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ESMA extends binary options limits to July 2020
If you study the structure of the global financial market (more precisely, the segment where operations are carried out online), you can see that over the past decade there have been global changes. And even well-known and reputable economists cannot give them a definite assessment.
Among the most important events that led to global changes in the global financial system are the following:
• The emergence and development of cryptocurrency.
• Practical application of blockchain technology.
• The rapid development of online trading.
• The emergence of new financial instruments and assets (including binary options).
• The unprecedented growth in the volume of speculative operations on the stock exchanges, stock and currency markets.
• Unsuccessful attempts of the countries-leaders of the world economy to create a legislative framework for monitoring the situation on financial markets.
In addition to the above items, it is necessary to remind readers of the previously unprecedented rate of development of fraudulent schemes in the online trading system, as well as unsecured loans. In a stable economy, they do not represent a real threat, and during a crisis – they can play the role of a time bomb. But, of course, we should not forget about the inability of the world economy to independently “balance” the imbalance between a developed and relatively rich Europe, the USA and poor states in Africa, South America and Asia.
Binary options in the EU, how it all began
Retail transactions in financial markets that allow traders to earn income can be divided into several groups (regardless of the specific asset):
1. You work with a decent broker who has licenses of authoritative regulators, own representative offices in many countries and impressive capital, which allows, in case of force majeure situations, to fulfill your financial obligations.
2. The trading floor is inferior in capitalization to the brokers of the previous group, but it enjoys prestige among traders and has a good reputation in the business world. Almost no one guesses that such companies have their own “skeleton in the closet” – in some situations, these brokers do not withdraw clients’ money to the real market. They can be used for short-term (and rather expensive) loans, and when it comes time to pay off investors, the company attracts the financial resources of other clients that help it fulfill its obligations. It is not strange, but such trading platforms work quietly for a long period of time (5-10 years), without fearing that someone will make any claims or charges against them.
Der beste Broker fur binare Optionen fur 2020!
Ideal fur Anfanger!
2 Platz in der Rangliste! Zuverlassiger Broker.
3. And the last group – ordinary crooks and scammers. Their main goal is to get as much money as possible and disappear in order to organize a similar project again after a certain time.
Perhaps the readers of this review will not immediately understand why such a long introduction, because there is not a single word about binary options. The fact is that the emergence of this financial instrument from the first days of its existence caused a lot of contradictory reviews, reviews and forecasts. But the fact that brokers and the first and second groups did not refuse to work with binary options, can be considered proof of the legitimacy of such transactions.
Originating many decades ago on the Chicago Stock Exchange, this financial instrument was indeed proof that it gives the right to buy certain assets at a fixed price. These were real stock options. Decent European brokers believed that they would very soon create a market for the assets under consideration. But in fact, everything went wrong (let’s not look for the guilty, just consider the situation as a fait accompli).
In the online trading sector, the popularity of betting (bookmaker) options is growing every day. A simple algorithm for working with them attracts a huge number of users who did not understand what it was and were not going to delve into the essence of the matter. Naturally, small investors daily lost huge sums of money, which made them turn to the regulators so that they “deal with the scammers.” As a result, in July 2020, the ESMA (European Organization of Securities and Markets) granted the request of law-abiding EU citizens.
How was the “struggle” with binary options
Among the main reasons for the prohibition of binary options, the ESMA employees highlight the following:
• Protection of small investors from inevitable losses on operations with BO.
• According to many reputable financiers, such operations have nothing to do with the real economy.
• The unstable economic situation forces many EU citizens to risk the latest savings in order to improve their financial situation with BO.
• The events of 2020 played a significant role, when well-known payment systems refused to cooperate with companies that traded BO, and some countries adopted their own laws prohibiting binary options (Israel, Belgium, France).
• Analysis of the activities of some European trading platforms showed that they are ordinary financial pyramids.
In addition to the BO, ESMA banned the activities of CFD brokers and strongly tightened requirements for leverage transactions.
What can traders planning today to work with?
Starting from July 2020, the ESMA holds meetings every 3 months regarding the future of BW. The leadership of many EU countries do not like this position, many of them argue that in the near future they will adopt their national laws, which will ban financial transactions with binary options forever.
The only indulgences for participants of the BO market were taken last fall, but they affected only long-term operations with minimal financial risk, as well as those market participants who can prove their professionalism in this field of activity. The next meeting of the ESMA will be held in June 2020, and the regulator may finally take a final decision on this issue.
“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”
Чем грозят новые правила ESMA?
Ранее в этом году Европейская служба по ценным бумагам и финансовым рынкам (ESMA) приняла решение о необходимости изменения правил торговли бинарными опционами и CFD. Мнения представителей отрасли касательно нововведений разделились: кто-то считает, что изменения могут иметь катастрофические последствия.
