Switzerland benefiting from ESMA Product Intervention
The European Unions forex industry was forever changed in 2018 when the “European Securities and Markets Authority” announced a series of new product intervention measures onto the retail traders. These suites of changes have dramatically influenced markets across the continent, with some benefiting and others suffering. One of the countries that regularly benefit from ESMA’s product intervention measures in Switzerland. As a country known for being a tax haven, it isn’t surprising that the Swiss have found methods that allow them to turn a profit in a volatile market.
An Expensive & Small Market
The Forex Market in Switzerland is effectively regulated through the Swiss Financial Market Supervisory Authority. Their an independent regulator that has government level authority over forex brokers, banking institutions, retail traders, securities dealers, insurance firms, stock exchanges and crypto traders. Before anybody can work in any of these sectors, they must first receive a license from the SFMSA before legally maintaining their services. This will be a difficult task for many as €20 Million USD is required as a bare minimum to apply for this license.
As such, those who maintain FX services in Switzerland have significant capital and can afford the associated cost that comes when the ESMA implements new product intervention measures. The €20 Million capital requirement is the largest in the European Union as well, with the average operational cost in Europe being €100,000.00 to €1,000,000.00. The only other country on earth that requires such a significant beginning capital is the United States of America.
The marketspace in Switzerland has become relatively small as a result of these significant capital coverages. There are only two brokerages in the Swiss FX Market that accept retail clients to their exchanges, those being SwissQuote and dukascopy. Out of these two brokerages, it’s SwissQuote that has a large percentage of the client. There are additional FX Firms in Switzerland, but they don’t accept retail traders. Those include the Saxo Bank, IG Group and TickMill.
The Switzerland Regional Manager for TickMill, Elena Christodoulou, spoke about the FX Market is Switzerland by saying: “Although Switzerland is popular for being a hub for asset management companies, due to the taxation structure, it is also one of the biggest Forex Trading Centers in the world. The FX market in Switzerland is already well developed, with a strong FINMA regulation. Compared to the amount of FCA or ASIC regulated brokers, though, the options for traders choose between Swiss regulated Broker are very limited.”
The Benefits for the Swiss
Switzerland is in an odd position as a country right now. Even though they aren’t a part of the European Union, they are immensely close and are still affected by every decision the union makes. The regulation changes positively affected Switzerland, as traders from multiple countries began looking for local offshore jurisdictions that also had high leverage. The first on the list? Switzerland.
On average, the exchanges maintained in Switzerland, provide a leverage of 1:100. This is the standard leverage amount for SwissQuote, the most popular exchange in the country. These leverages can be customised to higher amounts depending on the client & far outweigh the 1:30 leverage cap that the ESMA has enlisted. Since the new product intervention measures were implemented, the country of Sweden has seen significant increases in trading volumes and new trader accounts being created. Countries in the European Union & Britain have both reported a significant drop in trading volumes, client activity and profit since the arrival of the ESMA product intervention measures.
ESMA creates Swiss FX Boost
In all technicality, it’s speculation to say that the product measures have increased the trading volumes and client activity for the FX Market in Switzerland. However, with that said, most analysts and industry insiders collectively agree that this is the reason why the Swiss have seen a boost in FX Popularity. Looking on a global scale, all foreign countries maintaining a forex market have seen increased trading revenue a client activity. Switzerland has had a higher level due to its proximity to the European Union.
Elena Christodoulou continued her comments about the market space by adding: “Obviously the product intervention measures that were implemented by the European Securities and Markets Authority in August, had an impact on the dynamics of the industry. Traders who were interested in trading with higher leverage started to look for options outside the EU. Whether now this has benefitted Switzerland directly, it is questionable, as there are also alternatives to Switzerland and additional aspects need to be taken into consideration. Among others, this can be the minimum deposit amount and the trading conditions/costs.”
Swiss FX Trading
Switzerland FX Market is ultimately no different than any other maintained worldwide. The traders use the same investing patterns and have the same appetite for high-risk rewards. The only difference between Swiss Traders & everybody else is that the Swiss are strategic, thinking of every trading avenue in advance.
Elena Christodoulou ended off her public statements by saying: “Disregarding the factors that are impacting the market, in general, it will be fascinating to see the development in Switzerland. In case there will be no regulatory changes, as we saw in Europe, there might be an increase in brokers obtaining Swiss regulation. More competition in the market could have a strong impact on the trading conditions, which clients could benefit from.”
Tom Arran
