The Cyprus Securities and Exchange Commission (CySEC) is one of the Tier-1 regulators in Forex. As a member of the EU, Cyprus and its CySEC regulation ensure that the broker that you choose will remain loyal and honest to you.
The CySEC license in a glance
In a quickly-growing foreign exchange market, it is of utmost importance to find a broker that owns a decent license from a trustworthy regulator. And the CySEC license from Cyprus is definitely among such regulations.
The Cyprus Securities and Exchange Commission has seen some dark days, but as of today, this institution is associated with trust and respect. The CySEC-regulated brokers come with sturdy backgrounds, as well as top-notch fund protection mechanisms to ensure your safety in the market.
In this guide, we’ll explore every little detail about the CySEC regulation and why you should be looking for brokers with it.
What is CySEC? – A full teardown
The Cyprus Securities and Exchange Commission is the main financial regulator in Cyprus, and being an EU-based institution, it offers enhanced protection and stability measures.
Furthermore, the CySEC regulator isn’t a solitary organ that oversees the entire financial system in Cyprus. The Markets in Financial Instruments Directive (MiFID) is an even larger framework that aims at harmonizing the financial guidelines across the European Union, and the CySEC falls within its reach.
One of the primary aims of the Cyprus Securities and Exchange Commission is to monitor exchange transactions in the stock market. Along with that, it’s also in charge of checking the financial companies, whether it’s investment funds, banks, or brokerage firms.
Beyond the logistics and in plain words, this license ensures that when you choose a Forex broker with the CySEC license, the chances of getting scammed are very slim. And you can find such brokers not only in Cyprus or across the EU, but also internationally – CySEC is one of the most well-regarded offshore regulators too.
Is CySEC regulation good in real life?
As noted already, the CySEC-regulated brokers are usually considered legit and trustworthy. But how does this institution actually ensure that you’re trading with the safest online Forex brokers possible? Let’s explore together.
Fund safety measures
The safety of funds is definitely among the trading aspects people are most concerned about, along with generating profits in the market. And you can rest assured that the brokers that own a CySEC license hold your deposits, as well as profits, as securely as it gets.
One of the most popular fund safety measures you’ll get with such a brokerage is negative balance protection. It’s an assurance policy that should your leveraged position go against you, you won’t actually go into the negative balance and be forced to pay for the losses.
Unfortunately, market prices can easily turn your profitable position 180 degrees. And especially if you’re using leverage, losses can increase exponentially. But with negative balance protection, a losing position will never go below your available equity. If the account balance reaches zero, it’ll automatically close, saving you from paying up for losses.
Another very important and widely-used measure is account segregation. Pretty much all CySEC-licensed brokers store your deposits on separate bank accounts. And these banks are top-tier commercial companies that are well-distinguished in their field.
Holding your funds on segregated accounts ensures that if anything unexpected happens to the broker, i.e. bankruptcy or any other financial difficulty, it won’t be able to use your money for its own purposes. Therefore, you can rest assured that no financial hardship will endanger your deposits/payouts.
And last, but certainly not least, there’s fund compensation policy. Under the CySEC regulation, a broker should feature a 20,000 EUR compensation fund that will reimburse the client if they win a dispute against the said broker.
Restrictions on trading terms and conditions
Besides safety, the CySEC regulation also adjusts trading terms and conditions and ensures that you’re getting the fairest features from your broker.
One of the most significant directives concerns the leverage offering. While other jurisdictions allow higher leverage rates, regulators across the EU, as well as the US, put the maximum cap on this feature, going up to just 1:30.
Being one of the riskiest features in Forex, leverage does increase your prospective profits and losses all at the same time. And the CySEC’s approach here is to have this feature reduced and in a safe margin, rather than have people submerge their accounts into destructive losses.
Alongside leverage, the CySEC and other EU regulators also have a strong stance towards bonuses. According to their ruling, Forex brokers use bonus promotions to increase their platforms’ appeal to the clients.
While there’s generally nothing wrong about this, they further elaborate that bonuses aren’t contributing to the clients’ success or safety in the market. And that instead of those, brokers should focus on the actual trading terms and conditions. Therefore, to give a little nudge to its subjects, the CySEC prohibits bonus offerings altogether.
Trading safety with the CySEC – Final thoughts
When compared to other financial regulators, it is a little bit easier to find a CySEC-regulated broker in the market. But this certainly doesn’t mean that its regulatory framework is somehow inferior to other trustworthy bodies.
Under the CySEC’s supervision, not only are the broker’s actions monitored to ensure an honest treatment, but you are also getting some of the most high-powered fund protection mechanisms. There are also some restrictions on trading features in place, which promote safer and more stable trading sessions.
Overall, trading with a CySEC-licensed broker is a safe and beneficial endeavor.