Why the New ESMA Regulations Will Improve the Trading Climate

In April 2018, the European Securities and Market Authority (ESMA) announced that they had plans to change the rules regarding leveraged trading. Four months later, on August 1st, 2018, the new rules were put into effect.

Despite this having happened three months ago, there are still many traders that are unaware of the new rules and how they impact their trading. Also, even less, traders understand how these new regulations can help improve the trading climate in Europe.

If you’re one of those traders that are confused about the new regulations, then this post is for you. Below, we discuss how the new rules apply as well as how they can improve the trading experience for all of us.

This is What ESMA’s New Rules Look Like:

ESMA had an idea that they could create a safer and fairer market by lowering the maximum leverage that online brokerages were allowed to offer as well as forcing brokers to be more transparent.

Before the regulations, the highest leverage that brokers could offer was 200:1 for certain currency pairs and instruments. The new regulations are drastically stricter with 30:1 being the highest leverage for major currency pairs.

After the implementation of ESMA’s new regulations, all regulated CFD Providers need to adhere to new leverages.

Here is a List of the New Leverage Levels:

  • Major currency pairs are limited to 30:1
  • Mid-range currencies, gold, and major indices are limited to 20:1
  • Smaller currency pairs, regular indices, and other commodities are limited to 10:1
  • Stocks as CFDs and all other instruments except cryptocurrencies are limited to 5:1
  • Cryptocurrencies as CFDs are the most restricted with a max leverage of 2:1

In addition to lowering the maximum leverage, ESMA has also implemented a restriction against negative account balances so that traders can’t lose money they don’t have. Also, online brokerages are now forced to be more transparent regarding their business and the risks of trading, especially with new traders.

The transparency includes more detailed guides for beginners as well as risk warnings throughout their websites, sign up pages, and the trading platforms. Even the top stock trading apps and mobile software have risk warnings everywhere.

How are the New Regulations Making Trading Better for the Customers?

As mentioned earlier, the goal with the new regulations was to create a safe and fairer market space that would benefit all traders, and so far it seems to be working.

By limiting the amount of leverage that one can use on each trade, ESMA has made it harder for traders to experience enhanced losses, and the more volatile the instrument is, the less leverage you can apply. Moreover, by eradicating negative account balances, traders no can no longer lose money that they haven’t deposited into their accounts which means they have more control of their funds. Lastly, by educating and warning about the risks that CFD and forex trading comes with, traders are more prepared when they get started.

As a result, the derivatives market is now more attractive than ever before, and brokers should expect to see an increase in new customer sign-ups.

All things considered, the new ESMA regulations have been a win-win solution for retail traders and regulated online brokers.

But What About for Professional Day Traders?Consumer Resource Guide

At first glance, ESMA’s new trading regulations seem limiting to professional traders that often rely heavily on high leverage to maximize their ROI, and in some ways that’s correct. However, since we’re all limited to a max leverage of 30:1 compared to 200:1, we have been forced to open more trades than ever before. In turn, this is pushing all day traders to become better and to find more opportunities. In other words, ESMA’s new rules are forcing day traders from all over Europe to become better at what they do.

As if that wasn’t enough, a fairer market space will attract more traders which will give brokers the funds needed to improve their tools and platforms which makes trading easier for us all.


When ESMA first announced the new rules, most traders assumed it was going to kill the industry and that tighter regulations would be devastating. However, three months after the regulations were put in place, the opposite seems to be true, and it is becoming evident that ESMA’s plans to improve the industry have worked.

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