial regulatory news that have been coming in the last three to five years.

Naturally, all of these initiatives have been well-intentioned with the primary aim of protecting investors and member firms from bankruptcy. However, more and more regulatory pressure can sometime lead to the opposite result, with markets becoming less liquid and hurting retail trade.

For this reason, policymakers in Cyprus decided to try a little more flexible approach to their leverage system. This move is aimed directly at the amount of leverage that member firms can offer to their retail clients.

ESMA has set a slew of regulations to this effect, but while the regulators at CySEC had to abide by the European regulations, they also wanted to add a layer of flexibility to encourage more retail business.

CySEC proposed a risk-based approach to the leverage of trading in multiple financial instruments. Clients would initially be assessed on a range of criteria, after which they would be assigned to specific leverage tiers.

These criteria include risk appetite, experience, knowledge, market volatility history, and their annual income or net worth.

Tiers were defined for different segments of retail clients, and according to those tiers they will be qualified for different leverage measures in various financial asset groups. Those tiers would be labeled as ‘Positive’ or ‘Negative ‘, in general. There will also be clients who fall between the two stools, and will be categorized as ‘Grey’.

The last thing regulators wanted to do was to provide the top leverage terms to clients who were unsuited to high-risk trading activity. For that reason, upper tier clients are required to earn a minimum of 40,000 euros per year or have net liquid assets in excess of 200,000 euros.

Upper tier clients would receive leverage of 50:1 on major currency pairs as opposed to the 30:1 proposed by ESMA. Clients who fell in the “grey” tier would only be able to leverage 20:1 for those same major currency pairs in accordance with ESMA’s leverage instructions.

Segmentation is clearly an area that would be strongly supervised by Cypriot regulatory bodies, knowing that other European countries would be watching this experiment with the intention of following suit if CySEC’s plans were successful.

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CySEC proposed further regulatory measures such as the curtailment of all binary option business, as well as restricting trade in high-risk assets such as cryptocurrencies, to those who qualified for the upper levels of the positive tier.

How to stay ahead of the curve?

In addition to these original measures, CySEC will also hold its member firms to regulations such as closing out positions beyond 50% margin calls, protecting clients from negative balances, and the banning of all financial market incentives. Risk warnings would be mandatory, as would the clear presentation of the percentages of successes and losses of company clients.

With all these new changes on the near horizon, it seems that what most brokers are looking for is a trusted provider who can manage their compliance needs wherever these turn up. A good option would be to combine regulatory coverage with other technological and peripheral needs brokers have, such as incorporation and PSP integration.

“Forex regulation requirements keep changing across Europe, and Cyprus is no exception”, says Alkis Hilton, an expert on CySEC regulation and Executive Director of Leverate Financial Services, the Cypriot regulatory branch of tech provider Leverate.

“It is extremely important to be aware of the changes, and to prepare correctly to the new regulatory environment. As part of the LXLite package that Leverate offers, we provide a full CySEC license, regulatory preparation and ongoing coverage, so that our brokers can always be sure that they comply with the most recent demands”.

Praiseworthy as CySEC’s initiatives may be, there will have to be a period of testing to see if their flexible risk-based leverage trading will work.

Best CySEC Regulated Forex Brokers 2020

You’ll be surprised by how many brokers are based out of Cyprus these days. Some good, some not so good, but the majority regulated by CySEC. In this article we’ll explore the background of the CySEC regulation and we’ll also show you the best CySEC regulated Forex Brokers based on our intense research into the operators.

The brokers below represent the best CySEC Regulated Forex Brokers

Your capital is at risk.

MT4, MT5, Proprietary

Market Maker, STP

Your capital is at risk.