Чего именно стоит ожидать от новых регуляций и как сохранить доступ ко всем торговым инструментам? Читайте полную статью, чтобы узнать.
Прежде чем узнать, как обойти ограничения, накладываемые европейским регулятором, взглянем на те изменения, которые в скором времени вступят в силу.
Во-первых, ESMA решила запретить все формы торговли бинарными опционами. Начиная со 2 июля 2020, только трейдеры с подтвержденным профессиональным статусом смогут торговать бинарными опционами. Для всех остальных (ритейл-клиентов) этот продукт станет недоступен.
Во-вторых, ESMA вводит ряд нововведений для контроля над рынком CFD. Счета всех клиентов (как ритейл, так и профессиональных) должны быть оснащены защитой от отрицательного остатка. Значения мультипликаторов, доступные ритейл-клиентам, будут значительно снижены и с 1-го августа составят:
- 30:1 для основных валютных пар;
- 20:1 для прочих валютных пар, золота и основных индексов;
- 10:1 для прочих сырьевых товаров и прочих индексов;
- 5:1 для акций;
- 2:1 для криптовалют.
Как можно заметить, рынку криптовалют досталось больше всего, в то время как основными валютными парами можно по-прежнему торговать с достаточно высоким мультипликатором. Сделки, открытые на CFD, будут закрываться, если уровень маржи опускается ниже 50% от изначально необходимого.
Отныне всем трейдерам должна быть гарантирована защита от отрицательного баланса. Впрочем, для клиентов IQ Option это и без новых правил давно уже так. Защита от отрицательного баланса — гарантия того, что трейдер не сможет потерять больше денег, чем есть у него на счету. Полный список изменений не ограничивается указанными здесь нововведениями. Однако именно эти могут оказать наибольше влияние на вашу торговлю.
Новые правила регуляции, предложенные ESMA, уже вызывают вопросы у трейдеров. Ритейл-трейдеры (все те, кто не получил статус профессионала) больше не смогут торговать на бинарных опционах и пользоваться достаточно высокими значениям мультипликатора. Некоторые торговые стратегии, таким образом, станут попросту недоступными. Трейдерам придется не только искать новые стратегии, но и осваивать новые инструменты. На последнее может уйти достаточно много времени и сил.
Как и всегда на финансовых рынках, высокий риск сопряжен с высокими прибылями. Пытаясь защитить трейдеров и минимизировать риски, связанные с торговлей, ESMA отбирает значительную часть их финансовой свободы.
Новые правила от ESMA — это не конец мира, однако и они смогут существенно повлиять на то, как и чем вы торгуете. Что можно сделать для того, чтобы избежать строгих ограничений? Единственный способ — подтвердить статус профессионального трейдера. Об этом — в другой нашей статье.
Внимание: статья не является инвестиционным советом. Любые отсылки к поведению цен активов в прошлом приводятся в информационных целях и основаны на внешнем анализе. Мы не гарантируем того, что подобное поведение повторится в будущем.
Предупреждение о рисках
Контракты на разницу — это сложные финансовые инструменты, связанные с высоким риском потери денежных средств по причине использования мультипликатора.
87% розничных инвесторов теряют деньги, когда торгуют с данной компанией.
Вам стоит удостовериться в том, что Вы полностью понимаете механику работы контрактов на разницу и отдаете себе отчет в возможности потери денежных средств.
ESMA – Product Intervention
ESMA has intervened and set the new regulatory playing field for traders and providers of Contracts for Differences (CFDs) and FX.
In this post we first outline the new regulation, and then review the consequences for:
- DARWIN Investors
- DARWIN Providers (aka traders)
- Not (yet) investable
- Brokers & Broker-dealers
ESMA published its official statement on this link , but here are the measures in a nutshell.
It’s the end of an era
First: bye bye, binary options.
Second: bye bye, wild west CFDs
- Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:
- 30:1 for major 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;
- A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;
- Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;
- A restriction on the incentives offered to trade CFDs; and
- A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.
Impact on Darwinex
Let’s first review the items one by one – and then overall.
- Reduces structural risk – we’ll sleep better on lower leverage
- No impact on DARWIN investors / traders
- Risk to drive some trader business offshore
Great improvement from previous “per-trade” suggestions – saved a lot of development resources on this one!
A red-herring – probability of negative balances on new leverage very limited. Requires regulatory status change for brokers.
We’ve never provided them!
Overall, we had argued that forcing CFDs on Exchange would fix CFDs once and for all… but this hasn’t happened yet.
