The European Securities and Market Authority (ESMA) has agreed to impose restrictions on binary options and CFDs for European traders. The new rules will affect all leverage traded markets, and the strictest limits are set for cryptocurrencies.
In order to try and protect retail investors within the European Union, the European Securities and Market Authority (ESMA) will prohibit the sale of binary options and restrict the sale of CFDs. The CFD regulation includes a restriction on leverage trading that will only allow between 30:1 and 2:1 depending on the market and underlying asset. The decision is quite drastic but also expected since the imposed restrictions have been discussed for quite some time.
What Do The ESMA Restrictions Look Like?
Binary options have been banned completely which means no one is allowed to market or sell binary options to citizens of the European Union within the EU.
CFDs are still allowed but regulation is much tighter. The main change here are limits on leverage trading as follows:
- 30:1 for major currency pairs
- 20:1 for mid-range currencies, gold, and major indices
- 10:1 for smaller currency pairs, regular indices, and other commodities
- 5:1 for stock CFDs and all other underlying assets
- 2:1 for leverage traded cryptocurrencies
The restrictions also include limits on marketing to retail investors as well as protection against negative balances on accounts and stricter warnings to everyone looking to start trading CFDs.
What Does This Mean For The CFD and Cryptocurrency Markets?
Well, at first glance the new ESMA regulation looks devastating for CFD trading, but that’s not necessarily the case. By limiting risks and leverage, the market will become safer which will create a more attractive trading environment for people who have been hesitant to try CFD trading in the past. Also, the new regulation will only be implemented for three months before the results will be evaluated and a decision to either prolong the restrictions or stop them will be made.
Moreover, not much has changed for cryptocurrencies unless you trade them with margin, which you can still do but with less leverage. If you trade Bitcoin and other assets with an exchange or a wallet such as IQ Option, everything will be the same.
The New Regulation Is Coming From All Angles
The ESMA are not the only ones introducing limits on CFD trading and cryptocurrencies.
Earlier this year, Facebook decided to ban all cryptocurrency ads and marketing and the other week Twitter decided to join in with a similar ban. On top of that, Google will introduce bans and restrictions on cryptocurrency and CFD ads and sales starting June 2018, and we can expect to see other companies following suit.
Even though it might seem drastic to impose all these restrictions we can’t forget that it’s done to protect all of us who trade on a regular basis. All we can hope for is that the new regulation will attract more people to the world of CFD and cryptocurrency trading.