Best Forex Brokers in Switzerland

A brief history of trading in Switzerland

Currency trading was a rather lax activity in Switzerland before 2008. Before this, there were few regulatory objectives concerning the trading of currencies in the country. Most of the laws and regulations during this period were meant to curb money laundering when changing currencies. As a result, there were more than 200 forex brokers who were operating in the country. It is common sense that not all these forex brokers could be trusted with funds from their clients. In a bid to protect the clients from unscrupulous Forex brokers, the regulating authority of financial services in the country decided that Forex brokers would also need banking licenses before they are allowed to operate.

On March 31, following the 2008 recession and the need to protect clients from unsafe forex brokers, the Swiss financial market supervisory authority sought to have forex brokers meet the same requirements as that of a bank. The banking industry is often the most regulated sector in most economies and this move resulted in only two forex brokerage companies remaining in the country at the time. A key point to note is that Switzerland is known for its stable financial institutions which arose due to the stringent rules and compulsory self-regulation.

Forex regulation in Switzerland

One of the major ways through which regulations in Swiss differ from FX regulations in other countries is the amount of freedom that both Swiss brokers and traders are accorded in the country. The country views its traders as both experienced and mature. Due to this, there are limited restrictions that are to be imposed on the traders and even the brokers. Leverage, for example, is a really important tool that traders can use to increase their profits. If not used well, however, leverage can also magnify the losses that traders get especially if they do not have the knowledge and skills to use the instrument well.

Unlike other jurisdictions with mature regulatory frameworks, Switzerland does not set a cap on the amount of leverage that forex brokerage companies can set. Also, the regulatory authority does not bar traders and brokers from engaging in credit card funding or imposing other minor restrictions. As a result, brokerage companies can easily set the terms that they consider appropriate for their clients. Although many countries all over the world have stringent FX regulations, their enforcement mechanisms will determine whether these regulations are ultimately effective. In the case of Switzerland, there are both internal and external audits that are mandatory for financial institutions. Since Forex brokerage companies are treated as banks, they also have to carry out these internal and external audits.

The FX firms must carry out an internal audit. To ensure the credibility of these internal audits, the process is delegated to subordinates who report directly to the company’s board of directors. Since the report will be sent directly to the board and not to the executive management, there can be some sense of authenticity. Also, there needs to be a distinction between the board of directors and the senior management with the former expected to be independent. In the case of external audits, banks, and forex firms have to get an external auditor who will have two primary functions. The external auditors will first audit the financial statements of the business in compliance with the statutory rules of the country. Secondly, they will also conduct an audit in a bid to ensure that the firms comply with the regulations and the banking rules of Switzerland. To ensure there is independence and credibility, any external audit reports made by external auditors will be sent directly to FINMA (Swiss Financial Market Supervisory Authority). Any observations and even deductions that the auditors make are presented before the regulatory authority to ensure that the body has an understanding of the financial institutions.

Monitoring and Regulation of Brokerage companies by FINMA

There are a couple of measures that the regulatory authority takes to ensure forex firms and even banks are in compliance with the rules. One of the key enforcement mechanisms that they use is proposing a change of management. For example, if a brokerage firm does not have competent people to run its affairs, the body may require it to change the whole management or even ban certain individuals from becoming managers. FINMA can also impose some risk compliance activities in a bid to ensure that the client’s funds in the firm are safe. In cases where a forex brokerage company violates the forex regulations, the regulatory authority may choose to halt all the financial operations of the firm or require a change in shareholder composition.

Another key enforcement and regulation measure taken by FINMA involves mandatory disclosure requirements. Traders eventually need to know and understand the financial position of their forex brokers to ascertain their financial stability. After all, who would want to trade or invest with a company that is facing financial squabbles? For this reason, clients should have access to some level of reliable financial information that has been duly audited and authenticated (check FINMA Regulated Forex brokers ). Swiss banks are mandated to publish a couple of reports to their clients. First, they need to report an annual report after every financial year but before the completion of 4 months. Furthermore, each bank also needs to publish its income statement and even balance sheet every half-year. Since forex companies need to meet the same legal and operational thresholds as Banks, they are also required to comply with these regulations. The high level of transparency among these companies makes it easier for Swiss traders to evaluate the best or the safest Swiss forex brokers in the country.  

While the above enforcement and regulations guarantee some level of safety on the part of the traders, they do not offer any guarantee that there will be no incident that happens. The only thing that can guarantee forex traders’ safety against bankruptcies is the depositor scheme set up by the Swiss government. Bank and even forex deposits in Switzerland are guaranteed against bankruptcy to the tune of CHF 100,000. This rate is insured for each client in every bank.

How to Choose a Swiss Forex Broker

Trading platform

An important consideration for most traders is the type of trading platform that their forex broker supports. As a trader, you will interact with the trading platforms on several occasions and it is important to ensure it has a great user interface. A good trading platform will have a variety of features including charting tools, forex data, and even financial news that affects the financial markets. Some of the good trading platforms include MetaTrader4, Webtrader, and even Mobile Trader.

Financial stability

No one wants to invest in a failing brokerage company and the Swiss government has made stringent regulations to ensure that forex traders know the financial health and position of their brokerage firm. According to the rules set by FINMA, brokerage firms are expected to publish their financial information on an annual basis. Since brokers need to publish and audit their financial statements, traders can rely on this information to make informed decisions.

Customer support

You will have to interact with the customer support of your fore broker and this may make a big difference in whether you will make a profit or a loss. For example, you are likely to lose funds if a trading platform takes time to execute a trade. What should you consider when choosing a forex broker with good customer service? You need a polite and even polite customer representative who will always be there to attend to your needs at any time. The forex broker should also have several communication channels which may include live chats, phone numbers, instant email, or even online contact forms.

Popular Forex brokers in Switzerland

1. Dukascopy

It offers direct access to the foreign exchange marketplace. One of the primary benefits of the marketplace is that the FX broker offers the biggest pool of ECN forex liquidity. The brokerage firms cater to hedge funds, institutions, banks, and other retail investors. It is FINMA regulated and also has a European branch which is EU licensed and wholly owned by Dukascopy Bank SA.

1. Swissquote Bank

This is one of the popular forex brokerage firms in Switzerland. Swissquote Bank is regulated by two regulatory authorities including the Financial Conduct Authority of the UK and the Swiss Financial Market Supervisory Authority (FINMA). The minimum deposit for this forex broker is 2,000 Euros with leverage of 500:1. It also offers several trading platforms which include

1. MetaTrader4
2. Advanced trader
3. Web-based trader
4. Mobile-based trading

Unfortunately, it does not offer a free demo account and also rejects US clients due to the stringent regulations imposed.