ESMA -- The World's New #1 Nanny Regulator

Saxo Bank approves of ESMA’s draconian leverage restrictions –

"For the benefit of its long-term survival, the industry should welcome the move away from competition on leverage and embrace competition on quality of platform, price, product and service.” – Kim Fournais, Founder and CEO, Saxo Bank.

CMC Markets expects to avoid negative impacts from the new ESMA rules
by attracting “high-value clients”.

Excerpt from the Finance Magnates article –

“Brokers that are a mix of higher-value clients are unlikely to feel the pinch from the ESMA regulations as hard as those relying on low-value retail clients.”

Finance Magnates opinion piece on the probable effects of the new ESMA regs –


Thanks @Clint, I was just writing something about that Finance Magnates article.

Overall, I feel quite optimistic that these changes will bring some positive and very significant changes to this industry. We all know that most of those who come to high-leveraged retail forex, and who are financially inexperienced, lose their money. And often it is money they cannot really afford to lose.

The problem is mainly due to the non-existence of identifiable reliable, professional, cheap and effective training facilities and mentoring services, combined with a widespread broker mentality that has been feeding off the losses of these types of clients. But, as the article says, brokers will now need to reassess their emphasis in their approach to client acquisition and retention strategy, and their future source of profitability, if they wish to stay in the industry.

There are two important points here: Brokers will be required to provide a negative balance protection and also will need to display in their marketing message what is the percentage of their clients that lose money. Both these requirements are perhaps more significant in causing changes in broker policies than the mere change in leverage (which just means a need for a bigger equity to match the same level of risk exposure). Broker earnings will focus more towards commission earnings instead of the losses from their clients trades. This means brokers will now be looking for long-term clients that are consistently successful and trade larger positions rather than a rapid turnover of failed clients who just end up transferring their small assets to their broker’s bank account.

As the article suggests, these changes may result in brokers competing for the more successful clients and, at the same time, focusing more on helping their clients to succeed by providing better education and advisory facilities and a better level of service overall. All of which is a very positive direction.

Naturally, the threshold for entering the retail sector will probably rise and prohibit the very lowest levels from entering it at all - but is that really a bad thing - even from their own perspective?

My main concern is that these changes may be too big and too rapid and may well lead to a negative disruption in this industry as it tries to adapt to these new requirements without a reasonable time window in which to do so. Perhaps that is a symptom of a situation where changes are late in being introduced in the first place?


As @anon46773462 and others suggest, there will be changes in the industry.

What form these changes take, remains to be seen. If they mean that the “educators” have to actually Educate, instead of “preaching the narrative” that I suspect will represent something of a challenge for them.

From the interminable posts on this forum, it can be seen that a good many of those seeking to “make their fortune” by somehow magically expecting this fountain of wealth to solve all their future wants, really “should not be allowed out in the street on their own”

Having said that, there are probably a good many who do understand some of the challenges and are genuinely wanting to participate and learn to become proficient. A large increase in “Entry level account sizes” is likely to prevent participation by a good many of these and for others, it is likely to mean that they are now forced to risk more money than they can realistically afford to lose.

Rather than risking “Pocket money”, I forsee a situation where many now have to commit to loans or “max out” Credit sources to participate.

Rather like the “Banking scandal” which caused the crisis a few years ago, instead of blaming those responsible (Irresponsible financial industry members) the damage will be visited on those who wish to participate, but are prevented from doing so by the new “Regulations”.

It is a little early to make a real forecast of what will happen here, but the “tightening of credit for their own good” which those Regulations produced, forced the borderline cases (and many who were a little above “borderline”) are now forced in to the hands of “Payday Loan Sharks” and pay interest rates of 1500% or more !

It also springs to mind that the survival of sites such as the one we participate in, may be in some doubt now.


That thought occured to me, too…

I Completely agree with you on this one.

Why do you guys think that? Is it because these new regulation rules could push away the retail trading and the use of sites like this will be pointless?

[quote=“sebastiano, post:27, topic:142542”]
Why do you guys think that? Is it because these new regulation rules could push away the retail trading and the use of sites like this will be pointless? [/quote]
Hi Sebastiano,

Only to the extent that this site is aimed primarily at Newbies and that the new regulations will inevitably reduce the volume of newcomers. I think there are several reasons why this will happen:

The reduced leverage maximums will require either a significantly larger equity from the trader or much smaller position sizes - both of which reduce the ability/desirability of small accounts. (which in my opinion is a good thing and will hopefully decrease the percentage of losing accounts - and thereby reducing the concerns of regulatory authorities that lead to these kinds of restrictive changes!). This effect is further aggravated by the prohibition of bonus-type offers that artificially inflate the available equity for trading…

The fact that brokers will have to publish the number of accounts that lose will encourage them to aim for successful accounts and refuse probable losers - again the small balance Newbies. (I don’t know how this will be done - it sounds a rather difficult thing to define as there are many reasons why an account may be closed)

The brokers will also have to provide negative equity protection which will again encourage them to aim for larger equity, successful accounts rather than the more risky small balance Newbie accounts.

