Best Forex Brokers in Switzerland

• Charges a rather high inactivity fee
• Offers limited number of products
• Number of currency pairs is average

Is Forex Trading Legal in Switzerland?

Forex trading is completely legal in Switzerland but requires authorization from the Swiss Financial Market Supervisory Authority (FINMA), the local financial regulator. Both business and private individuals are eligible for license application but must satisfy certain requirements to gain the approval of the Swiss watchdog. Two types of licenses are available, starting with the standard banking licenses granted to entities looking to provide forex broking services in the country. The provision of other securities like forex options, futures, bonds, and contracts for difference (CFDs) requires an additional securities dealer permit.

Brokers interested in acquiring Swiss licenses must meet minimum net capital requirements of CHF 1.5 million and maintain it at all times. Businesses must also establish registered offices in the country to become eligible. Applicants should additionally submit comprehensive business plans confirming they can adequately manage risk and maintain their capital. FINMA usually requires up to six months to assess license applications and bestow its approval on eligible candidates.

Swiss residents can legally engage in spot forex and derivative trading with complex speculative instruments like the CFDs provided they do so with authorized entities. Spread betting on forex pairs is also a regulated activity in the country. Switzerland is among the few European countries where trading with binary options is legal, but their provision also requires a license from the national regulator.

Forex Trading Regulators in Switzerland

The Financial Market Supervisory Authority (FINMA) regulates the operations of all authorized participants in the Swiss financial market, including forex brokers, securities dealers, investment schemes, insurance companies, banks, and stock exchanges. The watchdog assumed its regulatory responsibilities in 2007 as a successor of the Federal Banking Commission. The Bern-based regulator operates independently from the country’s central administration and reports directly to the Federal Assembly of Switzerland.

FINMA’s regulatory powers are far-reaching as it has the remit to set out rules for authorized market participants to follow, monitor for compliance, issue licenses, and revoke them in the event of regulatory transgressions. The watchdog can also impose corrective measures on violators and even liquidate licensees that fail to meet its authorization requirements. Apart from its regulatory responsibilities, FINMA is committed to helping local consumers improve their financial literacy by providing information and sources for further reading.

Switzerland is not a member of the European Union (EU) or the European Economic Area (EEA). Trading in forex and other securities is regulated separately in the country, although some of the requirements overlap with those outlined in the Markets in the Financial Instruments Directive II (MiFID II), applicable throughout the EU.

How to Identify Authorized Forex Brokers in Switzerland

Swiss traders should always verify the regulatory status of their forex brokers of interest before registering live accounts. Swiss-friendly brokers largely uphold high standards of transparency and consumer protection, although there are still a few bad apples in the bunch that serve clients from the country without proper authorization.

The easiest way to confirm a broker is authorized to operate on Swiss soil is to visit the website of the local financial regulator. FINMA maintains a public register of all regulated entities and updates it regularly to ensure residents always have access to accurate information. The regulator also publishes a “warning” list of all brokers providing unauthorized services to clients from the Swiss market.

The regulator has set up a dedicated hotline that consumers can use for general inquiries and information. The hotline number (+41 31 327 9888) operates from 8:00 am to 12:00 pm on weekdays. The alternative is to send an email with your query to [email protected] or [email protected].

Security at Swiss Brokers

Forex brokers with Swiss authorization uphold some of the highest security and integrity standards in the world. They undergo regular financial inspections conducted by accredited audit firms approved by the local regulator FINMA. All locally licensed brokers must disclose relevant information about their current financial position to ensure they consistently maintain the minimum capital requirements set out by the watchdog.

Brokerage firms regulated in the country must keep client funds in segregated accounts at approved banks, separate from their operating capital. The practice eliminates the likelihood of a broker misusing customer assets as FINMA strictly prohibits using client money to cover operating expenses.

FINMA-regulated brokers must act in the best interests of their clients, executing their trades without any delays and at the best possible pricing. Another requirement stipulates brokers must ensure clients are well informed about the high risk of sustaining financial losses when trading with complex speculative instruments like binary options and contracts for difference. Clients trading with authorized entities are entitled to deposit insurance (esisuisse). If locally regulated brokers and securities firms suffer a financial collapse, each client can receive a maximum compensation of CHF 100,000. Swiss traders can find further information about deposit protection at the official website of the self-regulatory organization.

Negative Balance Protection at Swiss Brokers

You may find it surprising but FINMA has adopted a more relaxed stance on retail derivative trading. The local regulatory framework contains no specific provisions requiring Swiss brokers to offer negative balance protection to retail clients. Regardless, all trusted brokerages catering to traders from the Swiss market implement this mechanism to protect clients from losing more than their available account balance.

