Earlier this year, the European Securities and Market Authority (ESMA) decided to update the regulations for binary options and CFD trading within the European Union. Ever since then, everyone in the industry has had mixed feeling about the changes. Some have even raised concerns about the situation saying the new rules could have devastating effects on the market.
What should you be expecting from these changes and how can you retain access to the full list of beloved trading instruments? Read the full article to find the answers.
Changes that were made
Before we get into that, it is important to clarify what actually happened and what changes ESMA is about to enforce.
First, ESMA has decided to ban all forms of binary options trading. That means that no one is allowed to participate in binary options trading within the European Union except for professional traders. The ban will come into effect on July 2.
Secondly, ESMA updated the regulations regarding CFD trading in an attempt to reshape the market. This was done by lowering and limiting the amount of available leverage for every asset class as well as forcing CFD brokers to implement protection against negative account balances. Starting from August 1 the amount of leverage traders will be able to use when trading certain assets is limited in accordance with the following:
- 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.
As you can see, the cryptocurrency market was hit the hardest, while major currency pairs can still enjoy relatively relaxed regulations. It is worth mentioning that CFD positions will need to be closed when the margin falls below a level of 50% of the initial required margin.
Traders will now have to be guaranteed negative balance protection. This feature, however, has long been implemented on the IQ Option platform. The protection against negative balances will mean that no one can lose money they haven’t invested. The list of changes is not limited to the points mentioned above. However, those are the ones that are most likely to affect IQ Option clients.
Possible downsides
There are several issues with new EAMS regulations that a lot of traders may find confusing. Retail traders (everyone with no professional status) will no longer be able to trade any of the binary products and utilize high leverage. Therefore, certain strategies that worked in the past may no longer be applied. Not only traders will have to readjust their trading habits but also find new instruments to trade. The latter will obviously take a lot of time and effort.
As always in the financial markets, higher risk is usually associated with higher reward. By trying to protect European traders and minimize risks associated with trading, ESMA is taking away a considerable portion of their financial freedom.
Conclusion
ESMA’s new regulation is not the end of the world for the industry, yet it can seriously affect the way you trade. Is there anything you can do in order to avoid stricter rules? The only way out of tighter regulation for you as a trader is to confirm your professional trader status. Read more on how to do so in the following article.
Apply to become a ProNOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future
GENERAL RISK WARNING
The financial services provided by this website carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.
We invest in Bit on as little as 250 dollars is it possible to make millions.
Thank you for this question!
What differs successful trader from others is efficient money management and trading strategy.
I want to state 5 tips of the successful trader:
1. Only trade with money you can afford to lose.
2. Be patient.
3. Be disciplined.
4. Never risk too much capital on one trade.
5. Don’t second-guess yourself, but do learn from experience.
Note that I am not giving you an investment advice.
The financial services provided by this website carry a high level of risk and can result in the loss of all your funds.
If you have other questions – please do not hesitate to contact us!
Hello, so, if i allready have open\holding positions in the cryptocurrency market they have to be closed when i have 50% loss!!!???
Hello Peter, thank you for this important question!
No need to worry – this rule only applies to Crypto Positions opened after new ESMA regulation takes affect.
So if your position was opened before – it will not be closed at 50% loss.
If you have any other questions left – please let us know!
Wish you a lovely day!
Also Traders out of EU won’t be able trade Binary Options since July 2, unless they are professional trader ?
Good evening,
New regulation of ESMA regarding Binary Option and CFD only applies to traders from European Union.
Professional and retail traders outside of European Union will not be affected by this rules.
As soon as have an update on this matter – we will inform you!
Have a wonderful day!
That is really Bad News…
I live in Eu and Is it possible to register to any Broker outside Eu Zone, and trade BO?
Hello, James!
In order to trade on BO you have to live outside the Eu Zone. Regulated brokers won’t provide BO for European traders starting from 2 of July.
this is stupid
Hi!
We are also not pleased with this new regulation…
This new ruling by ESMA is severe discrimination against Retail users of Binary Options Platforms. What any person does with their own money is their right and quite frankly this should be looked at by the Human Rights Authorities.
