Breaking: ESMA to Mandate Tiered Leverage and Retail Clients Loss Disclosure

The European Securities Markets Authority has issued a statement on the final measures that it is proposing for the retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term and CFDs industry. The news comes amid expectations for a finalization of the new regulatory framework in the EU in the first quarter of the year.

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The supranational European regulator is seeking opinions from industry participants on the measures that it is proposing to protect retail clients. ESMA is also proposing a full ban on binary options and is still considering whether to include cryptocurrency CFDs as a separate category.

Tiered Leverage and Standardized Margin Close Out

ESMA is proposing that the margin requirements on different instruments vary from 1:5 to 1:30. The rule of thumb here is that the more volatile an instrument is, the less leverage the brokerage will be offering on it. The Canadian regulator IIROC has been approaching the FX market in a similar way and is regularly updating brokers and clients on any margin changes as volatility patterns shift.

Another major change is the introduction of a universal margin closeout percentage. Until now, brokers have been at liberty to choose at their own discretion the automatic close out protection for clients. ESMA is proposing a standardized margin rule that protects retail clients and closes their positions automatically should a given level of margin utilization be reached.

Restriction on Trading Incentivization, Losses Disclosure

Brokers will also be required to introduce Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place Read this Term protection on a per account basis. The move is aiming to provide an overall guaranteed limit to client losses.

A total prohibition on any measures that are designed to incentivize trading is also proposed by ESMA. This move is not only related to bonuses, but also to rebates that some brokers are providing on a per volume basis.

Last but not least, brokers will be required to add to their risk disclosure the range of losses which their clients are booking.