What can ESMA change for brokers and traders alike?
ESMA, also known as European Securities and Markets Authority, is an independent EU institution that markets itself as a watchdog for the EU financial industry. What this means is that they hold themselves responsible for making potential changes in the regulations, adjusting the laws to better suit investors. All in all, the regulatory body is responsible for making the financial platform a lot more safe for EU-based investors.
You may have already found out about what it has been doing and why everybody is losing their mind over their latest changes. The watchdog has been quite active in regulating the financial processes of the continent, by tweaking some laws here and there, potentially making the brokers’ lives miserable. But it’s for a good cause, to protect and serve the retail investors. What they’re most talked about is their agreement to ban Binary Options trading and restrict some aspects to the CFD trading segment. Not only that, ESMA looks into lowering the bar for high volume trading, by introducing new mandatory maximum leverages on assets that the brokers are obligated to follow. For example, a EU-based broker won’t be able to offer a leverage of more than 1:30 on currency pairs. Also, ESMA is cracking down on investor benefits like deposit bonuses and what not. So you may imagine why the brokers may be upset over their primary revenue streams being tampered with.
How ESMA is affecting the EU market
Although the announcements and tweaks to the regulatory framework upset the brokers, there’s nothing that can be done about it, the decision has been made. The new laws were supposed to last for a year, just to get a feeling of how they would work out. Well, that year has passed and by the looks of it ESMA is liking its numbers so far and has announced a continuation of the framework. You might think that brokers now have no ways of doing anything within the continent but you’d be mistaken. Some of them actually feature multiple regulations elsewhere and therefore are able to continue providing investor benefits like the XM bonus of 30 USD and continued high leverage with many others.
However, there are still risks associated with EU based customers as they keep on inching towards new service providers that can accommodate their needs for high leverage and deposit bonus promotions. This all boils down to what can happen to the EU-based ones that are heavily restricted by the regulation. Sure there will be people willing to remain in the regulatory framework right now, but those are the ones most troubled by the risks of trading. The bolder and riskier traders will have to opt for offshore brokers, most commonly in South Africa, because of the time-zone similarity.