Switzerland’s primary stock market is the SIX Swiss Exchange based in Zurich that is controlled by an association consisting of 55 banks. This fully electronic exchange was formed by a 1995 merger of three Swiss stock exchanges based in Geneva, Basel and Zurich that each dated back to the 1800’s and which all switched from floor trading onto the pioneering SWX automated platform in 1996.
The main stock index for the SIX Swiss Exchange is the Swiss Market Index (SMI). The index is made up of the 20 most significant and liquid blue chip stocks listed on that exchange by market capitalisation. Besides equities, the SIX Swiss Exchange lists other securities that include Swiss government bonds and stock options. The SIX Swiss Exchange is the 13th largest stock exchange group globally by market capitalization, according to the World Federation of Exchanges.
Forex traders will recognize the Swiss franc (CHF) as Switzerland’s national currency. The CHF is also the eighth most popular reserve currency worldwide, amounting to approximately 0.15% of total central bank reserves in Q3 2018. The Swiss franc was ranked seventh by the Bank for International Settlements (BIS) among the most actively traded currencies in 2016, making up around 4.8% of the overall forex market’s daily turnover that fell slightly from 2013’s 5.2% share.
In November 2018 the Swiss government announced plans to prohibit the trading of Swiss equities on Eurozone stock exchanges in early 2019. The move arose from a dispute with the EU’s government in Brussels and could curtail cross-border stock transactions.
Financial regulation in Switzerland for online forex and contract for difference (CFD) brokers falls under the auspices of the Swiss Financial Market Supervisory Authority (FINMA). Financial market infrastructures and institutions require authorisation from FINMA before they can start operating.
Trading in Switzerland
When looking for an online broker to trade forex or CFDs with, make sure to choose a well-regulated broker that has a strong reputation with clients, since they should be suitable for entrusting a margin deposit with them.
Online brokers generally offer several trading accounts for traders, including:
- Forex Trading: Exchanging one currency for another forms the basis of forex trading. Exchange rates fluctuate as one currency rises or falls relative to another in particular currency pair. The popularity of forex trading has expanded greatly once online trading became possible. The forex market is the most liquid and largest financial market globally and had a daily turnover of $5.1 trillion/day in April 2016, according to data compiled by the BIS.
- CFD Trading: Making transactions in derivative financial instruments known as contracts for difference (CFDs) allows traders to speculate on the future of their underlying assets. Such assets can consist of a currency pair, commodity, stock, stock index or other financial instruments.
- Demo accounts: Funded with virtual money, these accounts can be used to practice trading, test a strategy or check out a broker’s services and platform. Find out more on opening demo accounts here.
- Islamic accounts: These are suitable for traders who wish to trade in an account that conforms to Sharia law. Find out more on trading with an Islamic account.
With respect to trading stocks, the SIX Swiss Exchange provides execution in stocks, fixed income, funds, exchange-traded funds (ETFs), sponsored foreign shares and structured products. Exchange transactions are largely executed in Swiss francs.
Furthermore, the SIX Swiss Exchange has been a leader in the area of electronic trading since moving to an automated trading platform in 1996. The exchange currently uses the X-stream INET trading technology implemented in its SWXess trading platform.
Opportunities of Trading in Switzerland
Switzerland has traditionally benefited offering top-level infrastructure, a business-friendly regulatory and legal environment, and a highly-educated workforce that remains both reliable and flexible.
Furthermore, according to export.gov, Switzerland has a very favourable geographical position as a “gateway to EU markets”. The country offers additional business opportunities as follows:
- A sophisticated market for high technology products that can act as a test market
- A good platform for marketing to Europe, Africa and the Middle East
- Extensive computer and Internet usage among the population
- Strong interest in renewable energy and especially solar power
- Large pool of global assets providing opportunities for financial services providers
- A top country for research and development
- Excellent nano- and biotech sectors
When it comes to practical matters for new businesses planning on opening an office, like dealing with registering property and getting electricity, Switzerland ranked favourably at 16th and 11th respectively on the World Bank’s list of countries, although the country only ranked 69th for ease of dealing with construction permits.
Challenges for Trading in Switzerland
The EU remains Switzerland’s nearest and largest trading partner, so any strain in the relationship between these neighbours could cast significant uncertainty on the Swiss economy. Furthermore, as a consistent net exporter with a high trade-to-GDP ratio, Switzerland’s economy can suffer from tariffs, trade wars or the failure of major trade agreements. For example, a current issue involves extending the so-called “equivalence decision” that allows EU clients to access Swiss financial exchanges.
