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ESMA and its implication

niceGLer
Aug 12 2018 at 12:25
165 posts
Let's assume ESMA's intentions are fair, and to protect retail traders. According to that assumption the real goal was to implement the negative balance protection. I assume that because of this leverage had to be restricted to 1:30 for major currency pairs. I hypothesize that this leverage restriction was implemented for preventing the retail traders taking advantage of negative balance protection as speculated in the link I posted before. In such a case retail investor preceding an important news event would go short in one broker, and long in another. If a major move happens the negative balance protection and the 50% close out rule would act as a stop loss.
However, I'm not good enough in math in order to prove or evaluate such a situation.

Otherwise, the maximum leverage of 30 should be enough, although it requires more money to deposit. Nevertheless, I don't like it either.

NotyaBusiness
Aug 13 2018 at 06:24
19 posts
Okay guys, let me try to explain and no I am not trying to convince you or win any argument here I am just stating that I see the positive side of the new regulations.

You will never see ESMA's good side as a seasoned trader. You have to think with a newbie's head. ESAM isn't protecting the seasoned traders, protecting the newly lured in naive clients that don't know much about trading yet but feeding the brokers with their little money.

ESMA is addressing the psychology aspect of it all. Here is how I see it:

Before ESMA a lot of newbies were lured in with their tiny savings and thought that little money is enough to double it in a short time. Deposit $100 and buy 15 oz (1:200) or more Gold easy. But it was like trying to driving an F1 car with a brand new driver license.

ESMA put a balance on that. The number of traders that have been making money with Forex but won't qualify as a Professional Trader is insignificant compared to the naive and knowledge-less people that have been losing their precious savings because they were made to believe that trading is like snapping a finger and you get to double your little money. So yes there are traders that negatively affected by the new regulation but many times more people are strongly protected now.

Anyway as I stated above I am not gonna keep arguing this subject. I shared my opinion and that's all that is. Take it or leave it.

Cheers!

The man who wants nothing is invincible.
Pipperidge
Aug 13 2018 at 08:21
13 posts
@NotyaBusiness
The way I see it - the ESMA regulation is made to only help the brokers.
1. More equity required to open a live trading account = fewer newbies.
2. Fewer newbie traders = less customer support needed = less money paid for salaries.
3. Making other traders register as professional trades is good for the brokers because:
 - They (the brokers) are no longer obligated to provide negative balance protection.
 - The investor compensation funds do not apply for professional traders.
 - The broker is no longer obligated to provide best order execution conditions = more slippage.
4. Lowering the margin has nothing to do with protecting the little trader. It's a way to drive them away from trading (with a regulated broker).
5. It will make small traders to go overseas OR register with unregulated brokers which is an opportunity for them to get scammed by bucket shops.
That is why the big brokers are not making a fuss. The new regulation is made for them. Not to protect the traders.
Lowering the leverage has nothing to do with the risk a trader is taking.
If ESMA really wants to protect the traders - make them learn risk management.
Risk management =/= lower leverage.
That's just my opinion and nobody is obligated to agree.

CarlosMZ (CarlosMZ)
Aug 14 2018 at 10:22
55 posts
I have to agree with Pipperidge on this one.
The leverage cap does not mean you will lose less - it means that you have to deposit more to trade the same amounts which results in the same losses, only faster because you can't keep your margin high enough and will get closed out faster.
This may not affect all traders the same, because the ones that used to trade ~50:1 leverage will have a bit of an improvement actually, but only for major pairs where the leverage is 30:1 because the margin levels have been dropped as well from 100% to 50%.
50:1 -> 30:1 and combined with 100% -> 50% this is a slight improvement. Granted, you will have to add some funds to your account in order to trader the same volumes but the ones that used to trader >60:1 are screwed by the new ESMA cap.