Your Capital is at Risk

cTrader, MT5, Zulutrade

Your Capital is at Risk

Your capital is at risk

IRESS, MT4, MT5, webtrader

No dealing desk

Your capital is at risk

90% of retail CFD accounts lose money

No dealing desk

90% of retail CFD accounts lose money

Your capital is at risk

Your capital is at risk

76.4% of retail CFD accounts lose money

ASIC, CySEC, FCA, FSB, ISA, MAS

No dealing desk

76.4% of retail CFD accounts lose money

62% of retail CFD investors lose money

ASIC, CySEC, FCA, MiFID

cTrader, Currenex, eToro Platform, Keystone, Marketspulse, Mirror Trader, MT4, MT5, Tradologic, Zulutrade

Market Maker, No dealing desk, STP

62% of retail CFD investors lose money

Your capital is at risk

Your capital is at risk

BDSwiss

Regulated By: CySEC, FSC, NFA

Foundation Year : 2020

Headquarters : Grienbachstrasse 11, 6300, Zug, Switzerland

Min Deposit : $100

Your capital is at risk.

BDS Markets Ltd is an online financial services provider licenced and regulated by the FSC Mauritius, offering forex and CFD for trading on its online trading platforms. Its sister company BDSwiss Holding PLC is operating under CySEC licence No 199/13, Today, BDSwiss Holding PLC is located in Limassol, Cyprus and has a Tied Agent in Germany. Both companies belong to the BDSwiss Group of companies.

IC Markets

Regulated By: ASIC, FSA

Foundation Year : 2007

Headquarters : International Capital Markets Pty Ltd Level 6 309 Kent Street Sydney NSW 2000, Australia

Min Deposit : $200

Your Capital is at Risk

IC Markets was founded in Sydney, Australia in 2007 and is regulated by the Australian Securities and Investments Commission (ASIC), as well as the Seychelles Financial Services Authority (FSA). According to the broker’s website, they processed $646 billion worth of trading volume in April 2020 alone.

While the broker offers services and features designed for both beginner and professional traders, the company promote themselves as the ‘go to’ choice for high volume traders, scalpers and trading algos due to their New York Equinix NY4 data centre – processing over 500,000 trades per day.

Broker Rating Official Site Regulations Min Deposit Max Leverage Trading Platforms Foundation Year Publicly Traded Trading Desk Type Currencies Commodities Indices Stocks Crypto Commission on trades Fixed spreads offers promotions Official Site
Pros: Cons:
  • True ECN broker with institutional grade liquidity.
  • MetaTrader and cTrader available on desktop, web and mobile.
  • Wide range of tradable products with 24/7 customer support.
  • Impressive library of educational material and videos.
  • Beginner traders may be overwhelmed by the choice of markets and platforms.

FP Markets

Regulated By: ASIC, CySEC

Foundation Year : 2005

Headquarters : Level 5, Exchange House 10 Bridge St Sydney NSW 2000, Australia

Min Deposit : $100

Your capital is at risk

FP Markets was founded in 2005 and is regulated by the Australian Securities and Investments Commission (ASIC), offering segregation of client funds and top tier liquidity. FP Markets is a group of companies that includes First Prudential Markets Ltd which is authorised and regulated by the Cyprus Securities and Exchange Commission.

Traders can use the globally-recognised MetaTrader 4 and MetaTrader 5 trading platforms for desktop, web and mobile, as well as, the Iress active trader trading platform. Traders can also access a wide variety of trading tools which include MAM/PAMM accounts, VPS services, Forex calculators, an MT4 Trader Toolbox full of additional indicators and access to AutoChartist.

Pros: Cons:
  • ASIC regulated.
  • ECN pricing and DMA trading available.
  • 10,000+ tradable financial instruments.
  • Wide range of trading platforms and trading tools available.
  • Excellent customer support and education tools.
  • The volume of choice of markets and accounts may be overwhelming for beginner traders.

Regulated By: CySEC, FCA, FSC

Foundation Year : 2020

Headquarters : FXTM Tower, 35 Lamprou Konstantara, Kato Polemidia, 4156, Limassol, Cyprus

Min Deposit : $10

90% of retail CFD accounts lose money

FXTM, short for ForexTime, is a platform with a primary focus on foreign exchange. That specialization allows it to rise above many others when it comes to Forex focused trading platforms and tools. CFDs are available on 50+ currency pairs including major, minor, and exotic pairs. Leverage is available up to 1000:1.

