ESMA Forex Regulations – What you need to Know

If you are a trader or a forex broker I’m sure you are painfully aware of the new ESMA regulations. Some of the people and organizations that it affects – spells their doom. Others are fully embracing it, since more regulations ultimately means more safety for the clients.

If you haven’t stumbled across an explanation of ESMA yet, it is an independent regulatory body which reports directly to the European Parliament. It also protects EU traders by assessing the risk to them – through products and services available to them.

You probably aren’t preoccupied with how organizations or companies are receiving the news – the thing you care about more is: How does it affect me the trader. Well, let’s take a look.

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No more binary options

The new ESMA regulations prohibit all Binary Options from distributing, marketing and more importantly sales to retail investors. This means that Binary Options and brokers will not be available to European clients anymore. So, if you are a binary options trader, you will have to start investing differently – which we might have a solution for, but we’ll get to that later.

The reason behind the prohibition is that ESMA believes the complexity and opacity of binary options causes 74-84% of traders’ accounts to incur loses.

CFDs Leverage and Standardized Margin Close Out

Although CFD financial products will receive their own ESMA regulations they will not be all out prohibited. First ESMA seeks to restrict leverage on a plethora of financial instruments:

  • 30:1 leverage on major forex currency pairs
  • 20:1 for non-major currency pairs, gold and major indices
  • 10:1 for commodities other than gold and non-major equity indices
  • 5:1 for individual equities and other reference values
  • 2:1 for cryptocurrencies

These leverage limits help retail customers in two significant ways – many novice traders use excessive leverage increasing their potential losses and secondly it will filter out unscrupulous brokers which offer unnecessarily high leverage (2000:1. 1000:1 etc.) wagering their profits on the loses of their clients.

Another one of the ESMA CFD regulations standardizes margin close-out to 50% of the minimum margin required. Not only will this be enforced but furthermore when positions are closed they should be closed in a way that is most beneficial to the client.

There is a solution

As companies start adapting to the new regulations – more and more solutions will be available – or at least the companies that seek to survive will strive to evolve within this new regulatory framework. Just like the GDPR regulations (and the thousands of “We want to stay in touch” emails we’ve received) – Deloitte launched a data breach service the day before GDPR went live. Staying ahead of the curve is always the best strategy.

easyMarkets also seems to want to keep ahead of the curve – as they recently launched a completely new way to trade, that seems to fly in the face of conventional financial products. easyTrade as the company calls it doesn’t require margin, leverage, stop loss and allows the trader to set their maximum risk before they commit their trade.

If you kept track, easyTrade offers traders a new way to trade while remaining compliant to the new ESMA regulations.

ESMA Regulations Overview

  • No Binary Options
  • Lower leverage
  • Standardized 50% margin stop-out
easyTrade

  • Trade in just three steps
  • No need for leverage
  • No Margin

easyTrade has an additional benefit:

  • No spreads, no commissions and no deposit/withdrawal fees
  • Known and limited risk which is set before a trade is made


What is easyTrade

easyTrade is easyMarkets latest addition to its trading platform – it allows traders to choose their instrument, set the maximum risk, chose the duration of their trade and whether they think the price of their chosen instrument will go up or down.

easyTrade

This not only simplifies trading, but it also complies to ESMA’s new regulation.