Starting July 21, the ESMA Enacts a New Leverage Policy for the European Union

Starting July 21, the ESMA Enacts a New Leverage Policy for the European Union

Starting July 21, the ESMA enforces a new leverage policy. The ESMA (European Securities and Market Authority) announced its intention to impose new regulations on the trade industry. The policies adopted by the ESMA began this July, namely:

– Imposition of a leverage limit – max 1:30

– Margin Close Out (MCO) rules of 50% based on user

– Negative balance protection per account base – brokers still have to pay liquidity providers, but you don’t need to pay brokers

– Restrictions on trade incentivization

– Standard risk warnings

– Prohibit marketing, distribution and sale of binary options

The new ESMA policy is certainly responded to by the pros and cons of the trading industry. When viewed in terms of security in trading, the ESMA policy actually aims to protect users from fraudulent investment programs. This can be seen from several rules that are imposed such as leverage restrictions. You could say, this time the ESMA policy is to protect the psychological traders so that they don’t feel too “down” if they experience losses.

These regulations will at least offset their losses and offer additional stability to retail client trading accounts. With the enactment of this policy will cause beginner traders to find more valid information and better prepare what they face.

As for users, ESMA policy is a bit of a disadvantage because it makes users less flexible to trade. Initial traders who usually can put trading capital of $ 100, will later become more expensive. Here’s an example of Margin Requirements with 1: 100 (A) and 1:30 (B) leverage:

A. Trading 3 lots of EUR / USD using 1: 100 leverage with an account denominated in USD:

Trade size: 300,000

Account exchange rate account: 1,200

Required Margin: 300,000 / 100 * 1,200 = $ 3,600

B. Trading 3 lots of EUR / USD using 1:30 leverage with an account denominated in USD:

Trade size: 300,000

Account exchange rate account: 1,200

Required margin: 300,000 / 30 * 1,200 = $ 12,000

With a $ 10,000 account, you can’t place 3 trading lots with new rules about leverage. Your highest trading size is only 2.5 lots in this example.

However, if you want to take a higher risk, you still have more than enough opportunities to do it. Placing 2.5 lots of trades with a balance of $ 10,000 will still be considered quite risky in the eyes of Evestin Forex.

Still Hoping for Old Leverage?

If you still object and want to trade with a comparison of leverage as before, there is still a choice for you. If you feel you have enough experience in the trading industry, you can choose to override new policies by being “elective professionals”.This allows you to receive old leverage. But in order to be allowed to do this, you must pass a qualitative test as well as a quantitative test. Ask the broker of your choice for additional information.

So what do you think of this policy? Will local brokers adopt ESMA policies too?Let’s see ..

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