Spreads are competitive across all platforms with 24-hour trading open 5 days per week. FXTM is based in Cyprus and licensed by the International Financial Services Commission (IFSC), Cyprus Securities and Exchange Commission, and other regulators in and out of the EU. A free demo account is available.

Pros: Cons:
  • Support for 250+ products to trade across global markets, including Forex, commodities, shares, indices and cryptocurrency CFDs
  • Competitive spreads
  • MetaTrader 4 and MetaTrader 5 platform support
  • Low maximum order size
  • No native Mac desktop app

NBH Markets

Regulated By: SVGFSA

Foundation Year : 2020

Headquarters : First Floor, First St. Vincent Bank Ltd Building, P.O. Box 1574, James Street, Kingstown, St. Vincent & the Grenadines

Min Deposit : $100

Your capital is at risk

NBHM has solid roots in gold trading and investment and is the only brokerage firm with gold-backed stability offered by the National Bullion House.

The broker offers leverage up to 1:500 across a range of different asset classes including Forex, CFDs, Cash Indices, Precious Metals and Commodities. Clients can choose from three account types called Standard, Pro and Elite which can be funded with USD currency.

The account types offer a range of commission-free and fee-based trading using the MetaTrader 4 and the MetaTrader5 trading platforms.

Pros: Cons:
  • Commission-free accounts available.
  • Can trade on MetaTrader 4 or MetaTrader 5 trading platforms.
  • High leverage up to 1:500.
  • Forex, Indices, Precious Metals and Energies available to trade on.
  • Zero fees on deposits.
  • Only accounts available are in USD
  • The minimum bank wire transfer amount is $25,000

Plus500

Regulated By: ASIC, CySEC, FCA, FSB, ISA, MAS

Foundation Year : 2008

Headquarters : Building 25, MATAM, Haifa, Israel

Min Deposit : $100

76.4% of retail CFD accounts lose money

Plus500 has been in the brokerage business for a decade. They boast of 317,000 clients from all over the world. They are properly regulated in four different countries including Australia, UK and Cyprus. The trading platforms are simple, user-friendly, fast and secure. Platforms that can be used across multiple devices and operating systems are available for trading in various situations.

No educational materials are available, which is a huge minus. Furthermore, no research materials (else then the economic calendar) or technical analysis is provided.

Pros Cons
  • 2,000+ CFD products available for trading across global markets, including cryptocurrency CFDs
  • Offers guaranteed stop-loss orders
  • Multiple regulations from different countries. Regulation includes FCA, ASIC, CySEC and MAS.
  • Over 100 chart indicators are available in the web platform
  • Lack of content and news headlines
  • Lack of Trader Education to clients
  • No phone support offered

eToro

Regulated By: ASIC, CySEC, FCA, MiFID

Foundation Year : 2007

Headquarters : Kanika International Business Center 7th Floor, 4 Profiti Ilia Street Germasogeia, Limassol, Cyprus

Min Deposit : $200

62% of retail CFD investors lose money

eToro is an online trading platform that was founded in 2007 by the Assia siblings and their friend David Ring in Tel Aviv, Israel. Formerly known as RetailFX, eToro is the pioneering online broker for social trading. Their Openbook social trading platform in fact changed the nature of the way beginner online traders can trade the financial markets. It made the markets accessible to everyone, no matter what their level of experience by creating a user-friendly environment and allowing traders to copy the trades of other traders’ strategies automatically.

Pros: Cons:
  • Highly regulated broker (FCA, CySEC and ASIC)
  • Innovative trading platform
  • Wide range of assets to trade with
  • Ability to earn 2% management fee as an Investor trader
  • Spreads are higher than average
  • Does not have the MetaTrader platform

LiteForex

Regulated By: CySEC

Foundation Year : 2005

Headquarters : 124 Gladstonos Street, The Hawk Building, 4th Floor, 3032, Limassol, Cyprus

Min Deposit : $50

Your capital is at risk

LiteForex began operations in 2005 and has since grown into a global broker with offices across the globe. The Head office is in Marshall Islands where it operates the global brokerage services, while the European brokerage service is controlled from the Cypriot office. Today, LiteForex has offices in Iran, Indonesia, Vietnam, Nigeria, Nicaragua, India, Kyrgyzstan and Philippines. The EU office operates from Limassol, Cyprus.

