ESMA – Did they go too far?

ESMA - Did they go too far?

It has now been nearly a year since ESMA (in its infinite wisdom) ruling on leverage came into effect – and its been very harsh on many of us brokers, as well as traders.

The logic behind why ESMA did this is fair, there was too much risk in the market from both the broker side and also the consumer traders side but the big take out from the consumer side is that if you want to trade with the same amount of “opportunity” as you used to, you would simply have to put more hard cash into your account – leading inevitably to more chance to lose more. So unless you are happy to trade with a smaller leverage, you have to take a bigger risk. So in some ways, the rules for the consumer have not served their purpose.

From the brokers point of view ESMA will undoubtedly have done some good with the amount of risk they carry, but look at the devastation it has caused the industry – just a few of the headlines that have happened since the change:

ESMA admits: more retail CFD traders lost money after leverage cap

ESMA effect: Q3 revenues plunge to under CHF4M at ayondo

Plus500 hit hard by ESMA leverage cap, Q3 Revenues down 40% to $100M

UK online broker shares hammered by ESMA leverage proposals: IG -11%, Plus500 -13%; CMC -10%

What ESMA did was totally out of whack with what was required, as the CEO of UK online trading leader IG Group Holdings plc (LON:IGG)  pointed out:

ESMA’s proposed 30x CFD and Forex leverage restrictions are “disproportionate“.

But the broker also stated that:

IG is supportive of the objectives of regulators to improve client outcomes in the industry, and the Company supports ESMA in its efforts to achieve harmonisation of regulation across the EU.

There are always two sides of the coin, and as it does not look like ESMA will make any changes soon, so either a broker or a trader, we at LeapRate are eager to know your thoughts on the matter.

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