Meanwhile, 2 takeaways for Darwinex:
- Competition no longer imposes leverage levels harmful to both us and customers
- We’re upgrading our matched principal to a full-scope broker-dealer permission
We have argued that a conflict free, agency only model is the most transparent way to align incentives with customers. ESMA preferred to “invent” negative balance protection instead… so we’re upgrading our regulatory permission to a full-scope broker-dealer.
We’re doing this because it’s technically impossible to offer negative balance protection and not take market risk… but: rest assured that Darwinex will leverage its new license to disrupt brokerage further! More on that when the time comes
ESMA intervention for DARWIN investors
This one’s quick
In a nutshell: no impact
- The new target leverage levels that ESMA has now finalised are above the maximum leverage thresholds that the risk manager would tolerate
- Leverage limits apply at a DARWIN portfolio (not DARWIN individual) level – this adds extra breathing room
So, what about traders?
ESMA intervention for traders
We expect the European CFD market to
- Shrink: somewhat in the short-term: less gambling advertising budgets will flow into CFDs, and will go elsewhere (online gambling, crypto, offshore, etc.)
- Mature: bucket-shops will finally go away, and with them the regulatory stigma that’s hurt the entire sector.
Overall we remain bullish on retail trading: financial markets remain the highest payout game out there. With tighter controls, the general public (and regulators) will realise that the problem was not CFDs, but wild-west CFDs.
Volumes will eventually come back, stronger – just like when other jurisdictions (Singapore, Japan, etc.) restricted leverage.
For good traders, ESMA tilts the balance:
- Away from borrowing debt capital from brokers,
- Towards investor equity capital (unlimited, healthy leverage)
Which is another of saying: broker leverage is limited, but with a high capacity, high quality DARWIN, investor leverage is infinite , in addition to risk-free .
We have a vested interest in saying this, but hey, DARWINs are now more appealing than ever . We look forward to more investable managers leveraging the DARWIN Exchange to tap into investor capital – it’s a win-win for them and their investors!
(Future) Investable traders
… are arguably the biggest beneficiaries.
Lower leverage offers:
- Longer learning curves : newbies won’t fritter their accounts away into leverage. This will buy them more time to learn how markets work… and work-out winning strategies that are worthy of investor capital
- Lower advertisement budgets : b-book profitability will dramatically fall. This, together with bans on bonuses and advertising, will reduce the amount of ignorant innocents who approach markets with the wrong mind-set
Brokers & Broker-dealers
As discussed above, there will just be broker-dealers going forward.
Darwinex will formally graduate from broker to full-blown broker-dealer, and continue to drive trader evolution in just the same way as for the last 6 years.
Let us wholeheartedly thank all of those who’ve helped us grow from small start-up to consolidated player in the industry since then. Thanks to your trust, there’s meanwhile 45 employees delivering technology, customer service and education to traders worldwide.
ESMA or no ESMA; the future belongs to the independent trader movement, and we’re grateful to act as your humble servants!
ESMA Regulations: Everything You Need To Know
The European Securities and Markets Authority (ESMA) recently announced a series of regulations and restrictions for CFD and Binary Options providers. These ESMA regulations have created waves within the industry,… read more →
View all articles by James Sinclair
Tuesday June 26, 2020
The European Securities and Markets Authority (ESMA) recently announced a series of regulations and restrictions for CFD and Binary Options providers. These ESMA regulations have created waves within the industry, some have welcomed the new regulations with open arms, others have been foreboding. TFG investigates the impact of these regulations on currency providers.
The European Securities and Markets Authority – What Happened
Forex.com in fact called the measure an attempt by government bureaucrats to nanny the forex industry – under the guise of protecting the “little people” that don’t know what is good for them. They also likened the move to the strangulation of the Forex industry by the CFTC in the US.
Before we buy into the doom and gloom, first let’s take a look at what ESMA is, what regulations ESMA is recommending, what types of financials products and industries it affects and what all of this will mean to retail traders.
What is ESMA?
ESMA is the European Securities and Markets Authority , which according to their website is an independent authority with jurisdiction within the EU with the mission to ensure the stability of the EU’s financial system. This includes protecting investors – which is relative to our conversation. It was founded in 2020 as a response to the de Larosiere report that called for a decentralized network of European Financial Supervision. ESMA replaced the Committee of European Securities Regulators (CESR) – a network of European Union authorities that ensured consistent supervision across the EU and held an advisory role for the European Commission.
This function – of investor protection – elaborates into assessing risk to investors and markets.
ESMA although an independent authority is still accountable to the European Parliament and reports to the Economic and Monetary Affairs Committee (ECON) – upon request of a formal meaning. It is also accountable to the EU’s Council and EU’s Commission. Their activities are not only reported to these bodies but also in an annual report.
