Best Forex Brokers in the Czech Republic

• There is an inactivity fee after 1 year
• Capital.com does not accept US customers
• Only CFD trading supported

Is Forex Trading Legal in the Czech Republic?

Though the Czech Republic is part of the European Single Market and an EU-member country, it uses its own currency, the Czech Koruna (CZK). As part of the EU, the Czech Republic allows all European brokers to provide their services to Czech citizens.

Forex trading is a legal and properly regulated activity in the Czech Republic. As mentioned above, Forex brokers are under the regulation of the Czech National Bank. Brokers intending to offer such services in the country must be authorized either by the CNB or by the regulator of another EU member state. Czech traders can open accounts with CNB-regulated brokers and brokers under the MiFID Directive. Said directive provides a unified regulatory framework and enables brokers licensed in the EU and EEA to provide cross-border services through a passporting regime.

Traders willing to register an account with regulated Czech Forex brokers need to provide an ID and proof of residence to verify it. Brokers typically require their customers to complete several Know Your Customer (KYC) questions regarding their familiarity with the financial markets. Opting for a demo account first is highly recommended, as traders will have the opportunity to explore the markets by placing risk-free trades using virtual funds.

Besides standard Forex trading, Islamic Forex trading is also legal, with approximately 20,000 Muslims living in the country, according to a recent census. The minimum age requirement to open a live trading account in the Czech Republic is 18 years. We should also point out that Czech retail traders are prohibited from engaging in binary options trading. The distribution of these high-risk speculative instruments is illegal in the Czech Republic and most other European countries.

The Czech National Bank (CNB) Regulation Info

The CNB is the central bank in the Czech Republic and the regulatory body monitoring the Czech financial market. Established in 1993 under the Constitution of the Czech Republic in conformity with Act No.6/1993, the CNB has its headquarters in Prague and several regional offices spread across the country, including in Brno and Ostrava.

The entity is part of the European System of Central Banks and the European System of Financial Supervision. It also collaborates with the European Systemic Risk Board and with European Supervisory Authorities.

The Bank Board of the Czech National Bank is the uppermost governing body, comprising the Governor, two Deputy Governors, and four Bank Board members. In addition to its main role in maintaining price stability, the CNB oversees the banking sector, the capital market, electronic money institutions, pension funds, and the insurance industry, among others. Czech traders can contact the regulator by visiting an office in person, sending an email to [email protected], or calling on the phone (+420 224 411 111, +420 800 160 170).

How Can I Verify CNB Authorization?

There are several ways to verify if a Forex broker provides its services legally to Czech traders. As Forex brokers operating within the Czech Republic fall under the regulations of the European Securities and Markets Authority (ESMA), traders can navigate to the official website of the institution and check a specific entity’s authorization in the regulatory in the agency’s register. Users can filter authorized entities by licensing status, office, home and host member state.

As Forex trading is strictly monitored by the Czech National Bank, traders can perform the authorization check by navigating to the Bank’s website. The CNB maintains a register of all regulated market participants operating on Czech soil. Local traders can search companies by brand name, registration number, or registered address. Many of the approved brokers serve the Czech market via licenses granted by the regulatory bodies of other EU and EEA member states thanks to the passporting regime introduced by MiFID II.

Last but not least, they can check the regulatory status of an entity by the information provided on its own web page.

Are My Funds Safe with Forex Brokers in the Czech Republic?

While trading in the Forex markets is anything but certain and carries risks due to market fluctuations, traders in the Czech Republic should be aware of several aspects of a secure trading experience.

First of all, as a reputable regulatory authority, the Czech National Bank monitors Forex trading and creates policies designed to bolster market transparency, bring fraudulent practices to a minimum, and maintain financial stability. The Central National Bank has strict regulations in place, including licensing requirements, adhering to fair trading policies, and conducting regular audits of license holders.

Forex trading brokers are obliged to keep client funds in segregated accounts and provide transparent pricing information. Furthermore, to make informed trading decisions, Czech traders should stay up-to-date with global market developments that could cause dramatic shifts in Forex prices.

Risk management is an essential factor in Forex trading and ensuring the safety of one’s funds and assets. Forex brokers catering to traders in the Czech Republic offer various risk-reduction strategies, including setting stop-loss orders, strategically leveraging, and diversifying portfolios.

