What are ESMA restrictions?

What Are ESMA Restrictions?

What Are ESMA Restrictions?

Big news for traders in Europe! European Union is taking big steps against several types of online trading in order to insure its citizens are well protected. With the first days of July, you will see a whole lot of brokers change their business mode significantly, and we are here to prepare you for that and explain what’s going on. Two main types of trading will be hit hard by this – binary options and CFDs – which obviously means a lot of people will be affected by these changes. If you want to learn what ESMA restrictions are and how they impact you, you’re at the right place. Read on and inform yourself on this ground-breaking legislation.

ESMA restrictions on binary options

ESMA restrictions come from the European Securities and Markets Authority, which issued a set of measures at the beginning of June 2018. For binary options, their implementation will start on July 2, which represents a huge blow to the whole industry. It will mean that this type of trading is from that day forward prohibited in the countries of the European Economic Area, which actually even encompasses some countries that are not full EU-members. Apart from binary options trading, these orders also prohibit marketing of this type of trading to retail traders. Therefore, binary options will definitely become much less prominent in the European online trading community, but that’s not the only thing that is changing. Keep reading to learn how another big industry will be affected.

ESMA restrictions on CFDs

The other type of trading affected by ESMA restrictions is CFD trading. However, there are some notable differences between this and binary options. For starters, CFDs are only being restricted, not prohibited. This means that leverage will be limited, there we have to a negative balance protection on every account, specific risk warning clearly visible to traders etc. Another difference is that the application of these restrictions will begin on August 1, so there is still about a month before they kick in. Furthermore, ESMA restrictions in both cases are limited by time – they will last for three months after the beginning of their implementation. We will, of course, keep you posted of any new developments both during and after that period. Until we receive more news, though, this is how things stand.

Conclusion

So, we finally see the EU react to the online trading industry. It will be interesting to see the outcome, given that these restrictions are only supposed to last three months. Still, there is no doubt that the impact will be huge, as binary options are becoming completely prohibited. CFDs have fared a bit better, but they will still need to be labelled for high risk and introduce more safety features. We emphasize that both of these sets of rules apply to retail traders in the EEA only. But if you still want to trade, our website has plenty of alternatives, so just look around and take your pick.

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Author: Ben Prescott
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