David John253_ DeLuca#12

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What is regulatory arbitrage in hedge fund forex strategies?

Regulatory arbitrage occurs when hedge funds exploit differences in global regulations to reduce costs or gain advantages. For example, a fund restricted by leverage rules in the EU may route trades through offshore subsidiaries to access higher leverage or lower capital charges. Benefits: efficiency, flexibility, and higher profitability. Risks: reputational damage, regulatory crackdown, and legal penalties. Institutions use regulatory arbitrage cautiously, balancing compliance with competitiveness. For retail, recognizing regulatory arbitrage helps explain why brokers operate multiple licenses (FCA, ASIC, offshore) and why conditions differ by region. It shows that regulation itself creates opportunities and risks in forex.