Negative balance protection is an indispensable tool for retail customers trading high-risk financial instruments with leverage. When in place, it exempts traders from additional financial obligations in the event of a negative balance in their trading accounts. Customers who incur losses exceeding their deposits are not liable to cover their negative balances by making additional deposits. The brokers will reset their balance to zero instead and cover any excess losses themselves.

Taxes on Forex Trading Profits in Switzerland

Profits derived from forex trading are liable for taxation in Switzerland but it all depends on whether traders classify as private or professional investors. Private investors are exempt from paying capital gains taxes on their earnings. Traders must satisfy certain criteria to qualify for a private investor status. They must hold their securities for at least half a year and invest their own capital rather than conducting trades on behalf of others.

One’s trading volume also bears consideration as it must not exceed five times the overall value of a trader’s securities at the beginning of any given tax year. The overall profits of private investors should be less than half of their net income.

Last but not least, private investors can trade with derivative products only for hedging purposes and risk management. Traders who fail to meet these criteria are classified as professional investors and are liable for capital gains taxes. Local tax laws treat the profits of professional traders as self-employment income, with annual tax rates reaching 15%.

Leverage Comparison at Locally Regulated and Offshore Brokers

Swiss forex traders enjoy greater freedom and more flexibility when it comes to increasing their market exposure by using leverage. Switzerland is outside the scope of the Markets in Financial Instruments Directive 2014 (MiFID II), legislation that imposes maximum leverage caps of 1:30 on retail forex accounts. MiFID’s leverage restrictions apply to all countries in the EEA and the EU but Switzerland is not a member of either.

Brokers regulated in the country adhere to the requirements of the Swiss Financial Services Act (FinSA), commonly regarded as the Swiss version of MiFID II. Leverage caps under the local regulatory framework are higher compared to those imposed by Forex brokers authorized in other European countries. Swiss traders initially have access to maximum leverage of 1:100, although increasing this ceiling to 1:200 is possible upon request provided that certain conditions are met.

*The example includes max. leverage caps as listed by the FINMA-regulated bank and securities provider Dukascopy. Other brokers like Swissquote restrict the maximum available leverage to 1:100.

In line with these higher leverages, initial margin requirements for forex majors are set at either 0.5% or 1% at most FINMA-compliant brokers. Customers classified as professional traders often have access to higher leverage ratios reaching 1:400 in some cases.

Professional Trader Requirements in Switzerland

The criteria for qualifying as a professional trader in Switzerland are vastly different from those in other European countries. According to the Federal Act on Financial Services (FinSA), the category of professional clients mainly comprises entities that provide financial services themselves. This includes central banks, insurance companies, pension funds, financial intermediaries, and large companies.

Such entities are commonly treated as institutional clients in other European jurisdictions rather than professional traders. For clarification, “large” companies are those whose equity and turnover amount to at least CHF 2 million and CHF 40 million, respectively. Also, their balance sheets must total CHF 20 million or more. “Large” companies meeting two of these three conditions are eligible for professional client classification.

Trading Platforms at Swiss Brokers

When choosing a forex broker, Swiss traders must consider the trading platforms it supports as software is a crucial factor that can make or break one’s overall trading experience. It is highly recommended to go for a broker that works with trading software you are comfortable using. Many FINMA-regulated providers of forex broking services are run by Swiss banks and rely on proprietary software with unique features and interface.

Others use proprietary trading platforms in conjunction with third-party software designed by well-known developers like MetaQuotes. The company created the MetaTrader 4 (MT4) and MetaTrader 5 (MT5) trading platforms that are broadly implemented by Swiss-friendly forex brokers. Most retail traders from Switzerland favor MT4 for its user-friendliness, quick order execution, and rich range of analytical tools.

MT4 also supports algorithmic trading to the benefit of users looking to participate in the forex markets without spending most of their day glued to their computers. MT5 is an improved version of MT4 as it facilitates faster order execution and offers additional features that are otherwise unsupported by its predecessor.

Third-party software like cTrader (perfect for copy trading), Sierra Chart, TradingView, and NinjaTrader, are also implemented but their availability is more limited. Most of these platforms have free-trial periods Swiss traders can take advantage of to get a proper feel of their user interface and functionalities. Their choice of Swiss-friendly brokers and platforms should be based on factors like trading frequency, style, and forex trading proficiency.