Trading Binary Options intelligently is NOT GAMBLING ! anymore than any other form of investment. The intelligent investor uses discipline and strategies. HOW DARE ESMA make this unilateral decision. I see this as a plan to stop retail customers having a piece of the action and keep it all for the FAT CATS.
I want to see Brokers and Retail investors STAND UP AGAINST ESMA and get this decision Reversed. There are always going to be FOOLS and ADDICTIVE GAMBLERS in any area viz. horse and dog racing, football pools, casinos, lotteries. AS I SEE IT, YOU PAYS YER MONEY AND YOU MAKE YER CHOICE and this is nobody else’s business. I AM BLOODY FURIOUS ! ! peterheale@gmail.com. please publish my email address.
Saint true my friend , its the strategy and risk to reward ratio that have matter on win or loose in general , leverage can only slow down or speed up this process… not prevent this !!!!
People have rights to use or soend money how they like, bunch of liers, all system is corrupted , tell them to target scams etc. Not people who try to make some money in peace .
I am totally agree with you! I have the same feeling with ESMA., and indeed, my money, my choice, my right how to use it.
Hello, Peter!
Thank you so much for such a detailed review!
We hope that there will be an update on this situation, that will benefit ESMA, brokers and traders all together.
Wish you all the best of luck!
This is just another decision by the financial elites to prevent the peasants from having a bit of the action themselves. No one punishes these fat cat punks when they steal billions and get bailed out by govts to the tune of trillions or get bonuses of multi millions after crashing the economies of western countries and the rest of the world through fractional reserve banking and engineering the financial crisis of 2007 and 2008 crashing the entire economies of western countries during that period. Where are the restrictions on them! Also it is a directive from the EU. Which is another reason why the EU should be thrown into the trash bin. Another means of centralised control and for the Elites to hoard all the gold. Just like in the old times of Peasants and Kings. A disgraceful restriction on freedom by the corrupt EU!
retail trades just lose freedom of investing money!
Hi! Is digital option trading still going to be available for retail traders?
Hello Nikita,
Digital Options will also be banned in European Union, starting from the 2nd of July.
Thank you for your comment.
Hi,
after 2nd July is it possible for the retail traders from EU to trade any of the tools: Options, Forex, CFD, Crypto, Commodities?
As I understand Options and CFD is not possible. But other?
Thanks for the answer!
Hello Alenka, thank you for your comment!
After the 2nd July retail customers from EU will have access to the following assets:
– Crypto
– CFD
– Forex
– Commodities
Here is information regarding leverage limits for those assets:
– 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
I hope it is more clear now? If you have any other questions left – please let us know.
I will be happy to clear all of your doubts!
Hi Alenka!
I’m from SLO! Please, tell me are you come from SLO too?
Best regards, Igor!
Hi there!
That’s right! I totally agree with you both … the decision from ESMA is a purely discriminatory or even criminal act against ordinary people who have the right to decide on their financial investments themselves! I’m really afraid that after July 2th 2018, ESMA officially opens the door to the expansion of many new fraudulent ” Internet brokerage sites”! And what then? 200 fat asses (ESMA’s employees) in Paris will return money to millions of defrauded retail investors? Of couse not! A big question arises if ESMA’s decision is in line with certain principles of the European Constitution, which guarantees equality, freedom and the right to prosperity for Union citizens. My opinion is…such literally “repressive” measures must be compatible with the European Constitution! I’M NOT A LAWYER! SO, WHAT TO DO?
From EU-Constitution:
II-103. Article (European Ombudsman)…Every citizen of the Union and any natural or legal person residing or having its registered office in one of the Member States has the right to contact the European Ombudsman regarding irregularities in the activities of Union institutions, bodies, offices and agencies, with the exception of the Court of Justice of the European Union in the performance of his judicial functions.
II-104. Article (Right to petition)…Any citizen of the Union and any natural or legal person residing or having its registered office in one of the Member State has the right to petition to the European Parliament.