Having said that, it is clear that quite many experienced traders do not post very much, or stay here for very long, because of the monotonous repetition of very basic questions. This may well change for the better if the client base starts to include more conscientious, industrious and serious newcomers with a larger equity “at risk” :slight_smile:

Just some thoughts…

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30:1? very good choise.

anything above 50:1 is too much, anything below 3:1 is too little.

30:1 is a very good leverage to work with.

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Hey Manxx, thank you for your reply. I do agree with you, your thoughts sound quite logical. The good news is that bonus campaigns and too high leverage levels like 1:500 or 1:1000 will be eliminated. In my opinion trading with such high levels is not even real.
As for the negative equity protection, I think that the larger the account the bigger the risk, but if we follow the common sense and logic lets assume that traders with such accounts should be more experienced and educated. My broker offers negative balance protection for a few months now so I was expecting this measure to be imposed to all the others as well.

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[quote=“Manxx, post:28, topic:142542, full:true”]

the reason why experienced dont stay here and/or dont post is not the noobs. the main reason is the half knowlagable stubborn people who - once they hear something they dont understand or disagree with - start crusades of missinformation which leads that any cnverations gets pulled down to personal opinions and sometimes insulting. the people who post thinking they know but in truth got a lot wron, and thereby spread wrong knowledge and get upset when someone comes and tries to tell them they are wrong. thats the main reason why experienced dont post, its just too much work and doesnt pay off to fight stubborness.

thats very bad for new people, since the stubborn are the loude ones, and the experienced the quite ones (who as well dont read or hang out here) and the new people learn from scratch from the loude ones who dont have anything useful to offer.

no finger pointing at anyone, just my opinion.

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You’re probably right in what you say about those reasons, I don’t know about that.

Certainly, a forum is a place for sharing personal opinion - but a place for insulting? No, I don’t think so either! :slight_smile:

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Unpopular opinion.
ESMA is both good and bad.
It’s good because it:

  • bans the binaries.
  • will help weed out a lot of unreliable brokers
  • will make the brokers that are left work extra hard to be competitive
  • will give us more insight to the broker’s dealing with their clients (making them post the number of successful traders)
  • will add the negative balance protection with all brokers
  • lowers the leverage

It’s bad because it:

  • lowers the leverage
  • does not do a good job of killing off the binaries (off-shore brokers will still do it, or simply register as a gambling service provider)
  • traders will have to go in with a lot more equity.
  • big brokers will now have the option to monopolize the EU market

Like I predicted… The sh*t’s about to hit the fan and we’ll be seeing a lot of new complaints around trader communities.

Important note:

One big misconception about an ASIC license is that consumers outside of Australia are well protected. In fact the regulatory framework under which Australian brokers are operating applies only to their clients which are residents of the country.

I hope I will be mistaken, but as far as I can see it things are about to get worse than they are now.

That depends on your perspective of what’s “better” and “worse”: undoubtedly the gradual progression towards increasing regulation will continue, and retail traders will be slightly better protected as a result - but it’s very, very gradual.

I`m all for regulation. The problem is when the changes implemented are half-as*ed and they leave such obvious loopholes in the system which will accomodate and allow (to put it mildly) dishonest practices and scams to continue happening without concequence.

Being Regulated under ASIC would definitely hold some protection with clients outside of Australia as well…
The broker would have too much at stake(ASIC license may be revoked) to scam or fool a client outside of Australia as well…One can easily complain to ASIC about any Scam

hello, i understand that with new regulation Indexes will be leveraged up 20 given your high volatility (Major 20, Minors 10). What´d it be the high volatility in S&P500 or Nikkei225?

So ESMA is still not effective but will be soon. So what I cannot clearly understand what is considered to be “significant size” if I want to be categorized as professional trader and not be affected from the new regulations. Is this term somewhere officially explained or it depends on the broker to decide?

Binary Options – from July 2, 2018 – a prohibition on the marketing, distribution or sale of binary options to retail investors.

Contracts for Differences – from August 1, 2018 – a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.
CFDs – measures from 1 August 2018

The product intervention measures ESMA has adopted under Article 40 of the Markets in Financial Instruments Regulation include:

  1. 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.
2. 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;

  1. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;
  1. A restriction on the incentives offered to trade CFDs (such as deposit bonuses); and
  1. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

As far as next steps go, MiFIR gives ESMA the power to introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will review the product intervention measures and consider the need to extend them for a further three months.

You can see the official statement here:


LOL when a was writing my post yesterday I wasn’t aware that the measures will be published today!

"ESMA has adopted these measures in the official languages of the EU and they will remain in force for a period of three months from the date of application.”

So much noise and chaos just for 3 months?! I don’t believe that :smiley: