How to trade the OTC market under the new ESMA directive?

Global Group: The only way is to obtain the certificate of a professional trader.

On July 1, 2018, the European regulator ESMA introduced new “tough” rules for trading on OTC market, justifying this with the desire to “secure” trading. The care of the supervisory authority about their “wards” is understandable, but not all industry participants want to feel this “care” on themselves.

Will it be profitable to trade over-the-counter assets in Europe now? – This is the question that is of concern to many now. And the answer to it is not entirely obvious, because not only brokers, but also traders will have to part with the working model that has been familiar for many years. A serious problem may be the fact that European traders, despite the risks, will begin to leave for “overseas” jurisdictions. There are also concerns that the “tightening of nuts” may reduce the overall attractiveness of the over-the-counter sector, which previously attracted investors precisely because of its wide trading opportunities.

Against the backdrop of impending changes, non-European brokers have already begun to actively declare their, so to speak, “foreign citizenship”. As for residents, some spoke about binary options trading, namely, that this tool can be traded in “circumvention” of ESMA guidelines.

Changes to ESMA policies have been published in the Official Journal of the European Union. According to the main provisions, binary options trading will be prohibited on the territory of the European Union from July 2, 2018, and brokers offering Forex and CFD contract services will be able to continue their activities only until August 1, 2018. After that, everyone will have to “play” according to the new ESMA rules, the following conditions will specifically change:

• 1: 5 leverage on stocks,

• 1: 2 cryptocurrency leverage,

• 1:30 leverage for currency pairs (basic),

• 1:20 leverage for currency pairs (non-core),

• 1:10 leverage on goods and indices (non-core).

Brokerage companies must also comply with a number of requirements: to guarantee protection against negative balance to retail customers, not to neglect the rule of 50% margin closure, not to offer any “stimulants” of trading (most often these are bonuses), use only standard on their websites risk warning, as well as statistics of traders, if necessary, should be provided to customers.

A complete ban affected only binary options – you cannot offer or advertise this asset.

How to trade the OTC market under the new ESMA directive?

“Any innovation has its pros and cons. To begin with, ESMA announced a ban on trading binary options in any form. But this does not mean a total ban. It will concern only those traders who do not yet have an official certificate confirming the status of a professional market participant. Regarding the fact that ESMA urged brokers to provide traders with protection from the negative balance – for us, as software developers, the protection of the trader is a priority, therefore we took this requirement positively. Even without ESMA, all our broker partners provide their customers with maximum protection,” commented the Global Group.

“Of course, the innovations of the regulator will be perceived ambiguously by traders. For example, not all binary options traders have a certificate of a professional market participant. First of all, the ESMA directive will create problems for them. We’ll have to look for new tools, rebuild strategies, some of them will have to be excluded altogether. All this will take a lot of time, strength, nerves. In addition, you have to take a lot of risks. Let’s not forget that the financial market is a rather risky type of investment. To some extent, ESMA will deprive traders of some of their financial freedom.”
“In any case, we believe that any ESMA directives do not need to be perceived as an apocalypse, even if they severely limit the possibilities of the OTC market. What to do in order not to fall under restrictions? The only way is to obtain the certificate of a professional trader,”the Global Group came to this conclusion.

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