Is a Higher Forex Leverage Necessarily Better?

Investors may still remember that in last September, the European Union issued a new regulation which prohibits any leverage higher than 1:30 being offered to trading accounts under its regulation. Yet some unscrupulous brokers tried to dodge the EU restriction on leverage through offshore branches, in order to attract investors with higher leverage. Recently the forex media Finance Magnates interviewed 10 Europe-based forex brokers supervised by Cyprus or Britain regulators. 5 of these brokers were willing to offer higher leverage and provided a link to registration page or website of offshore branch.

The risks of excessive forex leverage

If you have ever traded forex, youd know that forex price moves slightly, which means it takes a large investment and more time to profit. But with forex leverage, the minute changes of forex price can be converted into larger profits of investors more efficiently. Many investors think that a higher leverage enables them to harness more capital and thus make more profits, yet they tend to ignore that with higher leverage, the risks of investment also increase. Once the market turns against them, investors trading with higher leverage will also suffer heavier loss.

The “high-leverage” traps of illegal forex brokers

“High leverage” is also a selling point that illegal forex brokers on the market often use to trick more investors, and investors usually have a hard time deciding the credibility of such brokers. For instance, BFS which topped the WikiFX most complained brokers list in August claims to offer a leverage as high as 1:1000. However, the broker is in fact illegal as its VFSC(Vanuatu) regulated license was canceled, while WikiFX got 50 complaints against this broker from investors in the past 3 months. BFS is now labeled an illegal broker on the WikiFX App.

How to identify “high-leverage” scams ？

As in countless forex scam cases like the “1:1000 leverage” of BFS, misleading advertisements of illegal brokers on so-called “high leverage” cause many investors heavy losses. Investors need to pay close attention to the warning signs such as “high leverage”, “low trading threshold” and “great bonus” and other enticing slogans, and check the broker‘s compliance and regulatory status to ensure its legitimacy. If you have any doubt about a broker’s compliance, you may download the WikiFX App and check brokers profile conveniently.