The state of the binary options market after the ban ESMA

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How does the binary options market feel after the ESMA ban

This year there was a significant event with a minus sign for traders in financial contracts. The European Securities Market Authority (ESMA), which is committed to monitoring the OTC market, has banned binary options brokers in the EU. In addition, a number of restrictions received Forex-brokers and dealing centers.

The ESMA directive consists of several guidelines:

● limitation of leverage;

● entering a standard for risk warning;

● open access to the statistics of profit / loss traders;

● prohibition of advertising;

● prohibition of bonuses and promotions;

● Protect traders from negative balance.

Restrictive measures for brokers from ESMA

The first measures to restrict over-the-counter trading were taken in July, and at the end of the summer, the regulator extended bans until the end of the year. According to the ESMA decree, binary options advertising is now banned in the EU, and CFD trading has received new leverage limits. For example, trading in major currency instruments in the European Union is now limited to 1:30 leverage. Brokers were also obliged to warn about the risks of a single standard and provide statistics on how many traders lose money on trading in financial contracts.

The ESMA decision has been brewing for a long time — trading in financial instruments has always been fraught with risks, so the main task of the service was to protect traders from large financial losses. Dissatisfaction with this decision was expressed by both brokerage companies and traders who successfully earned on trading contracts.

Restrictions on trading affected the so-called retail traders, while clients with the status of “professional” can still trade in financial assets. At the same time, traders are guaranteed protection against negative balance. In such conditions, non-European trading platforms, which are not covered by the ESMA rules, have come to the fore.

One of the points of the ESMA prohibits the promotion of clients of companies in the form of bonuses – if earlier, registering with one of the European brokers, users could receive an addition to the deposit, now it has become unavailable. It was also introduced a taboo on other customer incentives.

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The ESMA restrictions bypassed countries where the financial contract market is regulated by a local authority. In Europe, this country is Switzerland, where strict regulatory rules have been in place for a long time, and companies entering the Swiss market must meet high requirements.

The ban is temporary in nature – at the moment it is valid until the end of the current year. At the same time, representatives of brokerage companies are negotiating with the department in order to achieve relaxation in restrictions and reach a consensus on the issue of providing services to traders in trading certain types of contracts.

The introduction of a minimum expiration of contracts of 90 days is considered as laxative measures, each trading instrument must comply with the European Directive (2003/71 / EC), and for companies providing brokerage services there should be no additional profit from transactions other than the established commission.

How to continue to trade contracts after the ban ESMA

Many of the bidders who reside in the EU do not want to put up with the situation, and therefore are looking for opportunities to trade without restrictions. But, as you know, the medal has two sides – on one side, the actions of the regulator are aimed at ensuring that residents of European countries do not lose money in the industry; on the other hand, tight restrictions push traders into unregulated markets, where the risk of losing money is even higher.

Brokers do not stand aside, and by feasible methods are trying to return customers. Some declare that they are not registered in the Eurozone, so the ESMA jurisdiction does not apply to them. Others hint that the regulator directive can be circumvented if desired. However, it is the first option that is most preferable, since among non-European brokers there are worthy representatives who have been working in the market for several years.

These include trading platforms that are legally based outside the European Union. These include the company Barium. The company began its activities in 2020, and over the years has achieved the location of users from Russia and the CIS countries. The fact is that this is the first trading platform focused on the Russian-speaking audience.

Binarium has loyal terms of trade. The minimum deposit is only $ 10, and the nominal value of one order starts at $ 1. To obtain a special status, you need to replenish the balance in the amount of more than $ 200, in this case, the trader will have access to special applications – the trading room and “Trends”.

Signals from a professional trader are given in the trading room and analytical reports are provided. The “Trends” application allows you to detect emerging market trends in the background, with one click to go to the asset chart and make profitable deals.

Since the Russian broker Binarium does not submit to the jurisdiction of the European Union, it is not subject to a restrictive ban on shares and bonuses. Therefore, each new client can receive a deposit bonus of 100%. In addition, Binarium arranges promotions for existing customers, for example, free tournaments with a real cash prize pool.

The withdrawal of funds is carried out on the cards of banks in Russia and the CIS countries, as well as on popular payment systems. The minimum amount for withdrawal starts at $ 5, and the transfer time from the time of the application is about an hour (for confirmed accounts).

Trading in financial contracts carries with it the risk of losing capital. This was the reason for the introduction of bans on this type of instrument in Europe. If trading is not approached seriously and opening positions at random, the loss of money will be a matter of time. But with trading skills and using indicator strategies, traders make profitable trades and get a steady income.

