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At the beginning of the year, the European Securities and Markets Authority (ESMA) decided to update the regulations when operating with binary and CFD options within the European Union. Since then, the entire industry has mixed feelings about these changes. Some have even shown their concerns about the situation commenting that the new rules could have devastating effects on the market.
What should you expect from these changes and how can you keep access to the full list of your beloved trading instruments? Read the full article to find answers.
Changes that have taken place
Before going into that, it is important to clarify what has really happened and what changes the ESMA is about to adopt.
First , the ESMA has decided to ban all forms of trading with binary options . This means that nobody is allowed to participate in binary options transactions in the European Union with the exception of professional traders. The ban will take effect on July 2.
Secondly, the ESMA has updated the regulations with respect to CFD operations, in an attempt to reshape the market. This has been done by lowering and limiting the amount of leverage available for each asset class as well as by forcing CFD brokers to implement protection against negative account balances. As of August 1, the amount of leverage that traders may use when trading certain assets is limited according to the following:
As you can see, the cryptocurrency market has taken a heavy hit, while main currency pairs still enjoy relatively relaxed regulations. It should be mentioned that CFD positions must be closed when the margin falls below the 50% level of the margin initially required.
Traders now have a guaranteed negative balance protection. This functionality, however, had already been implemented on the IQ Option platform for a long time. The protection against negative balances is that nobody can lose more money than the one invested. The list of changes is not limited to the points mentioned above. However, those are the ones that are most likely to affect the clients of IQ Option.
There are many drawbacks with the new ESMA regulation that some traders may find confusing. Retail traders (all those without professional status) will not be able to trade with any of the binary products or use high leverage. Therefore, some strategies that worked in the past may not be relevant. Not only traders will have to
As always in the financial markets, high risk is usually associated with a high reward. By trying to protect European traders and minimize the risks associated with trading, ESMA is taking away a considerable portion of its financial freedom.
The new regulation of ESMA is not the end of the world for the industry, although it can seriously affect the way you operate. Is there anything you can do to avoid tighter rules? The only way to escape regulation as traders is to confirm your status as a professional trader. Read more about how to do it in the next article.
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Source: IQOption blog (blog.iqoption.com)