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ESMA extends restrictions on the Forex market. There is no surprise.
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ESMA extends restrictions on the Forex market. There is no surprise.

created Paweł MosionekDecember 20, 2018

The institution supervising the financial market in the European Union, ESMA, has published a new communication regarding the Forex / CFD market. There are no surprises or novelties. The product intervention introduced in the last summer has been extended by another 3 months in the unchanged formula. This means that limited leverage to a maximum of 1: 30 will remain with us at least until 30 on April 2019 of the year.

Key ESMA guidelines

If you are not up to date, we remind you what changes were implemented 1 August 2018.that covered the European Forex and CFD markets.

I. Reduction of maximum leverage depending on the type of instruments:

  • 1: 30 for major currency pairs,
  • 1: 20 for other currency pairs, gold and major indices,
  • 1: 10 for other stock market indices and commodities (excluding gold),
  • 1: 5 for CFD per share,
  • 1: 2 for cryptocurrency instruments.

II. Unconditional protection against the creation of a negative balance on the account.

III. Unification of Stop-Out levels in the amount of 50% for the account.

IV. Changes in marketing and promotion of CFD instruments and harmonization of investment risk warnings.

The above guidelines cover customers with a retail status. ESMA, however, left the door for more experienced investors who can apply for a change to a professional client if they meet the minimum 2 with 3 conditions. Details are described in a separate article HERE.

Extending indefinitely?

By implementing the new guidelines, ESMA has made it clear that the changes are temporary and will apply for only 3 for months. However, after less than 60 days regulator he informed that he is prolonging this period by another 90 days. The situation has just been repeated. The guidelines are already valid for 5 months and will stay with us at least through 9 (counting from 1 August 2018).

Can ESMA drag the ban indefinitely? This is a real scenario. It is difficult to say what would have to change to abandon the introduced assumptions. A key factor in decision making for a regulator is the ratio of losses "generated" by retail clients. If the positive effect of these changes is noticeable in the long term, there is a high probability of changing the nature of the guidelines from "Temporary" na "Constant".

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the ForexClub.pl website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.