The Swiss National Bank (SNB) has often pursued a stable exchange rate policy with respect to major trading partners like the EU. Due to strong interest in investing in Switzerland and its relative safe haven status, the strength of the Swiss franc versus the Euro in times of trouble like the European Debt Crisis forced a sharp revaluation of the Swiss currency in January of 2015. When such shocks are announced, they can also affect the Swiss economy in general, as well as the USD/CHF and EUR/CHF exchange rates, which can cause issues for forex traders seeking more orderly markets.
Although they do not directly affect Swiss imports, the imposition of trade tariffs and the resulting trade war between the United States and China threatens a likely negative impact on Switzerland overall since the country has a rather high trade-to-GDP ratio, making it more vulnerable to trade issues. The resulting flight to safety may also boost the Swiss franc, making Swiss exports less competitive abroad.
Switzerland was only ranked 38th for the overall ease of doing business by the World Bank, and the country ranked even worse at 110th for protecting minority investors. When it comes to starting a business and obtaining credit, the picture was also not very favourable, with Switzerland ranking 77th and 73rd respectively. This indicates a relatively unfavourable environment for business start-ups and retail traders.
With respect to trade with other countries, the Swiss Federal Department of Economic Affairs, Education and Research (EAER) recently highlighted some challenges Swiss foreign economic policy presents. These challenges included:
- Strengthening the multilateral trading system
- Solving important issues with the EU
- Mitigating competition disadvantages from a US-EU trade agreement
- Opening up additional markets, especially those in Latin America.
Why Traders use Swiss Brokers
Swiss Forex brokers are required to be registered as a bank with the Swiss Financial Market Supervisory Authority (FINMA) – an independent regulatory authority who protect financial market operations and have sovereign powers over financial services providers in Switzerland. In order to achieve their regulatory status, Swiss brokers undergo a detailed registration process. This ensures that only the most financially and organisationally sound brokers are provided with a licence to trade Forex by FINMA. Once registered, Swiss brokers are given considerable flexibility around their Forex operations. They are still, however, subject to the stringent regulations of FINMA, and their practices are kept under thorough supervision.
Swiss brokers attract traders who require protection of their private banking information; Swiss banks are required by law to protect the confidentiality of their clients.
Pros and Cons of Trading Forex with a Swiss Broker
One benefit of trading with a Swiss broker is that under the Swiss Depositor Protection Scheme, all Swiss securities dealers and banks must have deposits protected by ‘esisuisse‘. This depositor protection scheme ensures that their clients’ funds, up to a maximum of 100,000 CHF (around 80,000 GBP), are protected in the event of the broker becoming insolvent. No more than 100,000 CHF is protected per depositor and this is paid in under one month following insolvency. This also applies to deposits made with foreign branches.
Privacy protection is also a major deciding factor for many traders, although Swiss banks can be required in certain circumstances to reveal account holder details, such as in relation to a criminal investigation when an order has been issued by a judge or prosecutor.
It should be taken into consideration that when trading with a Swiss broker, the Swiss national currency (CHF) is used on their platforms. As the CHF is one of the most traded currencies in the Forex market, traders will also be exposed to currency movements between the Swiss franc and their domicile currency.
Furthermore, traders who are choosing a Swiss broker will be faced with a limited choice in comparison to those who are not restricted to a broker from a particular country.
Swiss brokers are also more suitable for traders with large capital sums to trade with. Small individual traders may find that they do not have sufficient capital to open a trading account with regulated Swiss brokers.
Popular Swiss Brokers
Some popular Swiss brokers are DukasCopy and Swissquote Bank Ltd. With Swissquote Bank, a minimum dealing amount of 1,000 CHF is required to trade Forex. A free demo account is available for a trader to test their services before opening a live account. It should be noted that in addition to the FINMA regulated Swiss Bank Account, Swissquote also have an FCA regulated brokerage based in London, which is subject to FCA regulations and offers deposit protection of up to £50,000.
Overall, many traders and businesses find Switzerland a relatively safe country to operate in due to its neutrality and competent oversight under FINMA’s regulatory structure. Some are also attracted to the country’s reputation of providing relative secrecy to banking clients.
When searching for a broker to trade through in Switzerland, people should check to see that they offer a suitable range of asset classes, a decent trading platform, strong regulation, and adequate financial security for a margin deposit.