The online trading community continues to receive responses to ESMA’s new rules limiting the sale of risky trading bets to retail investors.
Dukascopy, the Swiss forex bank and brokerage firm, today said its main brand will not be affected by ESMA restrictions as it is located and regulated in Switzerland, which is not a member state of the EU. However, its subsidiary Dukascopy Europe will have no option but to comply with the new rules.
Dukascopy indicated that it operates a broadly diversified business, which includes binary options and retail FX/CFD business spanning across three regulatory jurisdictions. As a result of this diversification across business lines and geographies, the company does not expect the anticipated changes to regulation to have a material adverse effect on its overall offering.
As such, ESMA’s new restrictions will not affect the offering of Switzerland-based Dukascopy Bank, which typically runs leverage as high as 200:1, and also that of Dukascopy Japan.
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The new rules, set to go into effect after two months, introduce tiered leverage for retail clients, dropping CFDs on major pairs to 30: 1 while other CFDs shrink to 20: 1. Commodities and non-major indices will trade with 10: 1 or lower leverage while cryptocurrencies take the biggest hit, dropping to 2: 1.
Reactions among retail brokers are mixed
The directive also mandates negative account protection, ensuring that customers can’t lose more than their trading stake, avoiding a repeat of the debacle following the 2015 Swiss Franc collapse. Finally, the rules will forbid bonuses and other incentives that may have encouraged overtrading in recent years.
While ESMA is looking at how best to tackle the issue of excessive leverage in the retail FX market – reactions among retail brokers are mixed.
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.
Despite its stated aim to protect individual investors from losing money, some brokers say that the proposed 1:30 to 1:2 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.