The Cyprus regulator that licenses a large share of EU retail forex and CFD brokers, which then passport across the European Economic Area.
Cyprus became a hub for retail forex and CFD firms because an EU licence there allows passporting into every member state. CySEC therefore supervises far more retail brokers than the size of the domestic economy would suggest, and applies the esma leverage caps, negative balance protection, and close-out rules.
Client money must be segregated, and eligible claims against failed members can be paid by the Investor Compensation Fund up to a capped amount, which is considerably smaller than sipc-coverage-limits.
A CySEC licence is real regulation, but check the entity you actually sign with. Many groups route non-EU customers to an offshore affiliate with a different licence, different leverage, and no EU compensation scheme.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Educational only, not advice. Spotted an error? Post in Site Feedback.