ESMA has four primary functions:
- Assessing risk to financial stability, markets and of course investors.
- Compiling and creating an all-encompassing rulebook for European Union financial markets.
- Coalition of economic supervision.
- Direct supervision of specific entities within the financial industry.
It also holds a direct supervisory role of Trade Repositories and Ratings Agencies. Both of these agencies are crucial to the European Union’s market infrastructure.
What are the ESMA Regulations?
The latest ESMA regulations largely focus on Binary Options and CFD trading (both regulated and unregulated) within the EU. First let’s take a look at what binary options and CFDs are.
ESMA Binary Options Regulations
Also known as an assets-or-nothing option. It offers a fixed compensation when the option is “in the money” upon expiry or nothing at all if it expires “out of the money”. Another distinction is that this type of option is automatically exercised, meaning the investor doesn’t have a buy or sell choice on the underlying asset when the contract expires. This type of trading became extremely popular due to its simplicity – a basic “Yes” or “No” choice was made to commit the trade.
What are CFDs?
Known as contracts for difference – it is in basics, a contract between broker and client – which exchanges the difference between the price at the beginning of the contract and the price at its end – and it is fulfilled in physical funds. The biggest appeal of these instruments are the ability to use leverage – which coincidentally is what ESMA is trying to reduce significantly with the new regulations. Leverage increases a position’s exposure to the markets. What does this mean? Essentially a 1:10 leverage (it can also be seen as 10:1) trade means that 50 USD can buy 500 USD worth of an instrument. The problem is that a smaller fluctuation of the market can cause losses – leverage is a ratio and it works both ways. Ultimately, it’s a tool for sophisticated traders that can undeniably lead to losses when used irresponsibly. Any tool that’s abused can lead to damages. This is actually the largest point of contention for the new regulations by traders. They believe that the unwarranted restriction of the CFD industry under the premise of protecting traders from themselves is unfair and undermines these same traders’ intellect.
The Repercussions of the ESMA CFD Regulations
The ESMA CFD regulations will definitely have an impact on retail traders – as they are usually the ones that trade with higher level of leverage. Institutional clients typically avoid using high leverage (they generally use lower leverage to avoid volatility). The distinction is significant too because some brokers were offering upwards of a 100:1 leverage on certain instruments – that is capped at 30:1 for FX. That means 5 USD with a 200:1 leverage applied would have a value of 1000 USD – whereas after the regulations activate these will be worth 150 USD.
This is where the benefit to the trader comes in, even though the draconian restriction of leverage seem less than optimal at the moment. Predatory brokers that profit from their clients’ losses, will have a much more difficult time doing so after the regulations. This should clear the industry of less than transparent and exploitive brokers. Which is ultimately what the regulations sought to achieve. So in that sense hypothetical mission accomplished ESMA.
What type of broker will be hit the hardest?
Many people are pointing towards Market Maker brokers being the biggest losers of the new regulations, because a predominate misconception exists that market makers gain from their clients’ loses. Market makers in fact make money from spreads – the difference between that “ask” and “bid” price or the market price and the price offered to the trader or client by the broker. This is why you will see certain variable spread Market Markers increase their spreads during volatility as they take on more risk and convey that to their clients. Ultimately no matter what the type of broker it be a Market Marker or STP, the primary repercussion will be a loss of retail level traders, that use high leverage or trade with less capital. STP brokers, Straight Through Processing Brokers – also known within the industry as Non Dealing Desk Brokers, generally display their own quotes like Market Maker brokers and are in fact Market Makers but selectively. STP brokers will route successful orders to market but act as a Market Maker when a position/trade is in loss. This mitigates the company’s risk as it is not obligated to shoulder their clients’ winnings, but still profiting from their clients’ losses. Although this sounds nefarious, it only becomes so when the broker intervenes to increase the chances of a loss – which could cost a broker their reputation or even worse their license.
This move in the long run might actually benefit all brokers – as a lot of the industry’s bad reputation comes not only from some predatory practices but largely stems from retail traders trading irresponsibly, either without being knowledgeable enough to trade, or using excessive amounts of leverage to “cash in” big – but usually end up decimating their accounts and funds.
As it stands although the ESMA regulations have their opponents, it seems that well established veterans of the CFD and Forex industry are welcoming them with open arms. Some have even started to offer alternative and innovative ways to trade , in an attempt to preserve the previous trading experience, but still be compliant with the new regulations.
Der beste Broker fur binare Optionen fur 2020!
Ideal fur Anfanger!
2 Platz in der Rangliste! Zuverlassiger Broker.