LiteForex offers currencies, stocks, commodities, indices and cryptocurrencies. LiteForex claims to have an ECN brokerage model, in addition to its regular market-making model. As a result, the brand offers low spreads and charges commissions on certain trades. Trades are executed instantly without requotes.

LiteForex boasts of 300 new accounts everyday and 500,000 clients from all over the world. The website is available in 15 languages.

Introduction to Forex Regulations

For many beginner traders who are new to online trading, the normal assumption is, if a broker is not regulated, then it is likely to be operating illegally. However, this is not the case for the forex market, as it is an OTC market with no specific regulations covering it. What you should be aware of is that most of the forex regulations that we often hear about only cover a specific jurisdiction and do not apply to the entire industry on a global scale. So if a forex broker is able to operate with no regulatory oversight, why bother regulating it? In fact proponents of the free market theory might argue that a market work most efficiently when it is not curtailed by any artificial regulations. While this might be true in theory, the reality is very much different.

Regulations unlike legislations are not written by the lawmakers but instead are crafted by bureaucrats based on their understanding of what the market needs in order to function smoothly. In other words, regulations are flexible and can change accordingly to circumstances unlike legislations which require amendments to the legislation before any changes can take effect.

over the last decade has become the major center for financial services providers to set up shop in Europe. Given the fact that Cyprus is also a member of the European Union (EU), under the MiFID (Markets in Financial Instruments Directive) rules, forex brokers are permitted to “passport” their authorization issued by CySEC and operate legally in other member states within the EU.

What is CySEC regulation?

The Cyprus Securities Exchange Commission or CySEC as it is often known, is the regulator for the financial industry in Cyprus. As a member state of the EU, it is required to abide by the regulatory framework as established under the Markets in Financial Instruments Directive. MiFID was passed by the European Parliament in 2008 in order to harmonize the regulations governing the financial services industry within the EU. It established the standards for financial services providers to follow. It is primarily focused on OTC transactions such as the forex industry.

When Cyprus joined the EU in 2004, this meant that CySEC fell under the MiFID rules. This gave firms regulated under CySEC access to the financial markets within the EU. While Cyprus was previously known internationally as a tax haven, as a result of the MiFID, the financial regulatory framework in Cyprus since then changed significantly to much higher standard on par with other major financial centers around the world. In fact, CySEC became the first major regulatory body in Europe with recognize and regulate binary options as a financial instrument.

CySEC’s Responsibilities

The main responsibilities of CySEC are as follows:

  • Supervision and control of the Cyprus Stock Market
  • Monitor transactions carried on the Cyprus Stock Market
  • Monitor the conduct of listed companies and financial services providers
  • Grant operation license to investment firms, consultants and brokers
  • Monitor investment services companies, investments funds and related services
  • Apply penalties or administrative sanctions for non compliance of regulatory requirements

How CySEC Regulation protects you

So how do CySEC regulations protect you as an investor? Since the majority of Europe’s regulated forex brokers fall under the jurisdiction of CySEC, the regulations imposed by CySEC have a strong impact on investor’s protection. It implies that forex brokers under the oversight of CySEC are required to operate with transparency and in a fair manner. Specifically as an investor trading with a CySEC regulated forex broker, you will benefit in the following manner:

