Trading CFDs carries considerable risk of capital loss. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.

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Traders are fleeing Europe due to new ESMA regulations

June 02, 2018

The European Securities and Markets Authority has decided on new measures to protect investors in CFD's, forex and binary options. But European traders are already considering opening accounts with offshore brokers.

Research from the ESMA has learned that average retail investors are losing a lot of money with CFD trading. The average loss per client ranges from €1,600 to €29,000. Therefore more measures will be put in place in order to protect retail investors.

As from July 2 2018, the marketing, distribution or sale of binary options to retail traders will be forbidden.

As from August 1 2018, there will be serious restrictions on the marketing, distribution or sale of CFD's to retail traders. Leverage will be limited and brokers will have to provide a negative balance protection.

Maximum leverage will be:

  • 30 for major currency pairs;
  • 20 for non-major currency pairs, gold and major indices;
  • 10 for commodities other than gold and non-major equity indices;
  • 5 for individual equities and other reference values;
  • 2 for cryptocurrencies.

Brokers outside of Europe

The ESMA is very happy with these new measures but we are already seeing unintended consequences. Traders are leaving European brokers in search of more leverage. In the best case they will take their trading business to brokers that are regulated in other jurisdictions, like IC Markets or FP Markets from Australia. In the worst case, European retail traders are opening accounts at unregulated offshore brokers, which is very risky since there is basically nothing preventing the broker from stealing your money.

Another option is considering a blockchain trading platform, where there is no room for broker fraud. Spectre is a perfect example of broker-less trading platform that is offering binary options. CFD's and forex will be launched as well.

Final option is only possible for big and experienced traders. They can be categorized as professional traders which is an effective solution since the measures only apply to retail traders. Trading firm IG has received over 15,000 applications so far, but only 3,800 clients have been approved.

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The new ESMA measures will be adopted this summer. Binary options are banned and for CFDs and forex new strict measures will apply such as a limit on the leverage.
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