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

The state of the binary options market after the ban ESMA

The European Securities and Markets Authority (ESMA) has agreed on measures on the provision of contracts for differences (CFDs) and binary options to retail investors in the European Union (EU).

The agreed measures include:

1. Binary Options – a prohibition on the marketing, distribution or sale of binary options to retail investors; and

2. Contracts for Differences – a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.

In accordance with MiFIR, ESMA can only introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will consider the need to extend the intervention measures for a further three months.

Significant Investor Protection Concern

ESMA, along with National Competent Authorities (NCAs), concluded that there exists a significant investor protection concern in relation to CFDs and binary options offered to retail investors. This is due to their complexity and lack of transparency; the particular features of CFDs – excessive leverage – and binary options – structural expected negative return and embedded conflict of interest between providers and their clients; the disparity between the expected return and the risk of loss; and issues related to their marketing and distribution.

NCAs’ analyses on CFD trading across different EU jurisdictions shows that 74-89% of retail accounts typically lose money on their investments, with average losses per client ranging from €1,600 to €29,000. NCAs’ analyses for binary options also found consistent losses on retail clients’ accounts.

These measures were agreed by ESMA’s Board of Supervisors on 23 March 2020.

Steven Maijoor, Chair, said:

“The agreed measures ESMA is announcing today will guarantee greater investor protection across the EU by ensuring a common minimum level of protection for retail investors. The new measures on CFDs will for the first time ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide a risk warning for investors. For binary options, the prohibition we are announcing is needed to protect investors due to the products’ characteristics.

“The combination of the promise of high returns, easy-to-trade digital platforms, in an environment of historical low interest rates has created an offer that appeals to retail investors. However, the inherent complexity of the products and their excessive leverage – in the case of CFDs – has resulted in significant losses for retail investors.

“A pan-EU approach is required given the cross-border nature of these products, and ESMA’s intervention is the most appropriate and efficient tool to address this major investor protection issue.”

CFDs – agreed measures

The product intervention measures ESMA has agreed under Article 40 of the Markets in Financial Instruments Regulation include:

1. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:

· 30:1 for major currency pairs;

· 20:1 for non-major currency pairs, gold and major indices;

· 10:1 for commodities other than gold and non-major equity indices;

· 5:1 for individual equities and other reference values;

· 2:1 for cryptocurrencies;

2. A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;

3. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4. A restriction on the incentives offered to trade CFDs; and

5. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

Next steps

ESMA intends to adopt these measures in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website. The measures will then be published in the Official Journal of the EU (OJ) and will start to apply one month, for binary options, and two months, for CFDs, after their publication in the OJ.

The state of the binary options market after the ban ESMA

The European Securities and Markets Authority (ESMA) has formally adopted new measures on the provision of contracts for differences (CFDs) and binary options to retail investors.

The measures have been published in the Official Journal of the European Union (OJ) today. They will start to apply from 2 July 2020 for binary options and from 1 August 2020 for CFDs and will apply as follows:

1. Binary Options (from 2 July 2020) – a prohibition on the marketing, distribution or sale of binary options to retail investors; and

2. Contracts for Differences (from 1 August 2020) – a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.

ESMA has adopted these measures in the official languages of the EU and they will remain in force for a period of three months from the date of application.

Steven Maijoor, Chair, said:

“The measures ESMA has taken today are a significant step towards greater investor protection in the EU. The new measures on CFDs will, for the first time, ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide understandable risk warnings for investors.

“ESMA’s prohibition on the marketing, distribution or sale of binary options to retail investors addresses the significant investor protection concerns caused by the characteristics of this product.

“This pan-EU approach is the most appropriate way to address this major investor protection issue. NCAs will monitor the impact of these measures during their application and will assess, with ESMA, what next steps are required.”

CFDs – measures from 1 August 2020

The product intervention measures ESMA has adopted under Article 40 of the Markets in Financial Instruments Regulation include:

1. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:

· 30:1 for major currency pairs;

· 20:1 for non-major currency pairs, gold and major indices;

· 10:1 for commodities other than gold and non-major equity indices;

· 5:1 for individual equities and other reference values;

· 2:1 for cryptocurrencies;

2. A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;

3. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4. A restriction on the incentives offered to trade CFDs; and

5. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

Next steps

MiFIR gives ESMA the power to introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will review the product intervention measures and consider the need to extend them for a further three months.

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