The European Securities Markets Authority (ESMA) continues to receive responses to its proposals to limit the sale of risky trading bets to retail investors. FXCM Group shows a similar reaction to its industry peers by voicing concern over the proposal to cap the maximum leverage, saying the limit is highly restrictive and discriminates against retail traders.
Thus far, the common conclusion among Europe’s regulated forex brokers is that ESMA is setting up an anti-competitive environment as the proposed leverage is an arbitrary, low number. Indeed, a cap of 5:1, which ESMA recommends for highly volatile assets, will be the lowest of any forex regulator in the world.
Last week, ESMA indicated that it is considering a range of product intervention measures such as leverage restrictions, banning binary options, guaranteed limits on client losses and/or restrictions on the marketing and distribution of these products.
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FXCM said that it has been in full compliance with most of the proposed rules. The company stated: “We do not offer binary options, and do not provide ‘top-up’ bonuses. We have always had an auto-liquidation process when minimum margin requirements are not met and we have always protected clients from debit balances.”
FXCM is therefore fully supportive of ESMA in its intentions to improve consumer outcomes across the industry and believes that consumers will benefit from the measures currently being discussed and from harmonisation of regulation.
However, the company acknowledged that although it agrees that a lower leverage produces better outcomes for clients, “the proposed leverage limitations are more restrictive than what is allowed in other jurisdictions, including the US and Australia.”
Despite its stated aim to protect individual investors from losing money, some brokers say that the proposed 1:30 to 1:5 leverage will increase the traders’ risks, because they will need to deposit more capital upfront that they could potentially lose. In addition, those not able to deposit the necessary margin capital might be tempted to use offshore market makers in loosely regulated jurisdictions.