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The intervention of ESMA expires on August 1. What is waiting for us next?

The intervention of ESMA expires on August 1. What is waiting for us next?

created Paweł MosionekJuly 22 2019

On August 1, ESMA's product intervention for the Forex market and CFD instruments, introduced at the level of the European Union regulations, expires. Is it time to open the champagne? Not yet, although there is some hope. Will we return to trading with higher leverage? We should find out within the next… week.

A brief history of ESMA's intervention

The 2018 year brought the European Forex industry "Shocking surprise". The pan-European regulator of financial markets has decided to introduce "Temporary" product intervention for FX / CFD instruments and binary options. The most controversial novelty was the reduction of the financial leverage to the maximum value of 1: 30 (lower for instruments other than main currency pairs). Meanwhile, popular binaries was considered a gambling instrument and banned from offering it to retail clients. The only way out of the situation limiting the possibilities for traders was to change the categorization to a professional under certain conditions.

Be sure to read: Professional Client - Everything You Need to Know [FAQ]

There were more changes, also certainly positive for traders, including unification of risk information, limitation of intrusive marketing practices and introduction of protection against negative balances on account (only for retailers). For more information, please visit our separate article.

The regulations were to apply for 3 months - for binary options from the beginning of July, for forex from the beginning of August. The condition for extending the guidelines for another 3 months was to provide relevant information at least one month in advance. Now that has not happened.

All of this was supposed to reduce losses for European traders. Has the intended effect been achieved? It is difficult to draw clear conclusions here - a lot depends on the report or the data we take into account. The fact is that some traders have fled outside EU jurisdiction in search of high leverage. How many What kind? Is it permanent? This is not known.

The fact is, with less leverage, capital is likely to be lost (and earned) more slowly. It is questionable, however, whether limiting leverage causes more traders to start earning. Quarterly reports of Polish brokerage houses show that the percentage of earners after the introduction of product intervention has increased. But these data are very limited in details - we do not have information about the number of traders, i.e. we do not know how many (and which) customers fled outside the EU and what amounts we are talking about (whether the balance of the average result in zlotys in the end improved).

Check it out: Statistics of Polish traders for the second quarter of 2019

ESMA - who introduced?

It is not difficult to guess that regulators of EU member states are under the watchful eye of ESMA, which controls their activities. It would be naive to think that after the intervention has expired, everyone will be able to do whatever he wants. Theoretically, maybe. But "Rather for sure" he will not do it :-). So what can we count on? At this moment a lot has already been explained.

Below are the countries that have decided to implement ESMA regulations on the FX / CFD market at the national level:

We will probably hear about the next ones in the near future.

Hope in Cyprus and… Poland?

An exceptionally active participant in the discussion on new regulations in Poland is Chamber of Brokerage Houses (IDM). This time an idea appeared with the extension of categorization and the possibility of receiving a higher leverage of 1: 50 (details of the idea described in this article). Earlier conversations, letters, suggestions did not bring results. The KNF and the Ministry of Finance each time unscrupulously implemented their own ideas. Will it be different now?

Meanwhile, Cyprus, the birthplace of the European Forex industry, is in a much better position. Unlike the KNF, CySEC is pro-forex oriented. After all, in our backyard you can charge FX brokers on the fingers of two hands. In Cyprus, we would run out of limbs quickly with the counting :-).

In June information is given to the information that it is considered to increase the maximum leverage to 1: 50. A small difference, but still in this one better side. At the moment, Cyprus is developing new regulations and announced that we should know their shape in July. If it happens differently, then does not meanthat ESMA rules will expire, and each broker will get a free hand. The intervention will last until the new guidelines come into force. However, it is a light in the tunnel that could make Cypriot brokers revive and gain a certain advantage over other EU companies.

Binary options without a future

Binaries, which a few years ago very quickly gained popularity, can now be considered a relic of the past. Almost every month, we hear about placing a new binary broker on the alert lists of European regulators. The brokers themselves are definitely less. Will traders miss them? Probably not.

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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 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.