Back in March, the European Securities and Markets Authority (ESMA) announced a series of measures to provide more protection to clients trading leveraged products, like CFDs. These measures came into effect on 1 August.
So, what are the new measures?
- Leverage limits on new positions
- Maintenance margins, meaning accounts may not go beyond 100% utilisation.
- Negative balance protection
- Ability to incentivise trading is restricted
- Risk warning must be included in all promotional material
- No more distribution or marketing of any binary options
Capital.com CEO Ivan Gowan shares his thoughts on the measures and impact of the new regulation with UK Investor Magazine. You can hear the full interview in the podcast here.
With this in mind, Ivan believes the new regulation is here to address a number of issues that came up with some of the smaller operators in Europe. In other words, the new measures will force a standard of best practices across Europe – even if most of these were already in place at Capital.com.
We find that 80% of our client base will remain within those leverage levels recommendations. There are also those, albeit not professionals, that want more leverage and welcome the ability to choose.
Negative balance protection speaks for it itself in terms of consumer protection. ESMA wants to minimize the risk of consumers going into overwhelming debt.
Trading should be approached with due care, and with as much risk awareness as possible. On that note, risk warnings were already being included in all outbound marketing content. We just updated them to ESMA recommendations. Such deposit incentives were never offered at Capital.com.
This measure will better serve those taking their first steps in trading. Capital.com’s emphasis on education – with tools like the Investmate app, video tutorials, daily market updates and articles on biases – will help those with less knowledge and experience to trade smarter.
Overall, the industry is shifting towards a normalisation of licensed operators. We have the example of both Facebook and Google that are tightening control on those wanting to advertise from offshore locations. The reasoning is that companies should be licensed to operate in the market they’re advertising in.
The whole industry stands to gain from better protection measures and increased transparency in trading.
These measures are a great starting point for retail investors. Still, truly responsible CFD trading providers should be focusing on educating and informing their customers, helping them to further improve their trading skills. This help should include giving insight on the markets they are actually interested in, rather than blinding them with random commentary. We want our users to enjoy trading CFDs over the long term. Capital.com believe that the best way to ensure this is by delivering a great user experience and helping them to trade successfully.