Paul_ Harris#52

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What is regulatory arbitrage in forex and how do brokers use it?

Regulatory arbitrage occurs when brokers register in jurisdictions with lighter rules to offer higher leverage or lower costs, attracting traders away from stricter markets. Example: EU clients limited to 1:30 leverage may shift to offshore brokers offering 1:500. Brokers often establish subsidiaries in multiple regions, steering clients based on appetite for risk vs. safety. Benefits: choice and flexibility for traders. Risks: weaker investor protection, lack of segregation, and limited recourse in disputes. Institutions exploit arbitrage to lower compliance costs but face reputational risk. For retail, regulatory arbitrage is tempting but dangerous—sacrificing protection for leverage often ends badly. Awareness of arbitrage explains why the same broker brand may behave differently depending on which regulator you’re onboarded under.