togr (togr)
Aug 14 2018 at 10:38
4862 posts
Pipperidge posted:
@NotyaBusiness
The way I see it - the ESMA regulation is made to only help the brokers.
1. More equity required to open a live trading account = fewer newbies.
2. Fewer newbie traders = less customer support needed = less money paid for salaries.
3. Making other traders register as professional trades is good for the brokers because:
 - They (the brokers) are no longer obligated to provide negative balance protection.
 - The investor compensation funds do not apply for professional traders.
 - The broker is no longer obligated to provide best order execution conditions = more slippage.
4. Lowering the margin has nothing to do with protecting the little trader. It's a way to drive them away from trading (with a regulated broker).
5. It will make small traders to go overseas OR register with unregulated brokers which is an opportunity for them to get scammed by bucket shops.
That is why the big brokers are not making a fuss. The new regulation is made for them. Not to protect the traders.
Lowering the leverage has nothing to do with the risk a trader is taking.
If ESMA really wants to protect the traders - make them learn risk management.
Risk management =/= lower leverage.
That's just my opinion and nobody is obligated to agree.


Nope. ESMA is disaster for brokers.
I have a system that trades a lot with 4k deposit. So broker made like $300 just on spreads from trading. Now I have to either decrease my trading activity 20x times or leave the broker.

LeadPellet
Aug 14 2018 at 10:40
11 posts
The way I see it, lowering the leverage will just mean that beginners will just deposit more in to their account (which they will then lose). So this is indeed better for the broker.

togr (togr)
Aug 14 2018 at 10:46
4862 posts
CarlosMZ posted:
I have to agree with Pipperidge on this one.
The leverage cap does not mean you will lose less - it means that you have to deposit more to trade the same amounts which results in the same losses, only faster because you can't keep your margin high enough and will get closed out faster.
This may not affect all traders the same, because the ones that used to trade ~50:1 leverage will have a bit of an improvement actually, but only for major pairs where the leverage is 30:1 because the margin levels have been dropped as well from 100% to 50%.
50:1 -> 30:1 and combined with 100% -> 50% this is a slight improvement. Granted, you will have to add some funds to your account in order to trader the same volumes but the ones that used to trader >60:1 are screwed by the new ESMA cap.


Do you realize that ....add some funds to your account in order to trader the same volumes....
Does mean you will make a lot lower profit.
Like if I made $400 profit on $4000 it was 10% a month.
If I made $400 profit on 40,000 it is 1 percent a month.

TiffanyK (TiffanyK)
Aug 14 2018 at 14:54
427 posts
I think it will affect the brokers negatively as well, as Pipperidge says, 'Lowering the margin has nothing to do with protecting the little trader. It's a way to drive them away from trading (with a regulated broker).'
Regulated brokers will lose their retail clients.

Accept the loss as experience
TeoJonas
Aug 16 2018 at 08:18
6 posts


Nope. ESMA is disaster for brokers.
I have a system that trades a lot with 4k deposit. So broker made like $300 just on spreads from trading. Now I have to either decrease my trading activity 20x times or leave the broker.
Agree with and i can understand it but I don't understand why ESMA is choking traders.

Pipperidge
Aug 16 2018 at 09:49
13 posts
togr posted:
Do you realize that ....add some funds to your account in order to trader the same volumes....
Does mean you will make a lot lower profit.
Like if I made $400 profit on $4000 it was 10% a month.
If I made $400 profit on 40,000 it is 1 percent a month.


But the broker makes the same amount of commissions! If not more, even.

TeoJonas posted:


Nope. ESMA is disaster for brokers.
I have a system that trades a lot with 4k deposit. So broker made like $300 just on spreads from trading. Now I have to either decrease my trading activity 20x times or leave the broker.
Agree with and i can understand it but I don't understand why ESMA is choking traders.

The answer is in your own post! - 'Now I have to either decrease my trading activity 20x times or leave the broker.'

ESMA is bad for small brokers and DMA/STP brokers. The Market Marker brokers are only going to benefit from the new rules.

Let me try to explain why - with a lower leverage to trade the same volumes you must deposit more of your own cash. Then when you lose - the market maker makes more profits.
With DMA/STP brokers - they make money only from the number of orders open an closed (i.e - commissions). Which when the small traders leave = less profit for the broker.


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