Image trading

Does the Swedish broker/foreign exchange broker work?

Why is a Swedish broker considered problematic for forex trading?

A broker is a necessity to operate in the foreign exchange market or really any market. It is simply a marketplace that provides access to the market.
A broker can be compared to a marketplace or a department store. It is a designated place where both buyers and sellers meet to carry out transactions. It doesn't matter whether it's a packet of carrots, a shirt or a transaction in a currency pair - the principle is the same.

A broker is thus not a person and other common terms are online broker, currency broker, broker firm, etc. Furthermore, different brokers have different markets they focus on. For example, Avanza is a Swedish broker that focuses mainly on shares, funds and various financial instruments. IG is another Swedish broker that instead focuses on the currency market.

But as the title says, trading in the foreign exchange market through a Swedish broker can be problematic. The reason is called leverage. In short, leverage can be described as a way for a trader to get more space in their account without having to deposit large amounts of capital. Some examples of common leverage:

  • 1:30 (every krona you have in capital gives a space of 30kr)
  • 1:100 (every krona you have in capital gives a space of 100kr)
  • 1:500 (every krona you have in capital gives a space of 500kr)

As you can see, higher leverage provides a larger space or margin in the account. Each trade you then open on your account requires a certain amount of space, which means that the higher your space is, the more/larger trades you can take without your space being too low.

In the EU, there is legislation that limits the amount of leverage brokers can offer us traders. The limit is 1:30 and this is where the problem lies. If you use an Expert Advisor (trading robot), a larger space is often needed for the robot's strategy to work as intended both in terms of return and risk. Even if you trade manually on your own, leverage matters as you may need more room to be able to take the trades you want based on your strategy.

The Broker phenomenon is very broad and there are many different aspects to write about, which means that more posts about the area will be coming in the future. But this is the answer to why you often look for a Broker that is located outside the EU. Of course, it is also important to ensure that the broker you choose is regulated and supervised by the country's equivalent of the Swedish Financial Supervisory Authority.