On March 2018 the European Union has discussed about new ESMA regulation applying to Binary Options and Forex&CFDs broker. The new ESMA regulation should start to be affective from the beginning of summer 2018. This article will explain how the regulation will impact all traders and brokers.
New ESMA regulation details
In March 2018 the financial regulator of European Union called ESMA (European Securities and Markets Authority) has published a now regulation that will impact all the binary options brokers and forex&CFDs brokers in its territory.
It is unclear yet when the regulation will be officially applied, the only clear aspect it’s that binary options and CFDs will have face important changes if tradable in brokers located in the European Union and U.K. as well for the moment.
The new ESMA regulation needs to be renew each 3 months by the authority to remain in force.
The regulation for binary options it’s very clear: they will be considered illegal. This represents the end of binary options and all those brokers offering them.
For CFDs the regulation will apply few changes:
- the maximum leverage for major currencies (EUR/USD, GBP/USD, USD/JPY, etc.) will be 1:30
- the other currencies, indexes and gold will have a leverage of 1:20
- individual equities will have a leverage of 1:5
- cryptocurrencies won’t have a leverage greater than 1:2
Finally all the regulated brokers will need to apply the following changes:
- provide a negative balance protection; this means it is impossible to go under zero and lose more money than what a trader deposited
- every type of bonus is banned
- brokers must display a risk warning
- brokers will be required to close a client losing position when the account equity reaches the 50% of the required minimum margin to keep it open.
What does the ESMA regulation mean for a trader
All of these new restrictions are done with one simple goal: protect the trader and turn the online trading world as transparent as possible.
For a trader there will be some differences: the maximum leverage will be lower which means that in front of a lower potential profit, there will be a lower risk to lose all the money in markets with high volatility.
Having a broker that closes automatically a position which could risk more than the 50% of your the equity it’s an important proof that shows how much the authority allows a broker to co-manage the risk with clients without much experience in trading and most of all in risk management.
The fact that every type of bonus is banned will help to avoid all those past situation where brokers have offered high bonuses with nontransparent terms&conditions in it that have been the cause of long debates between brokers and clients.
To learn more about all the broker which will apply the new ESMA regulation, please click here: https://tradingonlineguide.com/best-forex-trading-platform/