A date for the new European rules on forex trading pairs has been set for 1 August 2018 by the European Securities and Markets Authority (ESMA).
This new regulation places restrictions of 30:1 on trading the major currency pairs, at present trading levels can reach up to 200:1. New laws have also been put in place to ban negative account balances.
What This Means For Forex Trading
The introduction of these new margins on forex trading was anticipated but dealers have commented that “dozens of brokers” are now making plans to move their trading operations offshore as a way to avoid these regulations.
Reports are also circulating that suggest many of the Cyprus-based brokers are making attempts to sell on their licenses prior to the 1 August deadline. Worries have been expressed that this planned exodus may result in the promotion of fraudulent, unregulated trading practices, which may cause client concerns.
It’s unsure how the banks controlling company and client funding will manage their payment processing and it has been suggested they may introduce stops on payment processing or close down accounts.
Merge Or Close
It’s further anticipated that some of the smaller forex brokers may have to stop operating altogether or merge with the larger brokers due to these new regulations, as they will drive up operating costs and result in lower revenues.
A spokesperson from the IG Group recently commented that if these new regulations had been in place throughout 2017 their annual income would have reduced by 10%. The Swiss trader Dukascopy has just expanded operations into the Middle East in an attempt to make back revenues lost in Europe, and it’s anticipated rival brokers will be considering similar options over the next few weeks.
Some of the additional measures to be introduced on 1 August include the following leverage limits:
• 30:1 for major currency pairs;
• non-major currency pairings, major indices and gold to be limited to 20:1
• commodities excluding gold and lesser equity indices to be restricted to 10:1
• individual equities to be limited to 5:1
• cryptocurrencies limits in place of 2:1
Restrictions will also be placed on the bonuses offered as introductions for new clients trading CFDs.