  • All your monies are kept in a segregated trust account which the broker is not permitted to access. This helps to prevent any abuse of your money by the broker. In other words, the broker is not allowed to use your money for its own operational needs. Another benefit of having your money separated from the broker’s own funds is that the fact that creditors of the broker cannot file a claim on this money as it is not part of the broker’s asset.
  • Regulated brokers under CySEC are required to maintain sufficient capital to meet the capital adequacy ratio requirement. This is ensure that the broker have sufficient capital at all times to fulfill the contractual obligations arising out of the transactions of their clients.
  • CySEC regulated brokers are required to submit regular financial statements to CySEC in order for the regulatory agency to monitor their compliances of the regulatory requirements. In this way, brokers will not be able to hide anything that is not in the interest of the investors.
  • As part of the regulatory requirement, CySEC’s regulated brokers are required to submit an independently audited financial report to CySEC.
  • Before any forex broker can be issued a licensed by CySEC, the broker is required to join the Investor Compensation Fund Scheme. The purpose of this fund is to protect investor should the broker becomes bankrupt and is unable to fulfill its contractual obligations. Under this scheme, an investor can file for compensation up to a maximum amount of 20,000 euros.
  • Brokers are constantly kept on their toes to ensure they operate fairly as they run the risk of having sanctions and penalties imposed on them. In the worse case scenario, the offending broker might even lose its operational license.

Guidelines for CySEC Regulated Brokers

Before a forex broker can be issued a Cyprus Investment Firm (CIF) by CySEC, it must first be able to meet certain guidelines. Some of these guidelines include:

  • Having more than one individual involved in the administration of the forex brokerage.
  • Under its CySEC license application, the broker must list all the services and products which they plan to offer.
  • Must have an initial share capital of at least 200,000 euros if they handle their clients’ funds.
  • Must have an insurance coverage of at one million euros for individual loss and a total coverage of 1.5 million euros annually for losses resulting from inactions or negligence.
  • CySEC Forex brokers should maintain at least €750,000 in operating capital.

Verifying the Authenticity Of CySEC Regulated Forex Brokers

In order to help investors and traders verify the authenticity of a CySEC regulated broker, CySEC has published a list of regulated brokers on its website which investors can refer to check the authenticity of a broker’s CIF license number. The link to this list is: http://www.cysec.gov.cy/en-GB/entities/investment-firms/cypriot/

In addition, CySEC also regularly issue warnings on its website to warn investors of any unregulated broker claiming to be regulated by CySEC. This list is updated regularly and can be viewed at the following link: http://www.cysec.gov.cy/en-GB/public-info/warnings/cysec/

Conclusion

Although an unregulated forex broker does not necessarily mean that the broker is in any way inferior to a CySEC regulated broker, we have to bear in mind that CySEC’s main objective is to protect the interest of investors. It has no other vested interests except to maintain the reputation of Cyprus as an international major financial center. Furthermore, we should also remember that even regulated brokers can sometimes break the rules. The difference between the unregulated broker and a regulated broker is that for the latter, you have an independent body that will hold the broker accountable for its infractions. So ask yourself this, why should you accept any less from a broker when you obviously have a better choice in term of a CySEC regulated forex broker?

CySEC Regulated Forex Brokers

For the last years, Cyprus, which is an island in the Mediterranean and the part of the EU truly became one of the main hubs of Forex Companies. The destination became popular due to a possibility to carry out operations across Europe through relatively easy establishment conditions, its perfect location and availability of regulatory agency together with low Cyprus taxes.

  • Cyprus Securities and Exchange Commission or CySEC regulate most all of the brokers that are based and headquartered in Cyprus.
  • Furthermore, there are a significant number of companies operating various types of financial activities out of Cyprus and complies with CySEC regulations too.
  • CySEC operates as a subsidiary of the European MiFID which enables members to perform European businesses, yet throughout relatively easy regulatory guidelines and faster approval processes.

CySEC also is a broker-friendly authority that allows most of the financial practices that even showed cases indulged into some high-risk operations and resulted in criticism from the world respected authorities. However, the CySEC constantly reforms its guides in order to ensure that all CySEC Regulated Forex Brokers complies fully with the protective laws towards investors, their funds and interests. Even though there are still many scam brokerage firms establishing their headquarters in Cyprus, CySEC makes its best to assist and not to fall into trouble throughout their official website, where all necessary information about the company or another is listed. It is always strongly advised to choose among regulated brokers, as this is the only possibility to be covered and receive assistance in case the Broker is unscrupulous one.

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