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Traders look for brokers with better leverage

Leverage, Leverage, wherefore art thou Leverage?

Like Juliet searching for her Romeo, traders are on the hunt again.

On March 29th 2021, Australia will reduce the leverage rates offered to retail clients to match that which the European Securities and Markets Authority (ESMA) imposed exactly 32 months ago to the day, back in 2018.  Traders flocked from the UK and Europe, across half the globe to open accounts with Australian brokers and now find themselves in the same boat of searching for a broker that still offers higher degrees of leverage without these tightening restrictions, and there are fewer and fewer options for them.

A large proportion of traders do not meet the requirements to be deemed as professionals and therefore aren’t privy to the extended leverage options professionals are afforded, so where should they go next?

It is likely that many clients will continue to search for brokers offering 200:1 leverage but with these options being greatly reduced there should be some key criteria that retail clients should consider when choosing their next broker:

  1. How long have they been trading for?
  2. Where are they based?
  3. Who are they regulated by?
  4. Do they have independent client reviews?
  5. Do they offer negative balance protection?

How long have they been trading for?

Do they have a long-standing history of servicing clients, receiving and sending client funds, and managing the day-to-day responsibilities that inherently come with being a reputable broker?  Or have they just started up in a new jurisdiction to try and cater for this migratory business?

Where are they based?

Is the country they do business in a recognized region for financial services? Is there recourse in that region should the worst happen?  Do they have client service which covers the market hours you wish to trade and do they speak your language? As trading is not always a straightforward business and timely, clear communication is key when your broker’s assistance is needed.

Who are they regulated by?

Are they licensed by a reputable regulator and how do you know who is reputable?  There isn’t a list of who is good or bad but doing your homework to feel more comfortable is worthwhile. This can be paired with the real-life user experiences from the following point…

Do they have independent client reviews?

There is a great deal of “pay for” review sites whose reviews could be misleading as they are paid for by the very broker the review is about.  To avoid these biased websites, it is best to find independently verified review sites such as Trustpilot (there are a few others as well) and check out what the clients really have to say.  Don’t just read the 5-star reviews but filter on the one and two-star reviews to see how bad it can get.  Everyone may have angry clients for one reason, or another, so check to see if the company bothers to reply to their reviews and most importantly, the manner in which they reply. This can tell you a lot about how the company treats and values its customers. 

Do they offer negative balance protection?

Clients are at risk of losing more money than they have deposited if this is not offered and with market volatility as it has been over the last year or two, this is an important feature.

There are other points such as ensuring they offer the trading platforms and instruments that you require along with requesting sufficient detail from you which you would come to expect when opening any financially related account.

So now you are armed with the information to find yourself a broker offering you as much protection as possible while still giving you the benefits you are accustomed to, there aren’t that many of us.