ESMA Directive had already been welcomed in Cyprus; now
Great Britain is about to adapt to it by proposing new rules to
ensure appropriate protection of retail investors. Bonuses seem
likely todisappear, while
leverage will be strongly reduced.
A debate has now been going on for
some time about the dangers related to unbridled
Forex trading which is increasingly attracting
inexperienced investors by promising huge, immediate, and easy
money. Many have pointed the finger at leverage (a
sort of magical expedient, able to multiply the money invested but,
at the same time, to make lose it in a few seconds), as well as at
bonuses, enticing promises that, however, do not compensate the
losses of inexperienced customers.
Starting from ESMA
Last October the European Securities and Markets Authority
(ESMA) had clearly requested the suspension of
Forex retail bonuses (intended for retail
investors) and binaryoptions
brokers. The elimination of such trading-related bonuses would
likely reduce the number of inexperienced customers who are
attracted by this kind of investments.
According to the European authority, bonuses would have a
negative impact on investors' common sense;
indeed, investors could be encouraged to invest
more than they could or should. Furthermore, bonuses often
involve burdensome obligations; this means that
once the offer has been submitted, investors must trade amounts up
to 30 times higher than the bonus; otherwise they won't cash
the money invested.
In practice, bonus exposes investors to excessive and
unnecessary risks, especially when it is linked to speculative
Cyprus and Great Britain are adapting to ESMA's
To adapt to ESMA's guidelines the Cyprus
Securities and Exchange Commission (CySEC) has
announced the upcoming introduction of a number of novelties
related to Forex, binary options and CFD (Contracts For Difference:
investors are requested to deposit a small percentage of the full
value of the trade in order to open a position).
Promotional bonuses should be also banned for companies
registered in Cyprus. As for leverage, CySEC has decided to set a
margin equivalent to 1:50, unless investors specifically ask for
higher leverage by submitting an "appropriateness
test". This will determine whether they are suitable
to trade with lower margin requirements.
Moreover, brokers are now obliged to process the customer's
withdrawal request on the same day, provided that it is made within
trading hours. CySEC has given its members until 30 January
2017 to adapt to the directive. After this deadline, CySEC
and FCA – the British Financial
Conduct Authority – will ban bonuses
(both those related to trading activities and those associated with
the opening of a new account). Leverage will reach a maximum of
1:50 ratio for the most experienced investors, while the limit will
drop to 1:25 for customers with a trading experience
< 12 months. Only the
implementation of these two measures can protect the most
vulnerable customers and the improvised traders.
Focusing on transparency, FCA intends to require the registered
companies to publish their customers' profit-loss ratios in
order to clarify trading risks.
FCA is also developing a new set of rules to regulate
binary bets with the aim of promoting a better awareness on
the risks posed by investments.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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