If this ESMA ruling is really about protecting clients, then why didn’t they just make all brokers offer negative balance protection?
Vastly reducing the leverage to 30:1 increases clients risk.
Before perhaps only $100 starting capital was needed with $30 margin requirement, with NBP in place the maximum loss is $100.
With 30:1 leverage maybe $500 starting capital is needed with $400 in margin requirements. So potentially losing full $500 instead of $100.
They did. It’s also included in the regulation.
- 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:
- 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 (such as deposit bonuses); and
- A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.
I know it is. I mean why did they also decrease leverage to a ridiculously low level. Many brokers believe that 100:1 leverage would of been about right but 30:1 is too low.
NBP does mean that brokers would tend to reduce leverage to reduce their risk.
@chartprice This does not impact Australian Traders (me) at this stage, I couldn’t agree more…
Strangely (sarcasm) the regulators deem it better to have your $500 (minimum) in your Brokers account so they can earn the interest on it and you can’t… It will also add millions more to the balance sheet of Retail Brokers… your funded account is recorded on the books as their asset.
If they go broke… you get nada…read your PDS very, very carefully.
I have to say, I was thinking along those lines myself - especially in view of the “Consultations” which took place between the Industry and teh regulators (Yes I know “we” were allowed to “participate” after they had made their minds up ! )
Absolutely in agreement with you…It was all a big Farce…Traders(Industry) agenda was never in question for them.
I’ve been using MT4 for several years and working with ActivTrades for the last four.
ActivTrades professional client’s account has leverage up to 1:400.
Funds are individually covered up to £1,000,000.
They will credit your account to a zero balance if it goes into negative as a result of trading activity.
Its almost inevitable that government regulators become captured by the constituents they spend most time regulating. They morph into representative bodies like professional associations or even trade unions.
So, the agriculture ministry is supposed to regulate farms but becomes a lobby for agri-business. The education department is supposed to regulate schools but becomes a lobby for teachers. The health department is supposed to regulate hospitals but becomes a lobby for doctors.
This is all because when the department wants to do something it consults the biggest constituents most deeply. It does not benefit from enacting regulations that cannot be complied with. So the regulations that get passed are basically already best practice at the top end of each sector, and also have the benefit of not threatening the ongoing health of the sector, e.g. by opening the barriers to internal or external competitors.
Consumers are not an important constituent for regulators and are not the main targets or often not even the beneficiaries of new regulation.
This is just the way government works.
Very good news, though there are tricks to escape ESMA rules, use an account of my brother who lives outside of EU and US. Enjoying high leverage with HF and Tickmill, though I’m forced to trade automatically through VPS 
Well that’s who pays their wages - points towards a system where regulators can be sued for losses brought about by their incompetence or Lack of action on behalf of consumers ?
Just a thought ? - Perhaps profitable retail traders handicapped by this new draconian leverage rubbish should be able to ask FCA to make good their underperforming profits brought about by this handicap ?
Since I started using the internet quite a lot I’ve been looking for a “Back” button for life. Still looking.
The “PPI” reclaimers - seem to have found such a beast 
That’s not a bad idea at all…however I’m not sure if it could be done in reality. They don’t care for the average retail trader and consumer.
This would be a great option and it would have been so much easier if such thing existed…
A lengthy article published 4 days ago in Finance Magnates suggests that brokers in Europe are reacting to ESMA in two ways:
The minor trend: Brokers bailing out of Europe, and moving offshore
The major trend: Brokers re-focusing their businesses on traders classified as “professional”, and de-emphasizing ordinary retail traders
Regarding that major trend, here is an excerpt from the article –
"The behaviour of brokers so far indicates that ESMA’s regulation has pushed them into focusing on wealthier, professional clients. This is illustrated by their focus on developing professional products over the past six months and their encouraging of specific, revenue-generating clients to reclassify as professional.
"Many in the industry have predicted that ESMA’s regulation will push out the smaller, less professional brokers but the same could be true for brokers’ clients. If those brokers no longer devote any energy to maintaining or onboarding clients that don’t qualify as professional traders, the number of truly ‘retail’ clients may shrink dramatically.
“That would mean we are left with only large brokers and professional traders. Is that still the retail industry? Perhaps, but certainly not as we once knew it.”
Here is a LINK to the Finance Magnates article.
The guys on the technical templates & 16 candles threads have been warning of this for the past couple years, highlighted yet again by a newer contributor post 3 days ago.
It’s the primary reason sketcher & one or two other savvy regulars had the forethought & obvious skill sets & aptitude, to follow one or two of their thread predecessors by upping their game & actively seeking out the opportunity offered to them by working towards a funded route into professional classification utilizing prime broker services.
And so the mergers begin?
“Less understandable, at least from the perspective of many in the industry, are ESMA’s restrictions on CFDs trading.” I completely agree, still don’t get it why were these draconian measures taken.
“ESMA’s regulation only applies to retail traders. That means if a broker’s client decides to reclassify as a professional trader, none of the leverage restrictions will apply to him.” That was an expected move I guess, but what happens with newbie traders or any kind of traders who are not able to classify as such? They will be forced to use offshore, non-regulated brokers most of which are scammers. But that doesn’t concern ESMA, obviously…
If something bad occurs outside their jurisdiction, why should they care?
Yesterday, Finance Magnates published an opinion-piece agreeing with you –
Here’s an excerpt –
The amount of work which the European regulators have put into devising the new regulatory framework speaks for itself. There would be little reason to waste so much effort just to introduce a regulation for three months. If anything, ESMA is using the three month product ban rule merely as insurance that all of its actions adhere to the pan-European financial regulatory framework.
Absolutely. If the regulator didn’t think it was the right response to the situation, they wouldn’t have introduced it in the first place.