The so-called investor protection funds or investor compensation schemes are aimed at protecting the capital and assets of retail traders. In case of broker bankruptcy, traders’ assets will be protected. The coverage limits vary based on jurisdiction, with minimums of €20,000 in EU member states.

Do Czech Republic Forex Brokers Provide Negative Balance Protection?

Forex brokers catering to traders in the Czech Republic offer a set of risk management tools designed to help them secure their trades, accounts, and funds. Negative balance protection is one of them, ensuring traders’ account balances will never go beyond zero.

In a dynamically changing market, your account may go into negative balance. Negative balance protection means that even if the market conditions become unfavorable, traders’ accounts will be protected against losses surpassing their original account balance. This protection mechanism could be especially valuable for novice traders who are not accustomed to market volatility. It is typically available to retail traders, with professional trader account holders usually lacking this feature.

Traders can easily distinguish between brokers claiming they provide negative balance protection and those that actually guarantee it, by checking how long they have been in operation. Market presence for more than 10 years is usually an indicator of stability and good standing.

Do You Pay Tax on Forex Trading in the Czech Republic?

Forex trading is a taxable activity in the Czech Republic. As there is no separate capital gains tax in the Czech Republic, Forex traders report their capital gains in the individual income tax base as regular income. The applicable tax rate for citizens of the country is 15%. The Czech Financial Administration provides in-depth information about local tax policies and rates, alongside exemplary forms for filing your personal income taxes.

How Does the Available Leverage of CNB-Regulated Brokers Compare to the Leverage at Brokers Regulated Offshore?

The utilization of leverage and trading on margin is key in Forex trading, as both impact the security of one’s investments. The regulatory bodies, in charge of monitoring the financial sector set leverage and margin limitations to ensure the safety and transparency of markets. Being aware of these regulatory limitations will help you build a successful trading strategy and calculate the size of your trades.

Both leverage and margin trading increase traders’ buying power and therefore the existing limits protect retail traders from exposing them to unjustified risk. The maximum allowable leverage ratios in EU countries, such as the Czech Republic, range between 1:30 and 1:2, based on the volatility of the underlying asset.

In addition to leverage limitations, brokers operating within EU countries are required to provide negative balance protection, which we already covered in one of the previous sections of this publication. The maximum allowable leverage applicable to major Forex pairs is 1:30, whereas the upper limit for non-major currency pairs is 1:20.

For comparison’s sake, the leverage restriction in the US for major currency pairs is 1:50, for non-major currency pairs is 1:20, and for exotic currency pairs is 1:10.

What Do You Need to be Designated as a Professional Trader in the Czech Republic?

Experienced traders may qualify for Professional client status. Most Forex brokers set several criteria for eligible candidates. Some of the most common requirements involve carrying out transactions of significant size at a particular frequency. Additionally, professional account holders must typically have an investment portfolio worth €500,000 and above. Forex brokers may also inquire about a customer’s former experience in the financial markets sector.

Professional customers enjoy greater freedom in terms of their investing decisions and have a greater portfolio of features at their disposal. While retail customers are subjected to more restrictions, they receive more protections, such as negative balance protection and maximum allowable leverage.

Customers who have applied for professional trading accounts but failed to meet all the requirements will preserve their retail accounts. Typically, to open a professional trading account, customers must first set up their retail account.

What Trading Platforms Are Available to Traders from the Czech Republic?

The most common Forex trading platforms available to traders from the Czech Republic are MetaTrader4, MetaTrader5, and cTrader. While MetaTrader4 is the most popular platform for Forex trading, MetaTrader5 offers some of the best solutions for CFDs, and cTrader performs excellently as a platform for automated trading.

Among MetaTrader4’s multiple platform features are the customizable interface, one-click trading, expert analysis, customizable alerts, and mobile compatibility across iOS, Android, and Mac devices.

MetaTrader5 is ideally equipped for trading in Forex and a variety of other assets such as indices, cryptocurrencies, and commodities. This platform’s features are multiple as well, with some of the standout characteristics being depth of market display and technical indicators, trading functions and alerts with email, push notifications on mobile devices, exchange trading, and copy trading, among others.

Designed for trading in Forex and CFDs, cTrader provides an advanced charting solution for traders. The ability to work with split screens is yet another prominent feature of cTrader. The platform is available for download for devices running on iOS, Android, and Windows.