Recently, many traders have asked about the new policies of ESMA and the implications that they will carry towards their trading accounts. This article will clarify about what these new regulations will be and how accounts that belong to brokers operating will be affected by the EU. To start it is important to clarify that ESMA is, the European Securities and Markets Authority. This agency is responsible for ensuring the functionality and transparency of securities markets in the old continent.
The changes will be implemented on August 1 of this year with regard to regulations and limits for retail investors and brokers. These changes will impact within the European markets which will be a major boon for the largest equity market on the planet, Forex.
“These traders lose their capital due to their lack of knowledge of the Forex market”
When we analyze the changes that have been created, there is an evident leaning towards protecting the smaller investors. These traders lose their capital due to their lack of knowledge of the Forex market, often being victims of deceptive advertising and promises of unrealistic returns. These measures are directed towards you and the protection of your assets.
The new measures do not apply to professional clients, that is, those who demonstrate:
- Have carried out at least 10 operations with a value of at least € 20,000 in the last quarter.
- Have an equity equal to or greater than € 500,000
- Have a position as a professional in the financial sector with at least one year of seniority.
Although on July 1, the ban on binary options began to apply to retail investors; it is actually a month later, when the bulk of CFD trading modifications will come into effect.
The limits to the leverage that the broker can offer will remain as follows: The limits to the leverage that the broker can offer will remain as follows:
- 30: 1 for the main currency pairs.
- 20: 1 for gold, main indices and non-core currency pairs.10: 1 for less important indices and Commodities other than gold.
- 5: 1 for individual actions
- 2: 1 for cryptocurrencies.
Other measures of the new regulation are the following:
The closing of transactions by account margin obliges the broker to close the CFD positions opened by the client, when the margin of their guarantees is 50% or lower, considerably reducing the margin of maneuver of the investor.
- The protection against negative balance, which prevents an investor from losing more money than he deposited in his account.
- The restriction to the incentive5s to operate with CFDs, by the brokers.
Although in principle all this looks healthy, this regulation fails completely because it does not adapt to the needs of retail customers as it would require much more capital to invest in different assets. Additionally, the massive reduction in leverage will put a great barrier to entry. Meaning retailers will eliminate even the possibility of trying to negotiate or invest for some people. On the other hand, margin closing rules do not make sense, because if the trader’s strategy involves reversion to the average and systems based on time scales or pairs, it is expected that some positions will be executed negatively ahead of time.Finally, these new policies give rise to the appearance in the market of pirate brokers without any regulation, which will put the investor’s capital security even more at risk. At Tradeview, our CIMA regulation allows us to continue offering our clients all the advantages of leverage, margin and protection of negative balances under a strong and secure regulation for the retail client.